There is no question that our big money sportspeople are exposed to paying big money tax. This is why they live in tax havens, establish charitable foundations and set up complex corporate webs.
What about the Tradie who plays footy on the weekends and earns some nice handy cash doing so? Surely this is just a bit of “funny money”… and no business of the Australian Taxation Office (ATO)?
Be careful, the ATO may not agree.
A blind eye may largely have been turned to the undeclared income of semi-professional sportspeople, but it cannot be assumed that this will always be the case.
The obligations of Clubs
Most sporting clubs will be either incorporated associations or companies limited by guarantee – that is, they will have a “not for profit” purpose. Accordingly, they will be generally exempt from ordinary income tax on their own income. However, when it comes to paying players, coaches or administrators the treatment should be no different to that of any other business in Australia where an employer/employee relationship exists. This means that clubs will be required to comply with their legal obligations in relation to PAYG Tax and Superannuation.
For your local sporting club, this means that when they pay their players and coaches they are ordinarily required to withhold tax from their payments. The Superannuation Guarantee Levy (currently 9.5%) may also be payable with respect to any player considered to be an employee if they receive in excess of $450.00 gross in any calendar month.
Clubs obliged to withhold PAYG Tax should also be complying with their ATO reporting obligations.
The club may be relieved from the obligation to withhold PAYG Tax if the player signs and submits to the club a “Statement by a Supplier” form stating that they are playing the sport for a “private recreational pursuit or hobby”. Whether this can safely be argued by a player depends largely upon the amount they are paid. If the payment substantially exceeds the costs that they are incurring in pursuing the sport, then the ATO may take an opposing view.
A club should not accept a “Statement by a Supplier” without carefully considering each case. If not withholding tax, the club should carefully document the reasons behind its decision not to do so.
The exposure of Players
Players may be liable to pay tax not only on direct payments made to them, but also may need to declare awards and prizes which are readily convertible into cash.
Expenses paid by the club on behalf of players such as private health insurance fees may also be taxable.
Players will be deemed to be employees and not engaged in a “private recreational pursuit or hobby” if utilising their skills in a systematic, regular and/or organised manner with a view to obtaining assessable income. The more they are paid, the more likely they will be deemed employees and their income subjected to taxation.
There are a number of common deductions available to sports people including:
- Costs incurred in travelling to training, matches and competitions, appointments with medical professionals etc;
- Player association fees;
- Membership fees;
- Entrance fees;
- Gym membership fees;
- Depreciation on training equipment;
- Maintenance and repairs of training equipment;
- Massage, physiotherapy and other fees related to their physical condition;
- Expenses incurred in attending training camps; and
- Purchase of sporting clothing, boots and protective gear.
Each taxpayer can claim up to $300.00 in work related expenses without having to provide verification, but any expenses claimed in excess of this amount will need to be supported by documentation.
If a player’s income is substantial, it may be worth them considering applying income averaging concessions which will effectively “even out” the tax payable on sporting income over a five year period. This can be of particular benefit to players who have minimal non-sporting income and their sporting remuneration fluctuates considerably between years.
Clubs and players should be aware that failing to comply with their obligations may result in not only being required to back pay tax, but also the imposition of penalties and interest.
Do not assume because it is “only community sport” that the ATO will “look the other way”.
Harris Lieberman does not provide tax advice (if you need this advice, consult a tax professional), but we do advise many community organisations and we love sport. If any legal issues arise from your involvement with a community organisation, we are happy to help.