Taxing Fame: The ATO’s U-Turn

The ATO is warning celebrities, media personalities, influencers, and public figures to take notice of changes in the way their income will be taxed, effective from the 1st of July 2023, according to their new draft determination (TD 2022/D3).

A common practice for celebrities is to transfer their image, name, and likeness rights to a related entity, often for tax purposes. This entity could be a trust or company that manages the celebrity’s rights and any income generated directly from monetizing their fame. An example of this monetization would be if a social media influencer was paid to collaborate with a brand to create a product, using their image, likeness, or identity. One reason that a famous person might enlist the use of a trust or company, might be to lower the tax rate or allow their income to be eligible for a reduced rate of tax.

The ATO argues that the proprietary right to fame does not belong to the individual, as it is not separate from their personal identity. This means that regardless of whether the celebrity has a trust or company collecting their income, it will still be taxed on an individual basis. Therefore, it would be a challenge for the related entity to claim deductions on expenses if there was no income being derived in its own right. It is strongly advised in these types of situations to consider the application of the personal services income rules, along with the general anti-avoidance rules in Part IVA.

Situations where this restructured approach does not apply include agreements where the individual is providing services to a related party. An example of this would be a famous sportsperson being paid to attend an opening for a new stadium, or the launch of a sports store. For tax purposes, the ATO has allowed for these types of payments to be allocated to the entity or trust. Ultimately, the ATO feels that any income that the individual derives from their own services should be taxed based on a personal basis, rather than as a company, entity, or trust.

It is important to note that if the taxpayer was consistent with the safe harbour approach in PCG 2017/D11 before the 5th of October 2022, the ATO has communicated that a transitional approach will apply, and will be effective from the 1st of July 2023. If this is not the case, the new legislation will apply to all retrospective and future income.

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