By Steven Roberts and Rhonda Cooper
Musicians, celebrities and other ‘influencers’ in Australia are to be forced to pay tax on income made through sponsorships and endorsements including non-cash benefits as the ‘Instagram Tax’ is introduced by the Government.
The Australian Government’s announcement that high profile individuals will no longer be able to take advantage of lower tax rates by licensing their fame or image to another entity has caught many people totally unawares. The proposed changes would see celebrities, sportspeople, internet personalities and entertainers pay tax on anything that can be attributable to a person’s reputation or appearance – including their name, image, likeness, identity, reputation and signature, irrespective of their occupation or how they became famous.
As the law currently stands in Australia, high profile individuals, such as celebrities, sportspeople, internet personalities and entertainers often earn income from a number of sources, including salary and wage, bonuses, business and investment income. However, when individuals begin to develop fame and a public following, they can also earn income from the use of their fame or image. This exploitation can consist of advertisements, sponsorships, including wearing associated brand products, public appearances and the promotion of products.
Income from the exploitation of an individual’s fame or image is generally taxed consistently with other forms of income, provided it is earned by the individual. However, individuals with fame or image have been able to licence their image rights to another entity, such as a company or a trust. Any income derived from the use of their image or fame goes to that entity rather than to the individual.
The Government is concerned that fame or image licensing structures may have been established to provide income splitting benefits to high profile individuals that may not be obtainable by other individuals. These benefits have created opportunities for high profile individuals to take advantage of different tax rates and avoid paying tax at their marginal rate.
Having celebrities such as actors and sportspeople lend their famous names, beautiful faces and sculpted bodies to the promotion of a brand or product is nothing new. However, with the ever-increasing importance of social media to many business’ bottom lines, brand collaborations with big-name celebrities and #sponsored endorsements by ‘influencers’ are on the rise. Along with the more traditional brand of celebrities, an increasing number of ‘Insta-famous’ bloggers and influencers are now making money by spruiking a wide range of products to their legions of impressionable followers.
With the proposed changes this is bad news for any Insta-famous celebs hoping that their freebies won’t be counted as part of their income tax. From 1 July 2019 onwards, all income (including all non-cash benefits) will be treated as part of the individual’s assessable income and will be taxed accordingly. It is likely that, at least for the majority of celebrities impacted by the change, the result will be an increase in both the amount to be taxed and the tax rate. However, due to the current inability to measure the extent of this type of income, the Government considers that the exact revenue implications of this change are “unquantifiable”
Presuming the law is passed by parliament in time, celebrities including sportspeople will have until 1 July 2019 to review their business contractual arrangements to see what the implications of this announcement will be on their business and other financial affairs.
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