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With the Games of the XXXI Olympiad in Rio just around the corner, we would like to offer our support to our semi-professional and professional athletes by providing them with information in relation to the tax environment in which they operate.
The Australian Government recognises that sportspeople may not be able to generate a consistent level of income from year to year, as they may compete on an infrequent basis or are limited to the period they are physically capable of playing sport as a profession.
As a result, Australian taxation law provides concessionary tax treatment for the income athletes derive from their sports profession through ‘Special Professional Income Averaging’ (SPIA). Additionally, the Australian Taxation Office (ATO) makes allowances for athletes to claim expenses unique to their profession as work-related deductions. This article will discuss SPIA and its potential benefits, whilst outlining common expenses athletes may claim as deductions.
When an individual’s income fluctuates yearly, higher tax rates are applied to high income years, whilst lower tax rates are applied for low income years which can cause a tax disadvantage to the taxpayer. Special Professional Income Averaging (SPIA) allows an individual (in certain professions, including sportspersons) to average their income over a four year rolling period, which is likely to result in lower tax rates for special professionals whose income tends to rise and fall. This concessionary tax treatment ensures an individual is not paying additional tax due to the irregular nature of their work or income.
For example, an individual who earns $70,000 per year will accumulate a total income of $2,450,000 over a 35 year career. If the income was received evenly over a 35 year career (i.e. $70,000 per year), it could raise a total tax payable of approximately $550,000. In contrast, a person who earns $2,450,000 in one year could attract a tax payable of approximately $1,200,000, consequently paying an additional $650,000 in tax.
The tax concession can allow a sportsperson to apply lower tax rates to their sports derived income, using a formula determined by the ATO, therefore lowering their overall tax liability. In order to take advantage of SPIA, the sportsperson must be an Australian resident for tax purposes, compete in sporting activities where they primarily use physical prowess, physical strength or physical stamina and earn a taxable income of more than $2,500 in the financial year from those activities.
We note that SPIA is also available for inventors, artists, production associates and performers. SPIA is not available for coaches, referees, umpires, administrators of sport or support staff.
All taxpayers are entitled to claim deductions for expenses incurred which relate to their income earnt during the financial year. The ATO sets out that travelling from home to work and vice-versa is not considered to be work-related travel, therefore cannot usually be claimed as a deduction.
However, tax rulings have determined that sportspersons are exempt and may be eligible to claim the following journeys as a deduction, to and from:
Sportspersons can claim these motor vehicle expenses using either the cents per kilometre or logbook methods.
In addition, a sportsperson may be eligible to claim the following expenses as deductions:
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.