In a significant decision, the High Court of Australia has overturned the Full Federal Court and ruled that management fees paid by professional sportspersons to sports managers are deductible.

The case considered two professional sportspersons; Mark Riddell (current NRL player) and David Spriggs (former AFL player) and the tax treatment of the payments they made to their respective sports managers. Both players actively sought sources of income outside their respective club contracts. The High Court considered that both players were in the ‘business’ of exploiting their sporting prowess and associated celebrity and the management fees were incurred in gaining their assessable income derived through these activities (payments from their club as well as payments from other sources).

This decision should allow current professional sportspersons (who go about exploiting their sporting talents and celebrity in a similar fashion to Spriggs and Riddell) to claim a deduction for management fees paid.

In its decision, the High Court stated:

“Looking at their activities as a whole, the appellants (Spriggs and Riddell) were engaged in the business of commercially exploiting their sporting prowess and associated celebrity for a limited period. Those businesses were well established before the management fees were incurred. Neither of the appellants was exclusively or simply an employee of his club. They each exploited their sporting prowess and associated celebrity with different clubs over the years during which they played in the AFL Competition and the NRL Competition, respectively. There was a synergy between playing activities and non-playing activities, each of which was an income-producing activity.”

“There existed here sufficient connection between the outgoing, the management fees, and the gaining or producing of assessable income from the business of exploiting sporting prowess and associated celebrity, for the management fees to be deductible under s 8-1(1)(a) of the ITAA. They were incurred in the course of gaining or producing income from the appellants' respective businesses.”

More information:
Spriggs v Commissioner of Taxation; Riddell v Commissioner of Taxation [2009] HCA 22 (18 June 2009)
Further analysis will be provided in the Knowledge Shop Tax Round Up.