ATO and taxing fame: There are changes coming

Gold Coast social media influences beware – the Australian Taxation Office (ATO) is changing up how fame and image will be taxed. These changes will affect sportspeople, celebrities, media personalities and influencers.

If you are a person who gains income from your image or fame, you should get in touch with a gold coast accountant, as the way that the ATO thinks that you should be taxed may be changing with a new draft determination that is set to come into effect on the 1st of July 2023.

It is common place in modern society for famous people to try to transfer the rights for the use of their image, name, likeness, reputation or identity to a related entity like a trust or a company. Once transferred, this related entity then manages these rights and aims to generate income through the use of names, images and fame being associated with promotion of products or services. A great example of this is a famous person’s image being used on product packaging or a famous person putting their recommendation to the use of a service. According to practicing accountants, the aim of transferring the rights to a company or trust is to enable the income gained to be taxed at a lower rate of tax or to distribute tax amongst related parties who might be able to receive lower tax rates.

So what will change?

TD 2022/D3 (the new draft determination) specifically deals with the right to use image and fame. The argument from the ATO is that a person doesn’t have proprietary right to their celebrity, insinuating that attempting to transfer this right to another entity or business would not be legally effective. To put this in simpler terms, the ATO is trying to say that you cannot separate fame from a person, as it us held by the individual regardless of any business arrangements. What this means is that any income that comes from promoting products or services because of fame (even if the income is received by a business or related entity) will be treated as if it was collected on behalf of the individual and hence taxed to the individual. So bookkeepers on the Gold Coast beware!

This means that if a business is set up to just manage income based on fame, it would be a lot more difficult for the business to claim any deductions for expenses related to the business.

There are some circumstances where this new change from the ATO doesn’t apply. For example where a celebrity is engaged to provide services – such as being booked by a related entity to attend an event like a product launch where the fees paid can potentially be treated as income of the business that has been set up for tax purposes. In this situation or situations like it, it is important for individuals managing a businesses bookkeeping to consider the application of anti-avoidance rules in Part IVA and personal services income rules. The ATO’s position on this is that income relating to personal services provided by an individual should be taxed to that individual.

The ATO’s new position on fame and tax will apply retrospectively as well as to income made in the future. The ATO has indicated that a transitional approach will apply for taxpayers who entered into an arrangement before the 5th of October 2022 where the arrangement was consistent with the ‘safe harbour’ approach set out in PCG 2017/D11. In this circumstance the ATO’s new approach will apply to income generated from and after the 1st of July 2023.

If you are based on the Gold Coast and these changes could affect your income taxes and related entities that you have set up – get in touch with MB Accounting for a chat to establish the best way for you to move forward with your business set-up and tax.