How is your Fame Taxed? Navigating the ATO Tax Implications of Fame
Updated: May 1
This article provides an update on the draft ATO tax determination that seeks to limit the way influencers exploit their image.
As the market for influencer and celebrity services grows to new heights, the Australian regulatory landscape is starting to grow with it. As discussed in our previous article, watchdogs such as the ACCC have declared their intention in 2023 to examine competition and consumer issues in the provision of social media services and advertisements audiences. In October last year, the Australian Taxation Office (ATO) joined a number of other regulators in focusing attention on the sector by examining the activities of ‘individuals with fame’ in the sphere of taxation.
The ATO released draft tax determination, ‘Draft TD 2022/D3 Income tax: use of an individual’s fame by related entities’ for consultation. The determination is concerned with the ways celebrities, influencers and other public figures exploit their image and structure the return of their endorsement or promotional income. As an example, tax arrangements targeted by the determination may reflect the following structure:
An influencer, public figure, or ‘someone with fame’ establishes and enters into an agreement with a related entity. Examples of such entities include a company or a family trust.
The related entity subsequently authorises third-party entities, such as a consumer brand, to use or license the influencer’s fame for payment. The determination specifies that the ATO is concerned with income gained from the use of an individual’s fame, as opposed to income generated from services. Examples of ‘fame’ for this purpose relates to use of an individual’s image, reputation, or identity. To illustrate this distinction, the use of an individual’s image on a product’s packaging would be classified as the exploitation of the person’s fame. Conversely, an agreement for that individual to appear at a promotional event for the product would be classified as a fee for services.
The income generated from the use or license of an individual’s fame is classified as the earnings of the related entity for tax treatment, and subsequently transferred to the individual (usually at a lower tax rate).
The draft determination confirms that while an individual’s fame can be exploited for payment, related entities are incapable of authorising such a transaction. This is because under Australian law, an individual with fame has no property rights in that fame. As such, an individual cannot ‘vest or transfer’ any property in their fame to the related entity for the purposes of the above arrangement. This can be contrasted against the transfer of an individual’s intellectual property, (such as a trade marks, for example), to an entity for payment.
Instead, income gained from the use of an influencer’s fame will be classified as ordinary income for the individual, and assessable for taxation in the relevant income year under section 6-5 of the Income Tax Assessment Act 1997. As the related entity cannot derive income by authorising the use of property they are not vested with (ie. an individual’s fame), any income gained by the related entity for such use would be perceived as being applied or dealt with on the individual’s behalf.
Public consultation for the draft determination closed on 4 November 2022. If progressed to final determination, the ATO’s ruling is expected to apply to income years before and after the date of issue. As such, pre-existing tax arrangements that reflect the structure discussed above may be subject to the changes, unless the arrangements were established in reliance on draft determination ‘PCG 2017/D11 Tax treatment of payments for use and exploitation of a professional sportsperson’s ‘public fame’ or ‘image’’, which was withdrawn in August 2018.
If you are concerned that the draft determination might adversely affect your or your businesses tax arrangements or wish to generally understand the rapidly changing regulations that impact influencers, contact the media law team at BlackBay lawyers for a consultation.