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  • Subject Name : Taxation Law

Federal Commissioner of Taxation v Stone 2005 ATC 4234

Brief Facts

Joanna stone was one of the athletes who was playing for Australia Olympic and had represented the country in various international competition including the Olympic Games. Stone was also employed in the police force in Queensland. However, she had retired from the sport due to injuries caused during the game and now working as a full-time policewoman. Stone had received various prices, scholarships, monetary government grants, and various other appearance fees throughout her journey being an athlete. It must be noticed that before the year 1999, the amount of these rewards for relatively lower and not used to be treated as taxable income.

In the year 1999, Stone had assembled an income of $39, 832 which was her salary as working for Queensland police force. The tax return which she received was a total of $136,448 which was inclusive of the money gained from being an athlete. However, this amount must not be reported as an assessable income as this had included the price money from the Australian Olympic Committee as well as from the Queensland Academy of sport. In the light of the present facts and circumstances of the case, the Commissioner had treated the entire amount gained by Stone as assessable income. Therefore the dispute came into the Australian tax office.


The major issue of the present case is to determine the following.

  • Whether the amount received by Stone can be categorized under ordinary concepts of section 6 and 5 of the income tax assessment Act 1997 as the same has been earn during carrying a business.

  • Whether the loss had been incurred to Stone under section 88 of the income tax assessment Act 1997.

  • Weather in this present case a division of 35 of income tax assessment act will be applied for different the loss.

  • Whether the exception provided under subsection 35-10(4) of the income tax assessment act regarding the professional arts business will be applied in this present case or not.

  • In this present case, the court had also analyzed as to whether Stone was performing business as a professional athlete and what can be categorized as ordinary receipt under such case.

The ruling of the case

  • Parts 3-1 and 3-3 of the ITAA 1997

  • Section 4 of ITAA

  • Section 6 of ITAA 1997

The ruling of the income tax assessment act applies to the professional artist to understand the purpose of carrying on activity as professional arts business under subsection 35 of the act.


Test of understanding the meaning of "carrying on business" in regards to a professional sportsperson was considered before the Commissioner of taxation1. The analysis was drawn by understanding the requirement of the existence of business as to whether there is a need for conducting a diverse survey to analyze the scrutiny of activities of various taxpayers. In the present case, the court had interpreted section 6-5 of the Income Tax Assessment Act 1997 ( ITAA) 1997 to understand as to what will be required under ordinary assessable income for other ordinary receipts of carrying on any other business activity. There is no term related to business that exists under section 6-5 of the Income Tax Assessment Act 1997 ( ITAA) 1997 and therefore the decision of the high court in the matter of Stone had considered the application of section 6-5. The consideration of the section was made to understand the business of Stone as to whether she was caring for it as a professional sportsperson or not.

The Contention of Commissioner in The Present Case

The Commissioner argued that all the money received by Stone, during the year 1999 will be categorized under ordinary assessable income under section 6-5 of the Act irrespective of the fact that the money had been provided by the Australian Olympic Committee on the Queensland academy of sport for appearing her in the game. It was argued that Stone had considered all the benefits received as sponsorship which was assessable as ordinary income and had also disputed the accessibility of any other receipt2.

The federal court had contended in this present case that not every receipt will be assessable especially the one Stone had received from Queensland academy of sport. It must be noted, the appeal of the taxpayer was partly allowed by the federal court holding that the grants and prizes received by stone were not accessible but in this case, only the appearance money along with the payment for sponsorship in kind as well as in cash will be categorized as assessable income3. The basic analysis and consideration of the federal court revolves around focusing upon the extent of the conduct of business by a taxpayer4.

There after the entire federal court had concluded that the athletic activities regarding any sport and the money received by them will not be categorized under the money received from any business activity and therefore the price and grants received by Stone will not be accessible.

Contentions of The Federal Court by Justice Hill

The appeal of the Commissioner and cross-appeal by stone came before High Court regarding the appearance money. In this case, the high court determined to analyze the fact as to whether various categories of income can come under the ordinary concepts of income for section 6-5 of the Act. It must be noted that the high court had categorized the ordinary income under section 25 sub-clause 1 of the income tax assessment act and had included the ordinary receipt of carrying on business and with the help of section 25 the interpretation of section 6 of the Act was made. The high court had to emphasize upon the fact as to whether the business is carried under a useful and necessary circumstance under the Act.

It is important to understand that under the Income Tax Assessment Act, whether the receipt in question is following the usage of mankind as well as the ordinary concepts of income receipts. The high court in this present case had identified the major question regarding the nature of ordinary income. Thereafter the high court had concluded that the income received from the athletic activities by Stone during the year 1999 had constituted the business as she had received financial rewards for winning and competing in the competitions5. The major factor that stone had earned various prize money, payments in the form of sponsorship, and grants will be considered under the ordinary receipt of business. The high court had considered that stone had received significant expenses at a high level for competing in the sport and had got various sponsorship to cover her expense6.

Therefore it can be considered that stone had used her athletic talent for receiving monetary gains as she had accepted them under the imposed commercial restrictions upon the same. The high court had also contended that the fact that stone had not sought to maximize her received but had worked according to the excellence in her talent for the sport but according to the long term perspective, she is likely to gain more sponsorship deals based on the same. The high court and also contended that profit maximization or the motive of primary profit must not be considered as a basis of determining to carry of business. Court contended that Stone had entered into agreements with 3 sponsors, therefore, she is deemed to carry on a business7.

It is quite apparent from the contentions made by the High Court, that the level and extent of sponsorship gained are not relevant but what is relevant is the intention of the taxpayer to seek the sponsorship which is irrespective of the amount of money received. The fact that stone had entered into various commercial contracts for obtaining sponsorship is indicated of the fact that she was carrying on business do the test it is still unclear of the fact as to whether the factors are relevant to prove the existence of business as the same can be applied only to limited particular facts. In the early litigation process, Stone had accepted the fact that the sponsorship money should be treated as accessible. This fact is enough to indicate the judiciary that the taxpayer in the present case had intended to turn her talent of sport into profit maximization.

Partial Restoration of Hill’s Judgment

The unanimous decision of the High Court was that the receipts of income assessable as per the income tax assessment act. The majority of the court opened that stone was carrying business for gaining financial rewards by competing in sports for which she was paid for endorsing the products of various companies. Therefore it can be said that stone had turned the ability to perform well in sports into a money-making process8. The contention was made by Court that she had accepted the money paid to her by the sponsor and therefore it is an inevitable conclusion that the agreements of sponsorships cannot be categorized into a different category other than business9. When the context of business was put against the facts and circumstances of the case for Stone, it was contended that the commercial agreements with the sponsors are made in pursuit of the athletic activities. The majority of the judges concluded that the receipts received by Stone can be considered as gratitude but the payments received by her will still be categorized under assessable Income10.

Contentions of Justice Kirby

Justice Kirby had given a separate decision for stone and highlighted the concern of interpretation of section 6 in his earlier decision. It was contended by justice Kirby that according to section 6 and its procedure of section 25 subclass 1 of the income tax assessment Act 1997, both of these actions do not refer ordinary income under carrying on a business and after analyzing the issue of the case of stone in the light of the present facts and circumstances it can be understood that to analyze the fact as to whether a taxpayer is carrying out a business is not taken appropriately by the court11. Justice Kirby had contended that the word "business" is not present in the income tax assessment Act 1997 and therefore there is a severe risk to interpret the intention of the statute and the court must avoid any sort of disadvantage to be levied upon the taxpayer.

If the parliament and the legislation intended to impose the notion of a business in the income tax assessment act then the same would have been clearly expressed in the enactment. This is the reason why the demonstration of the high court regarding the contentions laid by the court had moved away from the historic attributes to analyze as to what contributes to carrying on a business and had recognized that the same cannot be applied in the industry of sport or any other professional activity.

Rulings of Federal Court

The federal court had taken evidence from the profession of Stone as a policewoman under the Queensland police force who had also got a recognizable success in other sports activities and because of the same sheet had been awarded by the Australian Olympic Committee as well as from the Queensland Academy of sport. The court had also contended that stone had not been engaged in any sort of business activity for exploiting sports talent in return for some money organized by the authorities12. It is important to understand that the federal court had categorized the elements of business to differentiate between the business activity and carrying on a business as a sport13. The federal court had contended that the quantum of rewards or prize money received by the taxpayer must not be determined as income received from the business activity.

Also when any taxpayer who is a part of a sporting activity when receives sponsorship based on talent in a sport must not be treated as an indicator of business activity irrespective of the fact that the sponsorship has been received regularly. to become a part of carrying on of business the appearance must be systematic which is not there in the present facts and circumstances of the case because here the activities of stone were systematic and not her appearance in The sport. The fact cannot be denied that stone had been employed as a full-time policewoman and this fact must not weigh against any other activity. It must be considered that soul was a trained athlete and competed in various sports activities outside the working hours of her primary profession as an enjoyment of the competition and under the zeal of winning for the country14. In the present case, it can be determined that the motive of stone was not to make a profit out of a talent which is a basic element of establishing any business activity.

Findings of Full Federal Court

The significance of the present facts and circumstances of the case refers to the fact that the activity of the taxpayer which is Stone, in this case, had described as an addiction to a particular hobby or sport and she was not carrying a business activity in this present case. The court had contended that the strongest evidence for conducting any business activity is surrounded by the expectations of conventional commercial activities which were absent in this present case. The ratio decidendi the rule of law upon which the decision of the court was based upon the fact that the methods must be considered regarding the characteristic of ordinary trading and it is important to determine as to whether the taxpayer had kept any record of employers or experts which is not there in the present facts and circumstances of the case15.

It can be seen that throughout the sporting career of Stone, she had only appointed a coach and had entered into various contractual arrangements for sponsorships but it is important to know that the employment of manager by stone in this present case was for a short period16. In the present facts and circumstances of the case that the majority of the sponsorships held by stone were not commercial but were more from a result out of personal connections and this made stone not to keep any records for her receipts. The court had also recognized various businesses that had not kept records but considering the case of Stone, it is very evident from the facts and circumstances of the case that she had not been engaged in any conventional commercial activities in the general impression17. It can be seen from the facts of the case that the sporting activities of Stone were very infrequent and she did not reach the optimum level in her profession due to injuries and had only won two prices.

Also, it was argued by the court that stone had also so worked for the Queensland police force. The analysis of the activities of stone can be considered as inclusive as the profit-making was incidental to the activities performed by Stone which was not the primary purpose18. This is also one reason why the court had placed importance to understand the intention of profit-making. Therefore justice Hill had explained the importance of profit-making intention and had contended that it is important to look at the extent of the activity rather than the intention of the taxpayer to determine whether there is a business activity or not.

The court in this present case had identified that according to section 6 of the Act, the commissioner was correct in interpreting that the taxpayer had engaged in a business which had affected the characters of the receipt received by the taxpayer during the conduct of her activities and therefore the receipt will be categorized under income under section 6. The court has argued that there is no point in providing classification to income but it is important to understand whether the receipt constitutes any income according to the ordinary concepts of section 6 of the 1997 act or not19. In the present facts the receipts of the taxpayer will be considered as income received under ordinary receipts.


It is important to understand that all persons who are carrying any business as a sportsperson must not be categorized into a normal categorization of carrying business as a businessman. Later when the matter reaches the federal court it was attended by Justice Hill that Stone was carrying business as a sports person but the grand received by her would-be categorized under ordinary concepts and fees consideration of obiter dicta were not to be disturbed by the rulings of the High Court. The court had contended that the payments received by Stone worked under three categories. The first category was under the Olympic athlete program for which she had received monthly installments for her daily expenses and these payments will be categorized under ordinary income. However, it must be noted that the other two schemes which she had received from the Queensland Academy of sport and AOC medical incentive scheme which might not fall under the category of ordinary receipt.

The primary judge in the federal court had found that the payment received by the Olympic athlete program was not to be considered as income unlike the other grants received by stone. The medal status for encouraging athletes cannot be considered as a character of income as the same was not a product of any employment or not incidental to the activity of any business. However, on the contrast, the primary judge had said that the grants received by the Queensland Academy of sport comes under a different category and therefore this amount cannot be seen as a consideration by the Australian Commonwealth games for being a member and therefore it can be rendered as a product of sum service by the taxpayer. Therefore, in this case, the taxpayer had to pay the partial taxes which ordinarily categorized under the ordinary income.



1997 Act, section 1-3(2)

6-5(1) of the 1997 Act

Income Tax Assessment Act 1936 (Cth) ("the 1936 Act").


Stone v Federal Commissioner of Taxation (2002) 196 ALR 221.

Federal Commissioner of Taxation v Stone 2005 ATC 4234

Scott v Federal Commissioner of Taxation (1966) 117 CLR 514.

Federal Commissioner of Taxation v Squatting Investment Co Ltd (1954) 88 CLR 413;

Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540

Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256

Federal Commissioner of Taxation v Harris (1980) 30 ALR 10.

G v Commissioner of Inland Revenue [1961] NZLR 994

Hopman v Mirror Newspapers Ltd (1960) 78 WN (NSW) 192.

Federal Commissioner of Taxation v Montgomery (1999) 198 CLR 639 at 663 [67]-[68].

Western Gold Mines NL v Commissioner of Taxation (WA) (1938) 59 CLR 729 at 740 per Dixon and Evatt JJ.

Stone v Commissioner of Taxation (2003) 130 FCR 299 at 316 [98]-[99].

Tolley v J S Fry & Sons Ltd [1931] AC 333.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Taxation Law Assignment Help

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