Background introduction of the case
Facts of the case
Judgments and legal terms which were considered for the case
The final decision and the impact on the Australian Sport
The case study of Federal Commissioner of Taxation v Stone was about a taxpayer who was a police officer in the Queensland Police Force and was also trained as an Olympic javelin thrower. The taxpayer introduced here has received money and income for the year ended 30th June 1999 from the sports activities, which included prize money of $93,429, grants from the Australian Olympic Committee and Queensland Institute of sports sporting amounting to $ 27,900, various sponsorships, and appearances fees of approximately around $ 15,000. The tax officer considered that all the amounts received by the taxpayer from sporting activities are to be considered as assessable income. But the taxpayer objected to the same and the case was brought up in the Federal Court.After denying, the taxpayer finally agreed that the sponsorship amounts were received as assessable income. But the taxpayer did not agree to the taxability of the other amounts received on account of sporting activities. When the matter was bought to the Federal Court, it held that the government sporting grants does not characterize as income and hence should be considered as assessable income. But it agreed that the prize money and appearance fees were to be considered as assessable income. The taxpayer did not agree to the decision and the same was brought to Full Federal Court. This court provided the decision that only appearance fees were to be considered as assessable income for the taxpayer.
The taxpayer as mentioned in the background of the case was Joanna Stone who was one of the leading javelin throwers in Australia. She was also in employment in Queensland Police Force. Being an athlete, she represented Australia in many international competitions between 1995 to 2000. Throughout the years when she practiced and represented Australia in sports, Stone received price money, government grants, scholarship money, appearance fees, etc. The year ended 30th June 1999, reported larger sums of money from sporting activities which the taxpayer has not shown as the assessable income. This led to the case been taken from Federal Court to Full Federal Court to the High Court.
Stone receipts that she had shown in the return were as follows:
All the amounts were treated by the assessing officer as taxable and the objection of Stone was disallowed. Hence, the taxpayer moved to the Federal Court.
When the case moved to Federal Court, initially Hill J found that Stone used her sporting talent to earn money and was carrying on a business as a professional athlete. Thus, he said that the income received from sports was considered as taxable according to the ordinary concepts.Stone agreed that the sponsorship amounts were income but concluded that all her receipts shown as non-taxable are not an income as she was not carrying on any business activity and the amounts were not a reward for any services rendered or was used to meet her day to day expenditure. Hill J found that the appearance fees were considered to be income for the provision of services like it could be for giving a speech or attending a function. Though the price money received by Stone was the result of a business carried out by the professional athlete, Hill J said that the money won by an amateur athlete would be income.The main question that arises here was that it depends on the nature of the activity and not the fact that it is a prize.
Since Stone was not satisfied with the decision of the Federal Court, she moved to Full Federal Court. She appealed to the court that she is not carrying on any business. When the court looked into the matter, the decision to be taken whether Stone participated in the sporting events and competitions with the motive of maximizing profit or acquiring sporting experience. It was found out that she took part in the events to gain experience and there was no intention of making profits. The Full Court also found out that the main career of Stone was that of a policewoman and she was taking part in athlete events, not with the purpose of business. Finally, Full Court decided that prize money (not a service provision) and grants were not assessable income and that the appearance fees were not income.
After this, the Commissioner appealed to High Court. The High Court allowed the appeal and dismissed the cross-appeal. Stone cross-appealed from the ruling that appearance fees were considered as assessable income. The commissioner submitted to the court that Stone was engaged in the business activity to earn money as an athlete. He concluded that if an athlete is recognized as a celebrity or personality in the market, then the use of his or her talent will be considered a return for money. He said that the sponsorship fees and the appearance fees were indicating the same nature. On this, Stone was dissatisfied and argued that she was not conducting any business and that is objective was to achieve excellence in the sports and represent Australia at various levels.
Based on the special leave, the tax office appealed to the high court that the taxpayer derived amounts in the business of being a sportsperson. The taxpayer has also sought special leave to cross-appeal against the Full Federal Court decisions that the appearance fees were assessable. sIn the High Court, aunanimous finding was made that all the receipts of Stone were assessable.
The majority of the judges in the High Court concluded that Stone was deriving financial rewards while competing and winning in the athlete sports. It was supported by the fact that Stone was being paid the sponsorship fees and appearance fees for endorsing companies and their products which means her talent as an athlete was used on account for the money. Also, she admitted that sponsorship fees were assessable income in the hands of Stone for the year ended 30th June 1999. It was said by the majority that the sponsorship agreements and appearance fees could be said to be a reward for services but when considered with other activities of Stone, it was clear that the sponsorships were commercial arrangements which were taken as a result of the athletic activities. For grants being considered as assessable, it was stated that it was rewards received by Stone for in the business of competing and winning in athletic tournaments. Also, in the same manner, it was assumed that the prize that she has received was on the contractual obligations of the event organizers. Therefore, all the receipts of Stone which were shown as non-taxable taken together will constitute conduct of business. Stone wanted to participate and compete in the sports events at the highest level and to meet the cost of competing, she used to accept grants & sponsorships. Thus, it reflected a business being conducted, even though there was no goal of earning profits.
It was a mutual consensus of most of the judges of the Court that Stone was extracting financial rewards for herself at the same time when she was competing in the sports. The next issue that arose in the case was to find out the intention of making a profit. She was getting paid for the endorsement and the advertisement of the various company’s products and which gave the notion of that Stone was involved in the other sources of income and were commercial transactions in the eyes of the Court. The majority of the High Court Judges concluded that though Stone did not throw javelins for money, she was aware of the fact that her success in sports will result in financial gains. Hence, considering all the facts, it was decided that the entire receipts were considered as assessable. The majority considered the fact that the taxpayer’s intention for undertaking activities giving rise to receipts is only one of the facts that are to be considered that whether it will account for income. She received such sums in the form of grants which were not accessible by the income tax authorities. The amount that she received was considered to be obligations that were non taxable in the hands of Stone.
The first issue that was addressed in the case was what is to be considered as a professional sportsperson. It was then pointed out that professional sports "may be thought to be a phenomenon of the second half of the 20th century" which means that it refers to those persons who play sports for the reward. He depends on whether an individual was playing a sport as a full-time occupation and it was his/her principal source of income. The court also considered that classifying a participant as a professional or not has various other factors that are to be looked into, to consider the fact that the receipts are assessable income in the hands of the taxpayer.
Another question that arose in the case was the question regarding carrying on a business and "income according to the ordinary receipts". On this question, the court concluded that whether the receipts from a business will be considered as ordinary receipts depends on the fact that the person was involved in conducting business. It was said that sporting activities may be considered distinct from business activities, but it will not be the case always. The court considered the submissions of Stone which was to distinguish between a business and sport and between the income from prizes and gifts. It was also mentioned by Stone that she accepted the activities related to sports as a competitor and not to have the objective of financial advantage. But the court held that as Stone accepted that the sponsorship received as an athlete, part of her assessable income, there was no possible way of segregating her other athlete activities from sponsorship, and all were related to and was in pursuit of those activities. Thus, it was also concluded that if a person is having a profit view, it is easy to conclude that he/she is conducting business but in situations where the person has an idealistic motive, it can still be concluded that the taxpayer is engaged in business. The reason for an explanation of the other receipts received by the taxpayer is already discussed above.
Another judge, Justice Kirby initially said that there was both factual and legal interest in the appeal. Considering the factual interest, it was said that the receipts by the taxpayer were derived from various activities as a champion javelin thrower. It raised the question that whether the receipts from the Australian Sporting Champions would be considered as taxable income. Another point, i.e. the legal interest which involved around the case was that whether it could be said that the taxpayer was involved in the business of being a professional sportsperson that would result in such receipts to be taxable. It was thus concluded that the entire receipts are altogether considered as income that was derived from business and was categorized under “personal income” under the Act of 1997. The word business in regard to the 1997 Act was defined to include any profession, trade, employment, vocation, etc. but does not include any occupation as an employee.
Justice Kirby found out that there was no mention of the word business income in the 1997 Act. Thus, the notion of the word business in the case as argued would mean to be a disadvantage for the taxpayer and unduly favourable to the Commissioner. He finally concluded that if the taxpayer was not conducting any business, then the three categories of the receipts, i.e. sponsorships, appearance fees, and other payments under the Incentive Scheme were to be considered as income. He concluded that some of the amounts as intermittent prize money and occasional grants may not meet the original definition of income but the fact that they were all linked to the taxpayer Stone's sporting activities resulted in all of them being included as a part of the assessable income.
There is a lot of significance to the case of Commissioner of taxation v Stone, 2005. Firstly, the Australian Olympic Committee was ready to provide financial support to the case amounting to around $1,139m and both the parties involved were also willing to appeal the matter even though they have lost a part of the case in a particular case. Secondly, the decision of the case would have large tax implications for the athletes who received such grants. There were a lot of clarifications sought out from the Commissioner regarding the type and level of the sponsorships that would be regarded as a business for the athletes and hence have all their income considered as taxable, being income from sporting activities.
The decision at the various stages of the case tried to find the difference between the professional and an amateur sportsperson. The initial judge Hill J mentioned that athletes can be divided as professionals who carry business activities or amateurs who engage in a hobby. It was stated by the Full Federal Court that the Commissioner of Taxation in the case has failed to establish the intermediary category in between the two.The decision provided by jointly in the High Court also had considered the issue of being a professional or amateur. The decision made by the High Court was observed to be different from the previous Full Federal Court as it did not consider the Stone’s amateur aspect of sports, athletics, etc. Also, it helped in finding out the reason why Australia began to provide financial support to top Olympic athletes in the form of grants. Thus, there were a lot of arguments regarding this to arrive at the final decision.
Considering the case of Commissioner of Taxation v Stone, 2005, the decision given by High Court did not consider the reason why an athlete is pursuing their activity in deciding whether they shall be termed as professional or amateur. But from the perspective of taxation, it is important to know about the intention of the athlete, i.e. whether he/she is participating in the sporting events with profit-motive or to gain excellence in the field. Also, an important factor in the case is whether the receipts shall be considered as income from ordinary businesses as per the definition provided in the 1997 Act. Some of the persons gave an argument that such a decision would be beneficial to lower-level athletes as it would help them to show grants as income from business and help them claim expenses. Another effect could be that the AOC is finding ways to give the tax-free status to the grants received by the athletes as are provided to other scholarship programs. But it would put AOC in unwanted litigations. Thus, it was better to show the grants as a part of the athlete’s income and then allow the genuine expenses to be tax deductible which will be the most suitable situation.
After analyzing the entire case of Commissioner of Taxation v Stone, 2005, it was finally decided that the money received by Stone as part of her sporting activities was considered to be income, based on the nature of the modern sports and the requirements of the Act of 1997. Stone had her main career as a policewoman in Queensland Police Force and along with that she was throwing javelins and using her athlete skills to gain financial benefits. It was considered to be the second income of the taxpayer. Thus, the second income which was generated from the business of using one’s ability in sporting activities in return for money will be considered as taxable.
It was held that the activities related to athletes of the taxpayer during 1999-1999 would constitute carrying on a business. Finally, the unanimous High Court Decision in the case of the Commissioner of Taxation v Stone, 2005, made it clear regarding the activities which shall be considered as carrying on business in athletes and will be regarded as taxable income. It considered and upheld the Tax Office Appeal and also dismissed the taxpayer's cross-appeal. Stone tried and argued hard that sport and business are totally two different concepts and amounts shown in her return as non-taxable from sporting activities should not be charged to tax for the year ended 30th June 1999. She argued that playing athletics was her interest and there was no intention of earning profits. But the final decision by the Court made it clear that today’s sport is complete business.
Clark, B., 2004. The meaning of income: the implications of Stone v FCT. Revenue Law Journal, 14(2004), p.178.
Commissioner of Taxation v Stone (2005) 215 ALR 61 (hereafter Stone HC)(26 April 2005).
Graham v Commissioner of Inland Revenue NZLR 994.
Simons, Personal Income Taxation: The Definition of Income as a Problem of Fiscal Policy, (1938); cf Parsons, "Income Taxation – An Institution in Decay?", (1986) 12 Monash University Law Review 77.
McDermott, B., 2006. Commissioner of Taxation v. Stone (2005) 215 ALR 61: Its Implications for the Role of Intention in Assessing Business Receipts, and the Treatment of Gains Made by Athletes. Sydney L. Rev., 28, p.373.
Davies, C., 2005. The High Court decision in Commissioner of Taxation v Stone and its impact on sport in Australia. James Cook UL Rev., 12, p.112.
Commissioner of Taxation v Stone  HCA 21
Commissioner of Taxation v Stone (2005) 215 ALR 61: Its Implications for the Role of Intention in Assessing Business Receipts, and the Treatment of Gains Made by Athletes
Annamaria Carey, ‘Athlete’s Income all Taxable – Commissioner Wins Again in High Court’ (2005) 34 AT Rev 118 at 118. See Australian Taxation Office, Annual Report 2002–3 (2003): <http://www.ato.gov.au/corporate/content.asp?doc=/content/ 39007.htm & page=223 & H10_2_5_1_2> (14 Sept 2005).
Stone v Commissioner of Taxation  FCA 1492; (2002) 196 ALR 221 (hereafter Stone FC).
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