Sportspeople, media personalities, celebrities and ‘insta’ influencers beware. The ATO has taken a U-turn on how fame and image should be taxed.

If you’re famous and make an income from your fame and image, the way the ATO believes you should be taxed on the income you make may change under a new draft determination set to take effect on 1 July 2023.

What does it mean?

The new draft determination (TD 2022/D3) deals specifically with the rights to use a celebrity’s fame and image. The ATO’s argument is that the individual doesn’t have a proprietary right in their fame, which means that attempting to transfer the right relating to their fame to another entity would not be legally effective. That is, you cannot separate the fame from the individual. As a result, any income relating to an individual’s fame or image that is received by a related entity is treated as if it was simply being collected on behalf of the individual and should be taxed in the hands of that individual.

Exceptions

The ATO’s updated approach doesn’t apply to situations where the individual is engaged by a related party to provide services. For example, if a celebrity is booked by a related entity to attend a product launch or promotional event the fees paid by the third party can potentially be treated as income of the related entity for tax purposes.

The ATO’s approach

While the ATO’s new position will apply retrospectively and to income derived in future, the ATO indicates that a transitional approach will apply if the taxpayer entered into arrangements before 5 October 2022 that were consistent with the safe harbour approach that was set out in PCG 2017/D11. In these cases the ATO’s new approach will apply to income derived from 1 July 2023.