Implications of the Brisbane Bears Case:
Payments for use of image – PRT and other implications for all sporting codes, professional sports participants, entertainers and the like
The recent Queensland Supreme Court decision in Brisbane Bears – Fitzroy Football Club Limited v Commissioner of State Revenue (“the Bears Case”) in relation to application of payroll tax (“PRT”) has broader implications than might appear from a cursory reading of the case.
While the case is immediately concerned with PRT, it also prompts thought in respect of implications, from an employer’s perspective, of matters such as liability for superannuation guarantee charge and PAYG. From the perspective of a payment recipient, it prompts consideration of application of the personal services income tax regime.
While the case was concerned with an AFL club, one might also consider its potential reach to other sporting codes with professional participants (players or officials). However, its potential reach is not limited to sports, but extends to other industries such television, film, radio, entertainment, etc. in which participants (or their corporate entities) enter into licences for use of their images ostensibly as an arrangement separate from performance of the individual’s day to day professional duties as an employee.
What the Case Decided
In the Bears Case, Bond J had to determine whether PRT was applicable to certain payments made by The Brisbane Bears (“the Club”) to its players and coaches. It is convenient to focus on the players, with the comments being equally applicable to the coaches.
The individual players (or, in some instances, an entity related to a player) had entered into Additional Service Agreements (“ASAs”), which were agreements separate from their contracts to play football for the Club.
The Club contended that – to the extent:
- the ASAs provided for payments to be made by the Club to the relevant player (or relevant related entity);
- the ASAs granted “the Club the rights to use and/or exploit the images of the …[the relevant players]”; and
- “the payments were consideration for the use and/or exploitation of those image rights”, the payments were not payments made in respect of services performed or rendered by employees of the Club and, it followed, were not taxable wages for PRT purposes.
Bond J concluded that the facts of the case did not support the Club’s contentions. The ASAs did not provide for the Club to make payments for the use and exploitation of image rights. The payments were payments in relation to (marketing and promotional) services rendered or performed by the players and, as such, constituted wages – with PRT being payable on those wages. (In the case of payments made to a player’s related entity, the relevant anti-avoidance provisions subjected the payment to PRT.)
The Basis for the Decision
The ASAs utilised templates that contemplated separate identification of:
- fees for “Additional Services” (i.e. non-playing services), being services to be specified in the relevant agreement ; and
- fees for the use of the Player’s Image, being uses to be specified in the relevant agreement.
The Additional Services were, basically, promotion and marketing services. However, the ASAs stated that the fees for “Additional Services” entitled “the Club to use the Player’s Image for purposes related to or connected to the Additional Services”. (As an aside, we note that the terms in which the ASA dealt with the Additional Services, in requiring due diligent faithful and efficient performance by the player and the player complying with all lawful Club orders or directions, were indicative of an employment relationship.)
The concept of the “Player’s Image” was defined as including “the Player’s name, photograph, likeness and identify”.
The Additional Services were identified in a series of promotional activities that “would inevitably … involve some degree or other of use of the player’s Image (as defined) as an incident to the player actually performing the activity concerned”, so that “the player’s Image was integral to the performance of the promotional services”.
It appears that separate fees for image use were specified in only a few ASAs. In these instances, the use of image was also associated with the player’s actual performance of [particular] promotional activities”.
The ASAs contemplated a record being compiled during the AFL season of a player’s appearances and of each use of image provided under the relevant player’s ASA. The record was intended to “set out the total of all amounts paid under the player’s … [ASA] for the season, attributed as between the market value for the player’s marketing and promotional services and the market value for use of the player’s image”. However, the records did not make this distinction but treated payments for use of image as assigned to a particular type of marketing or promotional activity or to a category of appearance.
Bond J concluded that the agreed facts and records produced to the Court were “consistent with the contractual authorisation of the use of the player’s Image for purposes related or connected to the player’s actual performance of promotional or marketing activities”. It should also be noted that Bond J viewed the ASAs in the context of a contractual framework (notably the tripartite agreement between the AFL, the AFL Players’ Association and the AFL clubs) that contemplated the provision of promotional services.
Implications of the Case
Three points for thought and a “caveat” emerge from the Bears Case:
- Where use of a person’s Image is an intrinsic (although a contractually-acknowledged separate) part of the provision of promotional services for which payment is made, one is not entitled to dissect the payment into:
- an amount that does not attract PRT – being referrable to use of the Image ; and
- an amount that does attract PRT – being the balance amount which is referrable to the physical part of promotional activities.
- Where a pro-forma agreement contemplates differentiation between:
- provision of promotional services for which identifiable consideration is to be paid; and
- provision of entitlement to use a person’s Image for which separate consideration is to be paid,
it is important to complete the pro-forma agreement in a manner that recognises that distinction, if distinct fiscal consequences are to attach to the separate amounts of consideration. It is also important to maintain records, especially records which the agreement envisages, that give effect to that distinction.
The case indicates the desirability for timely internal audit of the manner in which pro-forma template documentation has been completed and records kept. A pro-active response may be appropriate.
- If the consideration (whether unwittingly or otherwise) has been paid for the provision of promotional services rather than for use of Image, the fiscal ramifications may not only include increased PRT but may also extend to other taxes. In particular, superannuation guarantee charge and PAYG issues and, possibly, PSI issues might need to be considered.
- Caveat – the case implicitly raises, but does not consider, the extent to which Image (as defined in the relevant ASA) is capable of being the subject of a standalone obligation with its own fiscal consequences, rather than merely being an incident of a promotional activity.