07 Feb Can you licence your image to a company or trust?
Proposed in the 2018-2019 Budget, the Government is seeking to include funds derived from the commercial exploitation of a person’s fame or image to be included as assessable income of that individual. If the Government’s proposed measure goes ahead, income earnt through ‘fame and image’ will be included in an individual’s assessable income and taxed accordingly.
The Government has identified that that subjecting ‘fame and image’ income to the higher individual marginal tax rate will have an ‘unquantifiable gain’ to revenue.
Many high profile individuals, including actors and elite athletes, license their fame, image and reputation to an entity – usually a company or trust. That entity will then trade on the rights it has acquired, and may derive income from this commercial activity. The taxation treatment of this income will depend on the type of entity trading, and this structure may result in an individual legally reducing their taxable income.
While some have welcomed the proposed changes, others have expressed concerns that the measure will add further complexity to the law and have a particular impact on asset protection and estate planning.
Targeted not at specific occupations but rather at an individual’s fame more generally, the measure has potentially far-reaching consequences. With the rise of #instafamous influencers, ‘ordinary’ individuals who trade off promoting their personal image on social media platforms may fall foul of the proposal.
How do we compare internationally?
Concern surrounding the taxation of fame and image is not unique to Australia. In South Africa, image rights are considered personal rights and consequently cannot be separated from the individual and sold to another entity. As a result, income garnered through an individual’s fame or image is taxed in the hands of the individual. The UK has similarly identified concerns surrounding a person’s fame and image. In 2017, the UK Committee of Public Accounts recommended that the Government take ‘urgent action’ to address image rights taxation, finding that image rights licencing structures represented the most significant tax threat for footballers and analogous professions.
How will this affect you?
The Government’s proposed measure will apply to individuals in the 2019-20 financial year. Individuals affected by the proposal may be required to reassess and restructure their affairs, including renegotiating contracts and payment arrangements. The proposal will not encompass income derived from the use or exploitation of recognised intellectual property rights, including copyright and patent.
Proposed changes by the Government will subject income earnt through an individual’s ‘fame and image’ to the individual tax margin. The measure will target income earnt through advertising, sponsorship, endorsement, public appearances and social media. Operative from 1 July 2019, individuals affected by the proposal will be required to reassess and restructure their affairs.
If you require assistance structuring your sponsorship activities, or would like advice regarding your legal obligations with respect to product endorsements, please feel free to contact us.
This article was written by Commercial and Media lawyer, Marco Angele.
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