Pros and cons of 'fame tax' on celebrity image rights

We live in a highly digitalised society, where the concept of “public image” has a completely different meaning than it used to.

The May Federal Budget announced that from 1 July 2019, celebrities and other famous people will no longer be allowed to license their fame or image rights to another entity, and potentially reduce their tax rate.

By Nina Hendy 

Alan McDonald

Employment lawyer, McDonald Murholme 

Alan McDonaldIn Australia, image rights don’t have specific legal or proprietary status for a case of action. This was demonstrated in the recent defamation case between Australian actress and comedian Rebel Wilson and Bauer Media Group. 

The Australian Taxation Office’s (ATO) recognition of image rights for athletes under the Draft Practical Compliance Guideline 2017/D11 begged the question: why were celebrities outside the sporting community not also afforded safe harbour protections? 

The ATO guidelines offered a pragmatic solution for dealing with the perils and price of fame by allowing an athlete to apportion a value of more than 10 per cent from the use and/or exploitation of their image. However, these guidelines were limited to sporting bodies and services. 

Law reform is required to recognise a broader definition of celebrity for image assignment that extends beyond athletes. We live in a highly digitalised society, where the concept of “public image” has a completely different meaning than it used to, and there is no reason why all celebrities should not be able to assign and profit from their image rights through endorsements, advertising and merchandising. 

“We live in a highly digitised society where ‘public image’ has a completely different meaning than what it used to.” Alan McDonald

The question also raises larger issues around Australia’s lack of substantive privacy protections, which should be addressed with a comprehensive tort of privacy. 

Max Markson

Celebrity management professional, Markson Sparks 

Max MarksonI think it’s really smart for high profile celebrities to realise that their fame is short lasting, but their image goes on forever. The reality is that a sports star’s career life span is probably finished by the time they turn 35, but that doesn’t mean that they shouldn’t still be able to earn a living from their image rights so yes, they should retain their image rights. 

Take Pelé for example. This retired Brazilian professional footballer who played as forward in the 1950s and ’60s is now 77, but still makes money from his image. I’ve heard he makes A$300 for a signature, which means he can sign 3000 items in an afternoon and make A$900,000, which is incredible.

The image of Elvis Presley is another prime example – the company that owns his image continues to make money when it releases his image to the world.

“[Pelé] makes A$300 for a signature, which means he can sign 3000 items in an afternoon and make A$900,000.” Max Markson

A part of the consideration needs to be tax, of course, and I’m sure tax avoidance is rife in this space. A sports star may even set up a company to spread their income and earn well beyond the end of their sporting prowess. However, it’s their image, and they should be entitled to hang onto it.

Paul Drum FCPA 

Head of policy at CPA Australia 

Pual DrumThe Australian Government’s announcement that high profile individuals will no longer be able to take advantage of lower tax rates by licensing their fame or image to another entity has caught many people totally unawares. This is particularly the case for many Australian sportspeople, their advisers and the sporting clubs, as it has been a practice used by many of them for some years. Further, it was a practice that the ATO had also recognised in its draft practical guidance guideline in 2017, although this seems to have now been, understandably, withdrawn. 

Presuming the law is passed by parliament in time, celebrities including sportspeople will have until 1 July next year to review their business contractual arrangements to see what the implications of this announcement will be on their business and other financial affairs. 

The announcement also captured the attention of mainstream media at the time. Based on the so-called pub test it is fair to say that many Australians are of the view that assigning one’s image rights to minimise one’s tax is rather “unsporting” – and should not be permitted. 

“I suggest we need to reflect on what the implications of this may be for other contracts dealing with rights in the future.” Paul Drum FCPA

Members have also raised with me another issue that comes from this announcement, regarding contracts and the tax treatment of rights more broadly. 

Currently, celebrity image rights are an asset and would fall under the capital gains tax regime. However, the government’s announcement may effectively override this status for celebrities at least – by ensuring all celebrity remuneration including payments and non-cash benefits provided for the commercial exploitation of a person’s fame or image will be included in the assessable income of that individual. 

I suggest we need to reflect on what the implications of this may be for other contracts dealing with rights in the future and, on behalf of members, we will be seeking further guidance. 

Professional Development: CPA Q&A. Access a handpicked selection of resources each month and complete a short monthly assessment to earn CPD hours. Exclusively available to CPA Australia members.

THE EXPERTS

Alan McDonald 
Alan McDonald has been practising employment law as a barrister and a solicitor since 1978. He holds a bachelor degree in both Law and Commerce from the University of Melbourne. Following a career at the Victorian Bar and in the construction industry, in 1996 he formally established McDonald Murholme, a leading employment law firm that advises clients in employment law and associated matters across Australia.

Max Markson 
Max Markson is a celebrity management professional, trading under the name Markson Sparks. The Sydney-based publicity, celebrity management and events organisation company commenced operations in 1982. Markson manages a range of sports celebrities, media personalities, recording artists and speakers from around the world.

Paul Drum FCPA 
Paul Drum has worked in the tax and business policy arena for over 35 years, mainly in Australia but also in markets around the globe that are of keen interest to CPA Australia members. As head of policy at CPA Australia, his portfolio covers tax policy, law and administration, as well as superannuation, business policy and education, and also representation and advocacy to governments and core government agencies.

Read next: Image counts for plenty as sports stars score tax goal


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