A Supreme Court of Queensland decision has highlighted the broad scope of payments that are subject to payroll tax – and the importance of getting the documentation right.

In Brisbane Bears – Fitzroy Football Club Ltd v Commissioner of State Revenue, the court considered whether payments made by the Brisbane Lions for players' and coaches' 'image rights' were subject to payroll tax.

Payments for 'image rights' or payments for services?

Each Brisbane Lions player entered into a 'standard playing contract', which was an agreement between the player, the Brisbane Lions and the AFL. The standard playing contract set out the services to be performed by the player in his capacity as an employee of the club, and the payments that the club would make for those services.

The Brisbane Lions also entered into two other types of agreements, referred to as 'additional services agreements':

  • a 'direct' agreement – where a player agreed to perform additional services for the club for a fee; and
  • an 'indirect' agreement – where a player had granted a related company a non-exclusive right to use his image, and then the company agreed to grant the club the right to use that image and procure the player to perform additional services, for a fee.

The additional services were generally for the player promoting and marketing the game – either in the media, making appearances at community events or in marketing material. The 'additional services agreements' gave the Brisbane Lions the right to use the player's image as part of providing those services.

The payments were not split between the services actually performed and the use of a player's image. Instead, the payments appeared to be treated as for the services, and the use of the image was incidental to performing those services.

The Brisbane Lions argued that the payments in respect of the use of the image were not subject to payroll tax because they were not made in respect of services.

What payments are subject to payroll tax?

The court confirmed that there were issues to work through.

  • The first issue was whether the payments fell within the definition of 'wages' – which is defined to mean wages, remuneration, salary, commission, bonuses or allowances paid or payable ... to an employee as an employee ...
  • The second issue was then whether the 'wages' were liable to payroll tax, which in this case turned on whether the payments were in respect of services performed or rendered.

The court rejected the Brisbane Lions' argument that the payments were for 'image rights'. It concluded that:

  • for the 'direct' agreements – the payments were made to the player as an employee in relation to the marketing and promotional services performed; and
  • for the 'indirect' agreements – the payments were deemed by a specific anti-avoidance provision to also fall within the definition of taxable wages, even though a related entity received the payment, rather than the player.

Is the decision only relevant for payments for image rights?

No, the Commissioner will draw support from the decision where payments are made to employees and directors, but the character of these payments are unclear.

The case highlights the importance of carefully drafting agreements. The court's role was to characterise the payments that were made under the agreements, and it was unable to conclude from the agreements that the payments were made in connection with anything other than services. This was because the use of the image rights was incidental to the performance of the players' promotional and marketing activities.

The Commissioner is conducting extensive audit activity on payroll tax matters at the moment. We recommend clients review their payroll tax positions to minimise any possible exposures.

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