The management fees were calculated as percentages of gross earnings from both playing and non-playing.  The majority of the players’ income in the relevant years was derived from playing activities.  A deduction was sought for a fee relating entirely to negotiating the players’ playing contract with their football club.

The taxpayer’s non-playing activities (e.g. endorsements and media appearances) could constitute a business, as conceded by the Commissioner.

The Full Court considered that the fee, incurred in negotiation the players’ employment contract was incurred in placing the taxpayers in a position to earn employment assessable income and was therefore incurred too early to be deductible.

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The final say in this long saga has been made in favour of the AFL/NRL players.

The High Court now confirms that management fees paid off by professional footballers are deductible, because they were carrying on a business exploiting their sporting prowess and associated celebrity, and this was inextricably linked to their respective employment by their respective football clubs.

The tax act provides that a business includes any profession, trade employment, vocation or calling, but does not include occupation as an employee.

The High Court has interpreted this definition to mean that something more than mere employment is required for a business, but it does not prevent employment from forming an integral part of an overall business.

The playing contracts for the footballers’ employment with their club were revenue in nature, not capital.

The High Court has confirmed that it is possible to obtain and perform an employment contract as part of and during the course of running a business, meaning that employment contract income may be business income in some cases.

There was a synergy between both activities, such that it would be artificial to separate them, each player conducted his own business in a commercial and business-like way with the engagement of a manager being a particular indication of this commerciality and the fact the player contracts specifically contemplated the footballers concurrently undertaking non-employment promotional activities was relevant, as well as the tripartite nature of the player contracts between the AFL/NRL, together with the attributes of modern professional sportspersons, as noted in the earlier High Court decision of Stone (Olympic javelin thrower).

Many employment contracts will not have the above features, so many may not be able to parallel this favourable result.  This decision is also likely to impact personal services income rules in future.