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The High Court (French CJ; Gummow, Heydon, Crennan, Kiefel, and Bell JJ) has unanimously upheld the taxpayers' appeals from the decision of the Full Federal Court (Goldberg, Bennett and Edmonds JJ) and held that management fees paid by 2 professional footballers (Spriggs, an AFL player, and Riddell, a Rugby League player) to their agents for negotiating contracts with football clubs were deductible under s 8-1(1) of ITAA 1997 and were not capital expenses denied deductibility under s 8-1(2).

The High Court distinguished the taxpayers' situations from that of the taxpayer in FCT v Maddalena (1971) 45 ALJR 426; 2 ATR 541, upon which the Commissioner relied and which the Full Federal Court held was not able to be distinguished. The High Court said, at para 66:

"Maddalena does not oblige the approach for which the Commissioner contended. As noted above, the Court there expressly considered that different results as to deductibility could follow if a taxpayer were conducting a business, as opposed to being only an employee. The Court concluded that Mr Maddalena's contract with the rugby league club was a contract of employment and that expenses incurred in procuring that contract were not incurred in the course of earning income under that contract. In reaching that conclusion, it is plain that the Court concluded that Mr Maddalena was not conducting a business."

In contrast, the High Court considered that Spriggs and Riddell were each conducting a business as a professional sportsperson. The High Court said, at para 69:

"Looking at their activities as a whole, the appellants were engaged in the business of commercially exploiting their sporting prowess and associated celebrity for a limited period. Those businesses were well established before the management fees were incurred[56]. Neither of the appellants was exclusively or simply an employee of his club. They each exploited their sporting prowess and associated celebrity with different clubs over the years during which they played in the AFL Competition and the NRL Competition, respectively. There was a synergy between playing activities and non-playing activities, each of which was an income-producing activity."

The High Court therefore held that the management fees paid by each of the taxpayers were deductible under both s 8-1(1)(a) and (b) of the ITAA 1997. Further, the Court rejected the Commissioner's submissions that they were capital in nature, as the playing contracts obtained were revenue assets of a relatively short term nature (see para 82).

Spriggs v FCT; Riddell v FCT [2009] HCA 22 (High Court; French CJ; Gummow, Heydon, Crennan, Kiefel, and Bell JJ; 18 June 2009).

For a copy of the decision, go here

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