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The Full Federal Court (Goldberg, Bennett and Edmonds JJ) has upheld the Commissioner's appeal against the decision of Gordon J, who 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 of ITAA 1997: see 2007 TAXVINE No 47 (14) (30 November 2007). In so doing, Gordon J distinguished the High Court decision in FCT v Maddalena (1971) 2 ATR 541, in which Barwick CJ had said: "The cost to an employee of obtaining his employment does not form an outgoing incurred in the course of earning the wages payable in the employment."

The Full Federal Court accepted the submissions of the Commissioner that none of the grounds advanced by Gordon J for distinguishing Maddalena justified not applying Maddalena to Spriggs and Riddell. Further, having regard to Gordon J’s unchallenged findings that the fees in each case were paid for negotiating the employment contract: in Spriggs, the contract with the Sydney Swans and in Riddell, the contract with Parramatta, the Full Federal Court held that the fees were not incurred "in" gaining or producing assessable income, in the sense of being incurred "in the course of" deriving the employment income within the first positive limb of s 8-1. In relation to the second limb, the Full Federal Court said, at para 49:

"If, as we believe to be the case, any business carried on by the respondent in the relevant year of income is confined to his non-playing activities, then an outgoing entirely incurred in negotiating and concluding a playing contract of employment, which on the evidence subsumes the whole of the playing activities, is not incurred in the course of carrying on that business."

In relation to the Commissioner's assertion that each of the cases was "a test case", the Court said at para 51:

"During the hearing of the appeal, we were informed by Senior Counsel for the Commissioner that each of these cases is a test case. The question which immediately arises is: a test case as to what? Our conclusion that the CSM fee is not an allowable deduction to Spriggs in the 2005 year of income and that the SFX fee is not an allowable deduction to Riddell in the same year is predicated on the finding, supported by the evidence and not challenged on appeal, that each fee was paid entirely for negotiating the employment contract: in Spriggs, the contract with the Sydney Swans and in Riddell, the contract with Parramatta. In this regard, our conclusion says nothing, nor should it be taken to say anything, about the deductibility of fees paid by professional sportsmen to managers and agents for their services which cannot be so confined."

FCT v Spriggs [2008] FCAFC 150 (Full Federal Court; Goldberg, Bennett and Edmonds JJ; 22 August 2008).

For a copy of the decision, go here

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