Stone v Commissioner of Taxation [2002] FCA 1492 | Case summary

Federal Court of Australia|2002-11-29|Before: Hill J

HILL J: 1 The applicant, Constable Joanna Stone, (Ms Stone) is, in addition to being employed as a Senior Constable with the Queensland Police Service, probably Australia's leading javelin thrower. She has represented Australia on numerous occasions in her sport and has been highly ranked among the elite athletes who participate in that sport. 2 For the year of income ending 30 June 1999 Ms Stone returned as her assessable income the sum of $39,832, being her salary as a police officer. She noted in the return that she had received other amounts, "the sporting receipts" which she listed, in respect of her sporting activities and which totalled $136,448. However, she claimed that these amounts were not assessable income. She made no claim for any deductions relating to the sporting receipts. When her return was assessed the sporting receipts were treated by the Commissioner as assessable income. As assessed, her taxable income was said to be $174,952. 3 Ms Stone objected against the assessment on the basis that no part of the sporting receipts were income or assessable income. In the alternative, she claimed to be entitled to deductions for outgoings she had incurred in gaining the sporting receipts. The Commissioner accepted that she was entitled to deductions of $19,739 and issued an amended assessment accordingly. He did not otherwise allow her objection. Ms Stone, being dissatisfied with the objection decision applied to the Court. In addition to claiming that the sporting receipts were not income she also claimed to be entitled to further deductions. The question of deductions was resolved by the parties. Hence there was no dispute in this Court that she was entitled to an agreed amount of deductions, assuming that the sporting receipts, or perhaps some of them, were assessable income. 4 Accordingly the only issue for decision by me was whether the sporting receipts were assessable income. The quantum of these sporting receipts is not in dispute. As listed in her return the sporting receipts were as follows: Prize money at local and international sporting events $93,429 Government grants $27,900 Sponsorships $12,419 Appearances $ 2,700 TOTAL $136,448 5 At the commencement of the hearing senior counsel for Ms Stone conceded that the sponsorship amounts were income. However, it was submitted that the remaining amounts were not. Specifically it was submitted that she did not carry on any business activity, that none of the amounts were a reward for services and that none of the amounts were such that they were relied upon by her to meet her daily expenditure such that they might have the character of income. The Commissioner took the contrary view.

The blurring of a distinction between professional and amateur sport. 6 It is not so long ago that many of the leading international competitions restricted entry to athletes who were amateurs. 7 For example, the modern Olympic Games, in the form they commenced after the Second World War were open only to amateur athletes. Professional athletes were barred from competing. This continued until the Games were gradually opened up to professional sportsmen or sportswomen after the 1988 Olympic Games when the Olympic Charter was changed to permit professional athletes to compete at the Games, but subject to the regulation of the particular international body responsible for the particular sport being entitled to make eligibility rules: Wallenchinsky, The Complete Book of the Olympics, Aurum Press Limited 2000. However, only amateur but not professional boxers may yet participate in the Games: (http://www.boxing.org.au). 8 Similar problems existed in the rules for the Davis Cup tennis matches. However between 1968 and 1973 that competition was opened up for participation by all professional tennis players: Evans, The Davis Cup - Celebrating 100 Years of International Tennis, Ebury Press, 1998 at page 183. 9 No doubt the fact that some of the most prestigious international sporting competitions such as the Olympic Games were closed to professional athletes operated to deter some elite athletes from turning professional. Once this discrimination was eliminated and competition between amateur and professional athletes was more generally permitted it might be expected that the distinction between the two classes of athlete became less clear. 10 Some athletes, particularly those in popular sports, appear regularly on our television screens promoting products often having no relationship at all with the sport they engage in and are reputed to be paid for this promotion and for personal or sporting appearances amounts that are well into seven figures. These athletes may easily be recognised as professional athletes and the amounts they receive may easily be seen to be income in the ordinary sense of that term. 11 Other athletes, particularly those in less popular sports may receive little in the way of prize money and little or nothing in the way of promotional or sponsorship receipts or fees for personal appearances. In some cases the amounts they receive, if any, may be so trivial and the activities they engage in outside actually sporting competition so few and far between that it would not occur to the public that they are professional athletes or that any amounts they receive should be treated as income in the ordinary sense of that term. 12 Where the difficulty in the present case lies is where this line is to be drawn. Clearly the facts of each case will be determinative. Accordingly it is necessary to turn to the facts in the present case. In doing so it is obvious that it will be necessary to look not merely at the facts as they existed in the year of income but also at the facts as they existed both before, as well as after the year of income. I should, however, say that I would not like it to be thought that the question whether Ms Stone was, during the 1999 year of income, a professional athlete was the only matter which needs to be considered in the present case. While it is clear that the proceeds of the business carried on by a professional athlete will be income, amounts derived by non professional athletes may, if they satisfy other tests, still be income. So, for example, amounts paid to an athlete to make up for income that the athlete might otherwise derive, but which the athlete can not derive because of the time spent in training and on which the athlete may need to rely either to live or pursue the sport may also be income in ordinary concepts. Again whether this is so will depend upon the facts. However, I propose to defer consideration of the tests which are relevant until I have concluded whether Ms Stone in this case was a professional athlete.

Ms Stone's participation in the sport of javelin throwing - 1987 to 30 June 1996. 13 Ms Stone's interest in javelin throwing began in around 1987, when she was 14 years old. By 1989 at the age of 16 she had represented Australia in a junior competition in both discus and javelin. She received a silver in the javelin and a bronze in the discus. After returning to Australia she decided to specialise in javelin throwing. One reason for this choice was that she was physically slight. She was initially coached by a Mr Des Frawley and later by his son Michael. 14 Clearly, success in athletics requires not only constant training, but also constant participation in competitions. In the case of athletes who have reached international standard, competition in international meets against world class athletes is necessary if the athlete is to improve. 15 In 1994 Ms Stone competed in local and state athletics meeting organised by various athletics associations, and in several competitions in Australia organised by Athletics Australia. No prize money was offered for these competitions as such. However, she also attended Grand Prix meetings run by Athletics Australia in Adelaide and Hobart in February 1994. In deciding what meetings she should compete in she was assisted by consultation with her coach. Although Ms Stone's affidavit suggests that no prize money was offered for the Grand Prix meetings there was available for the Grand Prix series of meetings (seven in all) a prize money bonus pool. Athletes were awarded points depending upon various criteria which included points won at each event and rankings. So far as I understand from the brochure dealing with the Grand Prix series, prize money was payable to athletes eligible to score points for being placed first, second or third in events. Ms Stone could not recall whether she was placed in these meetings, but did not receive any prize money. The procedure for entry into competitions run by Athletics Australia (and I would assume competitions in Australia of a similar level) was that the athlete was first required to indicate to the relevant sporting body in the State where the athlete lived an interest in competing, in Ms Stone's case that was the Queensland Academy of Sport; the State body then requested Athletics Australia to include the athlete in the meeting. Athletics Australia would, if the athlete was accepted as a competitor, then notify the State body which in turn notified the athlete. 16 In late 1994 Ms Stone suffered, on two occasions, injuries brought on by her javelin throwing which required surgery and subsequent rehabilitation. 17 During 1995 she competed in local and state athletics meetings for which no prize money was offered and in the Sydney Grand Prix (part of the Optus Grand Prix series for that year) where she was placed first and won $250. There was in that series also a prize money bonus pool, but she did not win any of that money. 18 In 1995 and for the first time it would seem, Ms Stone received payments totalling $5,196 under the Olympic Athlete Program. It would seem that payments were to be made weekly, although the first payment covered, a period of six months. The amount of payment under that program depended upon world ranking. At the time Ms Stone was apparently in the top 25 athletes in the world in her sport (three athletes per nation were taken into consideration). The purpose of the program was to assist Olympic athletes so as to encourage them to continue to train hard. Athletics Australia which was closely associated with the program wished to ensure that everything was done for athletes who were maintaining Olympic performances. The program was not developmental; that was the responsibility of the relevant State athletics body. Rather the program was intended to provide support to athletes to assist with living expenses. It was means tested, so that athletes earning $50,000 per year or more were not eligible. Performances, and thus benefits under the program were the subject of review on a six weekly basis. An amount of $1,500 for each athlete benefiting was paid to the State sporting body as a sport science/medicine allocation. However, this amount was not directly payable or paid to the athlete and could not constitute an amount derived by the athlete. 19 In mid 1994 Ms Stone was selected as a member of the Queensland Academy of Sport's Athletic Squad Program for the 1994/5 athletic season in the "World Class" Category. To receive the benefits under this program Ms Stone signed an agreement with the Queensland Academy of Sport ("QAS"). It provided that she was to be provided with benefits which went to training and coaching, travel for her coach and herself for Australian Grand Prix and New Zealand competitions, access to Sports Science, physiotherapy (maximum $200), massage (maximum $3,200), competition uniforms, tracksuits, joggers etc and access to an education program. Selection for QAS Track and Field Squads was based on Athletics Australia standards for the World Juniors and World Championships "A" Qualifying marks. The criteria were based upon performance in the previous twelve months. Membership of the squads was subject to achievement of consistent performances throughout the competitive season. The financial assistance provided could be suspended if the performances deteriorated. Ms Stone continued to be in the Program and to receive benefits throughout the period to June 1996. For the 1995/6 season she was categorised as a member of one of the "Olympic Squad" Categories. 20 In the year ended June 30, 1996 Ms Stone continued to compete and train. She attended numerous national and international meets in this time. The majority of them were in July and August 1995 in Europe which included the International Amateur Athletics Federation World Championships in Gothenburg, Sweden held from 11-13 August 1995. Her goal in this time was the 1996 Olympic Games which was to be held in Atlanta. Athletics Australia provided a physiotherapist to travel with her and arranged and presumably paid for accommodation and transport. She was placed 5th in the final in Gothenburg with a personal best throw. In consequence she was ranked 5th in the world. She won no prize money and was uncertain in her evidence whether prize money was offered. 21 Also in 1995 she was nominated to and did compete in Zurich at a high level international meet where she was placed 2nd and in Linz, where she also came 2nd. In 1996 and after consultation with her coach she competed in a number of overseas meetings. She says that no prize money was on offer for these meetings and no appearance fees were paid, except for a meet in Zurich in August 1995 where she was placed 2nd and won US $4,400. It is conceded that prize money may have been offered at some of the meetings. In the Grand Prix meeting held in Sydney on 11 February 1996 and the Australian National Championships held in March 1996 she was placed first. In the various international competitions she was placed variously from 2nd to 5th. In the overall Optus Grand Prix Series for 1996, in which she competed in one event only on 11 February 1996 she was placed equal 9th but did participate in the special prize pool moneys and received $1,125 together with another $510 as a share of the gate takings. In the 1995 Olympic Dream Titan Challenge on 19 November 1995 she won $2,000 prize money. 22 Ultimately she was selected for the Australian Olympic team for Atlanta and in consequence received a cheque for $500 said to be for reimbursement of the costs and expenses in the preparation for the Olympic Games. This is one of the benefits payable under agreements that those selected for the team signed and it may be inferred that Ms Stone did. Other benefits were a daily living allowance, medical massage and physiotherapy treatment, travel, accommodation and ground transport as determined by the Australian Olympic Committee, insurance of various kinds, tickets to games events, team uniform and training apparel and equipment as well as potential amounts payable to successful athletes together with eligibility to participate in an Olympic Job Opportunity Programme designed to assist athletes to obtain employment and training suitable to their abilities and which recognise the special needs of athletes. Presumably this latter benefit was of no interest to Ms Stone. She was also required to signify her adherence to an anti-doping policy. 23 It was in October 1995 that Ms Stone received her first sponsorship engagement with ASICS Tiger Oceania Pty Ltd ("ASICS"), a sports goods manufacturer. Her affidavit evidence suggests that it came about almost as a matter of chance and as a result of an introduction from her fellow Australian athlete and friend Louise Currey. And it may be that this is true. However, it is also the case that from early in 1990 until 1996-7 Ms Stone's mother, but with the approval of Ms Stone, had circulated many large concerns in Australia seeking sponsorship. 24 Under the arrangement ASICS offered to supply Ms Stone with free sports clothing and boots worth up to $2,000 per year. There were also performance bonuses if she won a gold, silver or bronze medal in the 1996 Olympic Games or the 1997 World Championships. In return she agreed to grant to ASICS the exclusive right and license to use the "Athlete Endorsement" and to appear at certain nominated promotional events, such as trade shows. This agreement was to run until October 1997. 25 On 22 May 1996 Ms Stone was advised by Athletics Australia that she was to be funded by its AIS/OAP Scholarship scheme to the extent of an annual payment of $10,020 payable monthly. In fact in the year ended 30 June 1996 she received a total of $10,889 under this scheme. Additionally she was provided with sports science and medicine services under the Olympic Athlete Program. Her entitlement was to be reviewed after the Olympic Games in Atlanta. In addition she received a grant of $5,380 by way of a single annual payment from the Queensland Academy of Sport. The basis of qualification for this payment was that she was a Queensland resident who was selected to be a member of an Olympic, Commonwealth or Paralympic Games team in the prior year. The grant was discretionary. In the same period she was again a member of the Queensland Academy of Sport's Athletic Squad Program which entitled her to benefits in the "Olympic Squad Category". The benefits were, it may be inferred of the same kind as those made available to her in the preceding year. 26 The Queensland Police Sporting Association, of which Ms Stone was a member, donated in this period to Ms Stone the sum of $600 to assist her preparation for the 1996 Olympic Games. The Caboolture Shire Council gave her $1,600, in part to assist with travel to Atlanta. 27 In the year ended 30 June 1996 Ms Stone made five personal appearances. However it was only for one of them, namely coaching at the Toowoomba Clinic on 26 May 1996 that she was paid $300.

The year ending 30 June 1997. 28 The Olympic Games at Atlanta was held from 19 July 1996 to 4 August in that year. Ms Stone was placed 16th. 29 In this financial year Ms Stone competed in eleven competitive meetings including the Olympic Games. She was unable to say whether in many of them prize money was on offer. In a meeting in London she was placed 2nd, but received no prize monies. She did, however, receive prize monies in five meetings in Australia where she was placed on four occasions 1st and on one occasion 2nd. Generally the prize was $250, however the prize she was awarded for "athlete of the meet" in the Sydney Grand Prix meeting was worth $3,000. Following the completion of the 1997 Grand Prix Series she received $4,000 from a special bonus prize pool. She also received a prize of $10,000 for being Grand Prix Female Athlete of the Year. 30 On 6 November 1996 Ms Stone was awarded $650 per month by Athletics Australia as part of the Olympic Athlete Program. This followed a review of the funding criteria of that scheme. She also qualified for sports medicine/science under this scheme. Around that time it would seem the participation of the Australian Institute of Sport in this program ceased and it was thereafter to be the responsibility of Athletics Australia. The monthly payment was said to be made to offset expenses incurred in training and competition. There was no requirement to produce receipts for any such expenses, however, to be entitled to the payment. Again Ms Stone was required to state that she did not earn a gross income of more than $50,000. She was also required to state that she was not a professional athlete. There was no definition of the term. 31 In March 1997 the payment under the Olympic Athlete Program had increased to $835 per month. In consequence she received a total of $9,140 from this program in the year ended 30 June 1997. 32 On 13 May 1997 Ms Stone entered into another sponsorship contract, this time with Multiplex Constructions (Qld) Pty Ltd ("Multiplex"). According to Ms Stone the offer of the contract was not solicited by her but came from the Chief Financial Officer of that company who, it would seem, was a friend. Under the contract Ms Stone agreed to use her best endeavours to endorse and promote Multiplex. She agreed to make appearances at various kinds of events and could be required to appear 20 times in any 12 month period. However, she was not called upon to do so in fact. Ms Stone attended three to four Multiplex functions per year. She also agreed to wear advertising material on her sports clothing. The agreement was to expire on 31 December 2000, although Multiplex had an option to extend the term until December 2004. Multiplex for its part was to provide Ms Stone with a Holden Commodore motor vehicle to be replaced at three yearly intervals. The vehicle doors were to be painted with a Multiplex identification. 33 In October 1996 Ms Stone was invited to participate in the 1996/7 Queensland Academy of Sport program. Under that program she received $1,200 in the financial year ending 30 June 1997 as a training allowance and became entitled to the same kind of benefits as she was entitled to in the previous year, for example, uniforms, access to sports science and assistance with coaching. The program, as in other years, required Ms Stone to sign an agreement with the State of Queensland which bound her to work towards realising her full potential. 34 The ASICS agreement continued during that year. Again she was paid a donation from the Caboolture Shire Council, but this time of $350 in the financial year. She made nine personal appearances during the year. All of them were unpaid

The year ending 30 June 1998. 35 The 1997 World Championships was held in Athens over the period from 2 to 10 August 1997. Ms Stone was selected as a member of the Athletics Australia Squad on the basis of her being placed first at the 1997 Australian Championships in March 1997. Ms Stone was placed 2nd in the World Championships and won $40,961. The Zurich Grand Prix was held four days after the World Championships. Ms Stone was again placed 2nd and won $US8,000. It would seem that US$3,000 of this was appearance money, that is to say money that she was paid, whether or not she won. In this period Ms Stone attended meetings in Hechtel and Tata (both in Europe) where she was placed 1st in each meeting. However she won no prize money for her participation in these meets and so far as she was aware there was no prize money on offer in any of them. 36 In December 1997 Ms Stone had another operation to remove a loose fragment of bone. At the same time her shoulder was operated on in a serious surgical procedure. Both operations resulted from injuries as a result of javelin throwing. In the result she did not compete in the period from September 1997 until June 1998. 37 The 1998 year of income saw Ms Stone receive for the first time a total of $10,500 in at least two instalments under the Australian Olympic Committee's Medal Incentive Scheme. That scheme was implemented with the objective of ensuring that Australia be ranked in the top five nations on both the overall and gold medal counts in the Olympic Games to be held in Sydney in the year 2000. The funding for the scheme came from the Australian Sports Commission as complemented by assistance from State Institutes and Academies of Sport. Athletes and coaches winning medals at the 1996 games or in World Championships or other agreed major international events were eligible, in the year following their win, to payments under the scheme. Benefits under the scheme were subsequently extended to all athletes and coaches of athletes where the athlete finished fourth in nominated benchmark events and to those who came close to winning medals or who put in a meritorious performance indicating that they were likely to win a medal in Sydney. The scheme provided for payment of an amount depending upon the medal won or placing. The Australian Olympic Committee also announced that grants of $3,000 would be made to athletes who were selected in the 2000 Australian Olympic Scheme who were not otherwise receiving payments under the Medal Incentive Scheme. 38 The 1998 year also saw Ms Stone enter into an agreement with DDS Consulting Pty Ltd ("DDS"), a Brisbane company involved in database development for sponsorship by that company. The agreement, the terms of which were recorded in a letter, was for sponsorship of $5,000 per year until the 2000 Olympics in return for which Ms Stone was to agree to have promotional photographs taken and attend functions. In fact she neither performed any services for the company, nor was she paid the whole amount promised. She received $2,502 in the year of income from this source. Her sponsorship arrangement with ASICS continued, under which she received sporting equipment and clothing as well as a cash amount of $5,000 to recognise her success in the world championships. Likewise the arrangement with Multiplex under which that company provided for her use a car also continued. 39 Ms Stone received a training allowance of $1,200 from the Queensland Academy of Sport under that body's Athlete Squad program. She received as well and by way of a donation, an amount from the Police Sporting Association of $350 to assist her sporting endeavours. She won the 1997 Queensland Sportswoman of the Year for which she received a prize of $500 by way of a gift voucher and an expenses paid trip to New York to attend the USA Women's Sports Foundation 19th Annual Salute to Women in Sport. She did in fact travel to New York for this function. 40 During the year Ms Stone attended a number of functions, thirty-one in total, at which she was either a guest or a speaker or an interviewee. She was paid for six of these appearances. For the remainder she was not paid. She says that on one of these occasions, an appearance at the Queensland Academy of Sport, she asked that she not be paid because she was of the view that that body had already given her considerable assistance. However, she was still paid. 41 Sometime in the 1998 income tax year Ms Stone entered into a management agreement with a Mr Bob Hynes of World Sport Pty Ltd. Mr Hynes approached her and offered to be her manager. This led to the signing of an agreement for a period of 18 months. The agreement was terminated by Ms Stone after about 9 months and thereafter Ms Stone had no manager. The agreement with Mr Hynes provided that he was to be paid a percentage of any sponsorship arrangements he negotiated. Hence when Ms Stone entered into the arrangement with DDS, he was paid a commission, notwithstanding that Mr Hynes did not introduce Ms Stone to DDS. It seems that Mr Hynes tried to arrange other sponsorship arrangements for Ms Stone but failed to achieve success.

The year ending 30 June 1999 - the tax year in question. 42 Ms Stone went into the 1999 taxation year as a member of the Olympic Games A squad. She says, and I accept, that it was a requirement of selection by Athletics Australia for both Commonwealth and Olympic selection that an athlete compete in a variety of meetings and perform to a high standard. Clearly competition at the highest level is necessary for elite athletes to improve and that is so whether the athlete is amateur or professional. The World Cup was one of the meetings which Athletics Australia regarded as necessary for selection. However, her training regime required her to avoid risks from competing, where possible at least, particularly having regard to her injured elbow and in consequence she chose not to compete in either the Australian Grand Prix Series or the European Grand Prix Circuit. She also chose not to travel overseas for more than six weeks at a time, which limited the amount of overseas meetings she attended. In the result she only travelled overseas twice in the income year. 43 The meetings Ms Stone competed in, her placing, together with the prize money won, and an indication of whether prize money was offered can be summarised as follows: Meeting place prize prize offered? Brisbane 1st NIL no Goodwill Games (USA) 1st $US6,000 yes Cth Games Trials 1st NIL no World Cup (Sept) 1st $US50,000 yes 44 Ms Stone also received a Preparation Grant of AUS$1,600 from the Oceania Amateur Athletics Association as part of assistance for Oceanic athletes to compete in the World Cup. Injury, particularly arising from the World Cup meeting, however, caused her to withdraw from the Commonwealth Games Team so that she did not compete in the Commonwealth Games, although she attended the Games as Female Track and Field Team Captain. 45 During the year she received the following grants:

AOC Medal Incentive Scheme $22,500
Queensland Academy of Sport - bonus $5,400
Queensland Academy of Sport-Athlete Squad programme NIL
Little Athletics (role model of the year) $1,000 46 Ms Stone made twenty-seven (or perhaps 31) personal appearances during the year of income. She was paid a total of $2,700 for four of these appearances. It is unnecessary to detail the organisations involved. Many were community or charitable functions, some were sporting functions, some were interviews with media. Ms Stone says that in addition to the appearances she lists she gave numerous television interviews for which she was not paid. 47 Sponsorship with ASICS and Multiplex continued in the year. From ASICS she received a cash performance bonus of $7,500 and a bonus of $4,000 for her performance in the World Cup in addition to sporting wear. Ms Stone also attended a number of Multiplex functions and wore some training gear with the Multiplex name on it. She was paid a total of $2,919 by DDS in monthly instalments under her sponsorship arrangement with that company.

The period since the year of income. 48 It is not necessary to go into so much detail for the period after the 1999 year of income. Because of her fear of exacerbating the injuries she had Ms Stone did not compete in local or overseas competitions including the World Cup. She continued to receive funding under the Olympic Medal Incentive Scheme, and received direct athlete assistance from Athletics Australia as part of the Olympic Athlete program. She received benefits, but no payments, from the Queensland Academy of Sport athlete Squad program and continued to make a number of personal appearances (17 in all) but was paid only in respect of one of them (the "Adrenalin Sports Bar Star Behind the Bar"). 49 However, Ms Stone competed in a local meet in August 2000 and in the Olympic Trials in August 2000. She was placed second in each. These were, she says, the minimum competitions she could attend to qualify for the Olympic Games. Ultimately she competed in the Games but her performance was hampered by injury and she was placed only 17th. She has neither seriously trained, or competed since those Games. During the Games she received $3,400 from the Australian Olympic Committee being a daily allowance as well as amounts paid to her under the Olympic Team Membership Agreement and said to be reimbursement for part of the costs and expenses incurred in preparation for participation in the Olympic Team. 50 She continued to receive sponsorship benefits from ASICS and Multiplex until the end of the tax tear 2001 and made a number of appearances for which she received no payment.

Ms Stone's position with the Queensland Police Service. 51 In the whole of the period discussed Ms Stone continued to be employed full time with the Queensland Police Service. In the 1995 year she was an investigating officer in the Missing Persons Unit. At various times she undertook training courses, which, it may be inferred, were intended to further her career. She transferred in May 1997 to the Queensland Police Academy Training and Education Department on the Constable Development Program where she was responsible for marking assignments of police completing that program and assisting in the redesign of the Program training packages. 52 The Service maintained a "Sporting Leave Policy". At least as at March 2001 (and there is no reason to believe there were any substantial differences at relevant times) that policy permitted consideration to be given for leave for training or taking part in sporting events. Leave so granted was paid. The policy provided that subject to Police Service requirements a maximum of seven calendar days per year might be granted to any officer selected as a competitor in an Australian State or national team. She received paid leave in various periods, although some of it might have been recreational leave. From 26 June 1995 to 4 July 1995 Ms Stone was granted leave in order to compete in the 1995 World Championships. On 17 June 1996 she was granted further leave to attend the 1996 Atlanta Olympic Games. She had further leave in the period from 14 July 1997 to 13 August 1997 to enable her to attend the 1997 World Cup and from 27 August 1998 to 24 September 1998. Under the relevant award she was entitled to flexi leave as well as recreation leave and sporting leave and this gave her some flexibility with her training. She did not at any relevant time take leave over and above that available to her under the award. 53 From 11 October 1997 until 2 February 1998 she only worked part time at the Academy. It was the only time she worked other than full time. She was pressured to resume full time employment and did so, although she was able to arrange her duties so that she worked two days a week in the office and was able to complete the remainder of her workload from home. This flexibility enabled her to work at her javelin training as well as undertaking her full workload. 54 In July 1997 Ms Stone commenced a course of Legal Studies, a prerequisite for promotion to the rank of sergeant. She completed Policing 1 on 21 November 1997 and was advised in 1998 that she had completed all the requirements for promotion to the rank of Senior Constable. She was promoted to that position with the Queensland Police Service on 1 July 1998 and continued in that position during the year of income. As a Senior Constable she earned $39,832 per annum. In the year of income she continued with the Constable Development program working two day at the Academy and the balance of the week at home. 55 In about July 2000 Ms Stone transferred from the Academy to become an organiser for the Australia and New Zealand Police and Emergency Services games held from 10 November 2001 to 17 November 2001. On 4 December 2001 she transferred to the Recruitment Sector of the Service assisting with recruiting applicants to the Queensland Police Service. Apart from taking maternity leave in early March of this year she has continued to work full time with the Service.

Income. 56 In Scott v Commissioner of Taxation (1935) 3 ATD 142 at 144-5, in a passage often referred to Jordan CJ said: "The word 'Income' is not a term of art, and what forms of receipts are comprehended within it, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income, must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of receipts…" 57 It may be thus be thought to be surprising to some, that the law reports are replete with cases which have considered in various contexts whether amounts are income in the hands of the recipients, cases which indicate the need to resolve disputes between taxpayers and the revenue as to what those ordinary concepts and usages of mankind are. On the other hand the usage of language is often imprecise and ambiguous, so that it is not really so surprising that views will differ, particularly in borderline cases such as the present, whether a particular receipt or series of receipts is to be seen to be income. 58 Some kinds of receipts will perhaps always be income. Thus there is seldom if ever room for argument whether salaries, rents, dividends, interest and the like are income. Likewise the proceeds of business will clearly be regarded as income. There the question will often not be whether those proceeds are income, but whether the activity from which the proceeds are derived is correctly to be characterised as a business. 59 Other kinds of receipts may or may not be income. Whether they are will depend upon their character in the hands of the recipient. But particular factors, such as periodicity, or recurrence may assist in the process of characterisation: Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540. 60 In his seminal work Income Taxation in Australia, Law Book Co, 1985, Professor Parsons set out a series of 15 propositions derived from the case law prior to that time which assist in resolving whether a particular item is income of a particular taxpayer. However, particular propositions, while relevant, will often not be determinative and the propositions may need to be reconciled with each other when applied to the particular circumstances of a taxpayer. However, in the present case the amounts which Ms Stone received may be income if one or other of the following principles apply: · That the amounts or some of them represent gains from a business (Proposition 14). · That the amounts or some of them represent a reward for services rendered (Proposition 13). · That the amounts are a gain which is compensation for an item that would have had the character of income if it had been derived (Proposition 15). However, looking at the matter in the opposite way it may be said that if amounts received by Ms Stone are "mere gifts" then they will not have the character of income (Proposition 8). This last proposition requires consideration in the present case when considering the application of both Proposition 15 and Proposition 13. 61 It will be convenient to consider the three positive propositions in their application to the facts of the present case in the order I have set out.

Was Ms Stone a professional athlete? 62 It is obvious that if Ms Stone was carrying on a business in addition to her Police duties then the proceeds of that business, including amounts that might be termed an ordinary incident of it would be income in ordinary concepts. 63 In the present case, the business, if there is a business, might be colloquially spoken of as the business of a professional athlete. While it is convenient to use the term "professional" as opposed to "amateur" to indicate a distinction between a person who is carrying on a business and one who is not, it must be said that in the distinction which is made in sporting circles may not be the same as the business/non business distinction in tax law. Hence I would emphasise that in using the term "professional" I intend no more than that the word "professional" denote an athlete who is carrying on an activity which is a business and "amateur" an athlete who is doing no more than engaging in a hobby, no matter how strenuous, or is otherwise not engaging in a business activity. 64 Whether a person is carrying on a business depends upon a number of factors. No single factor will be determinative in a particular case. Rather it will be a combination of factors which will lead to the conclusion that a person is in fact carrying on a business. These factors have sometimes been referred to in the English cases as the "badges of trade", where the concept of "trade" is, by statutory definition, used in the broader sense of "business", cf Inland Revenue Commissioner v Livingston (1927) 11 TC 538 at 542. So, Jessel MR in Ericksen v Last (1881) 8 QB 414 at 416 commented: "There is not, I think, any principle of law which lays down what carrying on trade is. There are a multitude of things which together make up the carrying on of trade…" 65 So, it will be relevant, although not determinative, to note whether the activity is carried on in a business-like way, and in accordance with ordinary commercial principles: Livingston supra. It will be relevant if there is system in the activity: Newton v Pyke (1908) 25 TLR 127 and Evans v Federal Commissioner of Taxation (1989) 89 ATC 4,540 at 4,555. Repetition and continuity play a part in the process of characterisation: Hope v Bathhurst City Council (1980) 144 CLR 1 at 9, although repetition may come from the closely associated phrase "carrying on" rather than from the word "business" itself: per Mason J in Hope at 8. 66 In Hope Mason J speaking of the ordinary meaning of the words "carrying on the business of grazing" said at 8-9: "It denotes grazing activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis." 67 In the context of income tax, reference is often made to the decision of the full Court of this Court in Ferguson v Commissioner of Taxation (1979) 79 ATC 4,261 where Bowen CJ and Franki J at 4,264 - 4,265, speaking of an activity of breeding cattle, said: "There are many elements to be considered. The nature of the activities, particularly whether they have the purpose of profit-making, may be important. However, an immediate purpose of profit-making in a particular income year does not appear to be essential. Certainly it may be held that a person is carrying on business notwithstanding his profit is small or even where he is making a loss. Repetition and regularity of the activities is also important. However, every business has to begin and even isolated activities may in the circumstances be held to be the commencement of carrying on business. Again, organization of activities in a business-like manner, the keeping of books, records and the use of system may all serve to indicate that a business is being carried on. The fact that, concurrently with the activities in question, the taxpayer carries on the practice of a profession or another business, does not preclude a finding that his additional activities constitute the carrying on of a business. The volume of his operations and the amount of capital employed by him may be significant . However, if what he is doing is more properly described as the pursuit of a hobby or recreation or an addiction to a sport, he will not be held to be carrying on a business even though his operations are fairly substantial." 68 Although it has been said that it is the extent of the activity (I would prefer to say the nature and extent of the activity) and not the state of mind or intention of a taxpayer which determines whether the taxpayer carries on a business: Inglis v Federal Commissioner of Taxation (1980) 80 ATC 4,001, that is not to say that the state of mind is irrelevant. Two different taxpayers may carry on the same activity (for example, carpentry) and both may sell the product of their activity on just the one occasion, yet the one may be carrying on a business and the other merely selling the product of a hobby. What must differentiate the two cases is the purpose for which the activity is carried on. Generally, as the extracts cited above illustrate, the profit motive is important in leading to the conclusion that the activity undertaken is a business. 69 That is particularly the case here. As the evidence shows it is necessary for an athlete at an elite level to compete against competitors of the same ability level or above both to improve the athlete's skills or indeed to maintain these. Some, although not all competitions at an elite level confer prizes upon those who attain first, second or third place. However, some athletes at that level may clearly be seen to be undertaking a business, while others will be pursuing their sport for its own sake. The question whether the athlete is carrying on a business will not be resolved in these cases by considering the activity he or she engages in, but rather by a consideration of the motive or purpose for doing so. That motive may often, however, be gleaned from the activities which the athlete undertakes. It must also be said that the mere fact that the athlete wins prizes of a large amount can likewise not be determinative of the issue. The size of a prize alone does not mean that it is income. 70 An athlete who pursues his or her sport as a full time and money-making activity is clearly carrying on a business. But, as Ferguson's case says and common sense requires, a person may have more than one activity. Where the person carries on two activities one alone may be a business and the other an employment, both may be businesses or neither may be businesses. 71 There are cases where no one would disagree on the question of whether an athlete is carrying on a business. For example, a celebrity swimmer may clearly be seen to be carrying on a business, where the swimmer, in addition to training and competing as all athletes must, solicits and accepts sponsorships and engagements for which the athlete's fame equips him or her and does so in a way which demonstrates that the swimmer is turning his or her talent to account in a money-making way. The example shows, however, that the profit motive need not be the sole motive, or even necessarily the dominant motive. But the profit motive would need to be a substantial motive before the conclusion would be drawn that the swimmer was carrying on a business. 72 The present case is on the borderline. I have no doubt that Ms Stone engaged in the sport of javelin throwing from an early age because of her enthusiasm for the sport and because of her desire to excel in it and to win medals, particularly in the Commonwealth Games and the Olympic Games. That is likely also to be the case with the professional swimmer. Ms Stone certainly was successful at the sport of her choice and in the result won a considerable amount of prize money in the year of income. In Australian dollars, the prizes she won in the income year totalled $87,829. That figure is only a gross figure as she clearly had substantial expenses which she incurred. The professional swimmer would likewise have had substantial prize money from swimming and substantial expenses. She received grants from a number of organisations, as most high level Australian athletes did. In the year of income these totalled $29,500. No doubt so too did the professional swimmer. 73 The question however, is whether Ms Stone turned her undoubted talent to the pursuit of money in the way that one would expect a professional athlete would. Certainly in the year of income she received sponsorship of money and benefits having a value of $26,203 which it is conceded (correctly) is income, whether or not she was carrying on a business, because the amounts in question can be seen to be a reward for the service of promoting the goods or name of the sponsor. The evidence as to how these sponsorships came about is somewhat unsatisfactory. 74 There was evidence, not to be found in Ms Stone's affidavit evidence, but revealed in cross-examination, that in the early 1990's Ms Stone's mother had, with her daughter's approval sent out letters quite widely in the community seeking sponsorship. The document, prepared on a home computer, had, as a heading in the section dealing with sponsorship, "What I can do for a sponsor?" The document tendered (it was undated, although the address shown in it was the address at which Ms Stone resided between 1996 and 1997 and there were other external references to 1997) noted current sponsorships of ASICS Sporting Goods and Oakley Sun Glasses. Strangely no questions were asked by senior counsel for the Commissioner about the Oakley Sun Glasses sponsorship. It may perhaps be that the sunglasses are sold through the same company as the ASICS sporting goods. I do not know. However, it seems that hundreds of copies of the document were sent out, although Ms Stone said that she thought that hardly anyone would have received it as late as 1996 or 1997. However, the document was regularly updated. 75 One can understand why sponsorship was important, not only for Ms Stone, but also for her mother. Javelin throwing, like many sports, is expensive. In addition to training and coaching (some at least of the coaching fees were paid through grants which Ms Stone received) javelins themselves cost, so Ms Stone said in her evidence, around $1,000 and do not last any length of time. Sporting apparel and travel are expensive and Ms Stone had little surplus money from her salary as a Police Officer to pay all her expenses and no doubt, in the absence of sponsorship had to draw upon the resources of her family. Sponsorship would clearly defray some at least of these costs. 76 It is not clear whether any of the sponsorships which Ms Stone obtained came about as a result of this solicitation or whether each came about as a result of her achievements, such that the sponsor approached her. As already noted it seems that ASICS approached Ms Stone and as a result of a connection with Louise Currey. Whether the solicitation might, nevertheless have had any significance I do not know. Her evidence was that DDS approached her and not the other way around. The relationship with Multiplex arose because Ms Stone's father had been the Centre Manager of Little Athletics at Deception Bay. He met there the financial controller, whose father in law was a good friend of Ms Stone's parents. The inference is that the sponsorship came about because of this personal relationship. Whether it was solicited, or not, was not revealed. I have no doubt that the proceeds of the sponsorships were willingly received. In a newspaper interview it seems Ms Stone said, and this presumably represented her state of mind at the time (November 1997) that to get a big sponsor would be a definite advantage, although it was not something she worried about. 77 As already noticed, Ms Stone had, during the period from 1997 to 1998, and until it was cancelled after nine months had expired, a management agreement with a Mr Hynes which provided that he was to be paid by way of a percentage of the sponsorships Ms Stone thereafter entered into. Even if, as Ms Stone said, the management agreement came about by Mr Hynes approaching her, the fact that she agreed that he was to be her business manager suggests that she was far more interested in sponsorship that her affidavit evidence would suggest. 78 There was another piece of evidence (not mentioned by Ms Stone in her affidavit) which should also be noted and that concerns a Mr Kelvin Giles. Mr Giles became Ms Stone's coach some time in 1997 and after the relationship with her former coach, who had been with her since she was 15, came to an end. In September 1997 Mr Giles faxed Mr McKenna of ASICS telling him that it was vital that "we" (which I take to mean both Mr Giles and Ms Stone) procure corporate support in order to free Mr Giles from his current business responsibilities. The suggestion Mr Giles put to Mr McKenna involved sponsorship of the coach and athlete (ie Ms Stone) as a team. The fax notes that Mr Giles was "currently circulating the corporate sector with this concept in the hope that we can find a solution to Joanna's coaching problem." The fax, which was sent to a number of companies, was accompanied by what may be described as a brochure or perhaps merely a document, which had been prepared by Mr Giles. 79 The background to the fax seems to be that Mr Giles, who did not accept money for coaching an athlete, had previously coached the Broncos football team in Brisbane but did not want to be involved in football any more. The proposal was therefore a means for him to work as a coach in Australia outside football, rather than take up another football position perhaps overseas. The brochure noted that Ms Stone would be available, outside training and her police commitments, to attend corporate events as would Mr Giles. 80 While this concept, which was not taken up by anyone, had as at least one of its purposes the benefiting of Mr Giles, it also suggests that Ms Stone's approach to making money out of sponsorship was rather more to the fore than her affidavit evidence would suggest. It was accepted by Ms Stone that the fax and accompanying brochure, or document, were sent by Mr Giles with her authority. 81 On the other hand, it is relevant to note that Ms Stone did not select the competitions she competed in on the basis of money, but rather on the basis of the need to participate in meets to gain competitive experience. She said in her evidence that she did not throw javelins for money and that she would still have done what she did for nothing. Perhaps she would have competed without there being money on offer but there is no reason to doubt that the potential prize money to be won was welcome. 82 Athletes who may be said to carry on a business would be likely to choose the meets they compete in (except those which qualify the athlete for selection to the national team in competitions such as the Olympic Games) having in mind the criterion of profits. For example, prominent professional golfers are often paid to attend a tournament and will not attend tournaments without appropriate reward. While this is not a determining factor, it is clearly a factor. 83 A business which consists of selling a product turns that product to account for money. Athletes do not have a tangible product to turn to account. What the professional athlete who carries on a business does is turn the athlete's talent to account for money rather than turn a tangible product to account. There are only a limited number of ways that an athlete can do so. The primary opportunity will be sponsorship. Another opportunity will arise by participation in competitions where there is prize money to be won, with or without an appearance fee. Another opportunity will be personal appearances for money, whether those personal appearances involve participating in sporting contests or attending functions or speaking engagements. 84 Ms Stone did virtually all of these things, except, perhaps attending a sporting function not so much to compete as to be paid for attending. Not without some doubt I have reached the conclusion that on the evidence Ms Stone can be said, at least by the time the year of income came, to have turned her undoubted talent to account for money, notwithstanding that she clearly also competed in sporting competitions to improve her talent and notwithstanding that she had another occupation, that of a policewoman, which she likewise pursued. 85 I should note here a concession which was made by the Commissioner concerning the evidence about the sponsorship solicitation document which had been sent to various prospective sponsors by Ms Stone's mother in the period up to 1996-7. It was accepted that Ms Stone's solicitors first saw the document on the Friday immediately preceding the hearing which commenced on the Monday and immediately provided it to the solicitors for the Commissioner. It was also accepted that Ms Stone's legal advisors had not had an opportunity to discuss that document with Ms Stone before she entered the witness box. I am not sure what I am supposed to draw from that concession, other than that the failure to disclose details of the document in the affidavit filed in the proceedings was not attributable to the solicitors instructed by Ms Stone. Perhaps it may go so far as to suggest that it was Ms Stone who provided the document to the solicitors, rather than that it had come into their possession in some other way. The concession, which was in writing and which forms an exhibit in the proceedings does not say that, but I am prepared to infer that that was the case. Senior counsel for the Commissioner also asked me to note that it was not contended that Ms Stone should not be believed on her oath and indeed I must say that Ms Stone in the witness box gave her evidence in a way that was frank and truthful. I would not disbelieve her although her affidavit evidence perhaps sought to understate her desire to obtain financial assistance and was certainly self-serving. 86 I have reached the conclusion that Ms Stone was in the year of income carrying on a business notwithstanding that many, if not most of the competitions in which Ms Stone competed over the years were competitions in which it was necessary for her to compete either to qualify for selection to the Australian Commonwealth or Olympic Games teams or to enhance and maintain the high standard which she achieved. I would not find that Ms Stone entered any particular competition on the basis that the entry, without more, carried with it the right to be paid an appearance fee. Nor would I find that prize money alone motivated her to compete in a particular meeting. 87 I was referred in the course of argument to two decisions of Taxation Boards of Review which have considered whether prize money in radio quizzes might be income in the circumstances of the particular cases. 88 In one of them Case No. T 14, 18 TBRD 67 the No. 1 Board of Review (Mr Burke and Mr Smith QC, Mr O'Neill, dissenting) held that a State public servant who appeared in a series of television and broadcast quiz contests and received a number of prizes for doing so was, at the time he was asked to take part in a new series of contests with a prize both for winning and losing (the former was, of course, substantially more significant), a professional contestant and the quiz prize income in ordinary concepts. In the other, Case No. S 17 17 TBRD 89 the No. 2 Board of Review (Mr Donovan, Mr Davies QC, as his Honour then was, and Mr Thompson) on the facts of the case before the Board held that the cash prizes which the taxpayer had won in television quiz contests were assessable income. In the latter case the Board of Review took into account both the activities in which the taxpayer engaged as well as the motive, intention and purpose of the taxpayer, although it did not regard the subjective matters as going to the kernel of the enquiry. The Board, however, indicated that it thought that prizes of the kind which the taxpayer had won were themselves within the concept of income. If this is so, a question upon which I would not express a decided view, it would only be because the taxpayer was to be paid for appearing, even although a larger amount was payable if he won and that the appearance was as a contestant in a program used by media so that the prize could, perhaps be seen to be a reward for the service of appearing. 89 I do not wish to pursue the question of whether the two cases were correctly decided or to examine the reasons of Mr O'Neill, dissenting, whose reasons like those of Mr Davies QC as his Honour then was and to the opposite effect, always warrant consideration. The factual situations in these cases are somewhat different from those in the present case and it suffices to say that the first of these cases turns really upon its facts and that there is, with respect, some difficulty in saying that prizes in a competition, of themselves turn an amateur into a professional as appears to have been the view of the No. 2 Board of Review. I would prefer to say that the question is really one of fact in each case. 90 It follows, that because Ms Stone is carrying on a business all of the rewards of that business or the rewards which are incidental to that business would be income in ordinary concepts. It is therefore not strictly necessary to consider whether the individual amounts or some of them would have had the character of income when paid or given to Ms Stone if she did not carry on a business. However, in case the present matter should go further I now set out my comments on the remaining matters argued before me.

A reward for services? 91 It is not a contentious proposition that where a receipt is a reward for services rendered, so that the receipt is a "product" of those services, the receipt will be income in ordinary concepts and also will fall within the terms of s 26(e) of the Income Tax Assessment Act 1936 (Cth) ("the Act"). The only question here is whether there is the required causal nexus between the receipt and the services to fall within the proposition. 92 There is a dispute, it may well be more academic than real, whether the provisions of s 26(e) of the Act extended to include in assessable income receipts which are not income in ordinary concepts or whether all cases which fell within s 26(e) of the Act would, in any event, be income in ordinary concepts. The general question of the relationship between s 25 of the Act and s 26(e) is the subject of some discussion in my judgment in First Provincial Building Society Ltd v Commissioner of Taxation (1995) 56 FCR 320 at 329-331, with which the Chief Justice and Carr J agreed. It is not necessary to resolve that question here. For there is little doubt that s 26(e) covers, within the ambit of the subject matter with which it deals, a field which would be broader than s 25, assuming that s 26(e) brought into assessable income amounts which were not income in ordinary concepts. Accordingly it suffices in the present case to concentrate, as the submissions made to me did, on s 26(e). 93 The cases in the High Court most often referred to in the context of s 26(e) are Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540, Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47, Scott v Federal Commissioner of Taxation (1966) 117 CLR 514 and Smith v Federal Commissioner of Taxation (1987) 164 CLR 513. 94 Dixon concerned what may be described as "make up pay" paid by a former employer to a former employee engaged in active military service. The case is more relevant to the matter next to be considered. Dixon CJ and Williams J in that case, who with Fullagar J formed the majority of the Court, with some obvious reluctance held that the amounts in question were assessable income. However, their Honours rejected an argument that s 26(e) applied, despite the fact that the paragraph includes in assessable income amounts that both directly or indirectly relate to employment or services rendered and that the words "directly or indirectly" extend the operation of the words "in relation to" as they appear in the paragraph. Their Honours said at 553-554: "A direct relation may be regarded as one where the employment is the proximate cause of the payment, an indirect relation as one where the employment is a cause less proximate, or, indeed, only one contributory cause." However, their Honours continued at 554: "We are not prepared to give s 26(e) a construction which makes it unnecessary that the allowance, gratuity, compensation, benefit, bonus or premium shall in any sense be a recompense or consequence of the continued or contemporaneous existence of the relation of employer and employee or a reward for services rendered given either during the employment or at or in consequence of its termination." 95 On the facts in Dixon, the employment of the taxpayer was as a soldier. Their Honours were thus of the view that the amounts received by him lacked the necessary relationship with his prior employment to be either income in ordinary concepts or assessable income within s 26(e). 96 Mr Hayes was an accountant who had been, but had ceased to be, a full time employee of a Mr Richardson. He did, from time to time, perform minor services for Richardson after his retirement, but also had a personal relationship of friendship with him and with his wife. He received from Richardson on the incorporation of a public company a large number of shares which had initially been allotted to Richardson. On the facts of the case it was held by Fullagar J, that the receipt of shares by Mr Hayes was not assessable income, but a mere gift to him. In a passage upon which Senior counsel for Ms Stone relies, his Honour said at 54: "A voluntary payment of money or transfer of property by A to B is prima facie not income in B's hands. If nothing more appears than that A gave to B some money or a motor car or some shares, what B receives is capital and not income. But further facts may appear which show that, although the payment or transfer was a 'gift' in the sense that it was made without legal obligation, it was nevertheless so related to an employment of B by A, or to services rendered by B to A, or to a business carried on by B, that it is in substance and in reality, not a mere gift but the product of an income-earning activity on the part of B, and therefore to be regarded as income from B's personal exertion." 97 So, in reliance upon this passage it is said that the amounts received from the Australian Olympic movement and Sports Institutes in the present case, are payments, made voluntarily and without legal obligation and in substance and reality a mere gift and not the product of an income-earning activity. 98 The phrase "product of an income-earning activity" was repeated by Windeyer J in Scott, another case where on the facts it was found that a payment made by a solicitor from a grateful client and friend was a mere gift. In the course of his judgment, Windeyer J said at pp 525-526, after discussing Hayes: "As I read s 26(e) its meaning and purpose is to ensure that certain receipts and advantages which are in truth rewards of a taxpayer's employment or calling are recognized as part of his income. In other words the enactment makes it clear that the income of a taxpayer who is engaged in any employment or in the rendering of any services for remuneration includes the value to him of everything that he in fact gets, whether in money or in kind and however it be described, which is a product or incident of his employment or a reward for his services. … The enactment does not bring within the tax-gatherer's net moneys or moneys' worth that are not income according to general concepts. Rather it prevents receipts of moneys or moneys' worth that are in reality part of a taxpayer's income from escaping the net." 99 Finally, the taxpayer in Smith was an employee of a bank who received money on completion of a successful unit of study under the bank's plan to encourage its employees to study an approved course so as to increase their knowledge in subjects relevant to banking. It was held by majority (Wilson, Brennan and Toohey JJ, Deane and Gaudron JJ dissenting) that the amount the taxpayer received was assessable income within s 26(e). Toohey J, with whose judgment Wilson J, although in a separate judgment which discussed the issues, agreed, after considering the relationship of s 26(e) and s 25 pointed to the width of the language of s 26(e) but emphasised the need for there to be found a connexion between the benefit received and the employment of the taxpayer or the services rendered by him or her. His Honour was of the view that on the facts of the case the amount received by the taxpayer was given to him in respect of the taxpayer's employment. His Honour pointed to the need that the subjects studied bear a relationship to the banking employment of the taxpayer and found there to be an "evident connexion" between the employment and the sum he received. His Honour said at 533-534: "And in a very real sense the payment was a consequence of the existing relation of employer and employee. It was only as an employee that the appellant qualified for the benefits payable under the scheme … there was no element of gift or personal bounty or of considerations extraneous to the appellant's employment." 100 It is clear that the test applied by his Honour was whether the benefit allowed, given or granted was a consequence of the employment of the taxpayer. 101 In his separate judgment Wilson J emphasised that it was not enough that there was a temporal relationship between the benefit and the employment. In his Honour's view it was helpful to ask whether the benefit was a product or incident of the employment as Fullagar Jhad done in Hayes and Windeyer J had done in Scott. 102 Brennan J in Smith, after discussing the earlier cases, noted that if the employment or some aspect of the employment is the reason or one of the reasons why the allowance is paid it would fall within the paragraph. If the employment was an insubstantial cause of the payment, it would be immaterial. On the facts before the Court the relationship between the employment and the payment received by the employee was substantial so that the employment was a direct cause of the payment. 103 With respect to the submissions of senior counsel for the Commissioner I have difficulty seeing that the payments made here could be said to have a substantial relationship to employment or services rendered, or for that matter that the payments in question were a product or incident of any relevant services. It is clear on the facts of the case that the various allowances, other than that from the Police Services, were made, either to defray costs incurred by athletes, to make up income otherwise lost by the need to train or compete, but largely in an attempt to bring about the result that the tally of medals which Australia would win in the Olympic Games (and perhaps the Commonwealth Games as well) was as high as it could possibly be. It is common knowledge that the Australian Institute of Sport was founded by the government of the day as a result of a poor medal result in the Olympic Games and that incentive schemes to encourage elite athletes were instituted for the same purpose. In my view, while it is clear that in one sense, none of the amounts paid to Ms Stone under these schemes were based upon personal characteristics in the sense those words are used in the "mere gift" cases, on the other hand, the amounts were paid to athletes precisely because they were elite athletes whom it was hoped, would, with encouragement, ultimately form part of the Australian Olympic team and produce medals for Australia and not as a product or incident of any employment or services or in consequence of any employment or services. Accordingly I am of the view that these amounts were not income in ordinary concepts under s 26(e). Since the Police award was not received by Ms Stone in the year of income it is unnecessary to consider whether that might stand in some different position. 104 Senior counsel for the Commissioner placed emphasis upon the regularity or periodicity of the payments made to Ms Stone in support of the submission that that they were a product of an income producing activity. Reference was made to what I said in Brown v Federal Commissioner of Taxation (2002) 49 ATR 301 at 310, [40] in a judgment with which Sackville J agreed, after discussing some of the cases: "Each [case] makes the point, by reference to particular facts before the court that a benefit which is given voluntarily will be income if it is the 'product' of an income producing activity." 105 I would not resile from what I said there. However, the reference to income producing activity does not refer to something that is neither a business, nor an employment or where the reward is not for services rendered in the sense that s 26(e) requires. 106 No doubt prize money would likewise be an incident or product of any business which an athlete carried on as a professional athlete. But, with respect to the submissions, I do not think that merely because an amateur athlete wins a prize as a result of sporting prowess that the amount in question is income. Whether it is income will turn on the nature of the activity which the athlete pursues, not the fact that it is a prize as such. The question is different, however, where the athlete receives an amount for participating, whether or not the athlete secures a place. In my view such amounts are not prizes, but reflect a receipt which is dependant upon services, in the sense of merely showing up to participate. 107 Likewise, although it is true that Ms Stone made many appearances for which she was not paid, I am of the opinion that the payments she did receive for making speeches, or merely turning up to a function are income, whether in ordinary concepts or falling within s 26(e) and thus made assessable income. And I so hold.

Whether the amounts or any of them fall within some other category of income. 108 It is true that periodicity or regularity are often thought of as indicating the income nature of a receipt, although neither the fact that a payment is not periodical nor the fact that it is paid periodically will necessarily require the conclusion that it is: Reuter v Federal Commissioner of Taxation (1993) 93 ATC 4,037. A parent may make periodical gifts in the sense of a series of gifts to his or her children without those gifts being income. However, it is also true that where other factors are present a payment would more likely be income if made periodically. 109 Senior counsel for the Commissioner placed particular reliance on Dixon in support of a submission that the grants received by Ms Stone were, nevertheless, assessable income. 110 It will be recalled that the payment in Dixon was made to the former employee to supplement the amount received by the former employee as a soldier to bring it up to, or closer to, the salary the employee had earned in his pre-war employment. There were two bases why the amounts received were income. One was the regularity of the payment. However, more important was the fact that the periodical receipts were receipts upon which the former employee depended for the maintenance of himself and his dependants to ensure that it remained at the same level as the civilian employment would have permitted. The amounts paid in the words of Dixon and Williams JJ at 557 were: "an expected periodical payment … [which] formed part of the receipts upon which he depended for the regular expenditure upon himself and his dependants and was paid to him for that purpose…" 111 In a sense, it can be seen, the amounts were able to be seen as paid as a compensation for an income item within Professor Parson's Proposition 15. 112 Fullagar J, the remaining member of the majority in Dixon, relied upon the coincidence of periodicity, addition to wages and substitution for wages which would have been earned had the soldier remained in the employment. 113 Dixon was not, however, followed by the full Court of this Court in Federal Commissioner of Taxation v Harris (1980) 30 ALR 10 but rather distinguished. In Harris it was held by Bowen CJ and Fisher J, Deane J dissenting, that an ex gratia payment received by a retired bank employee unrelated to length or quality of service or seniority to assist him to meet the problems caused to the employee on a pension as a result of inflation were not income in ordinary concepts. 114 In distinguishing Dixon, Bowen CJ and Fisher J placed reliance upon the fact that the payments in question were not a substitution for salary or wages foregone, nor were they periodic within a single income year, rather they were amounts received in a lump sum once each fiscal year. Deane J, on the other hand, whilst acknowledging the force of the matters which the majority found to point to the payments not having an income character made reference to the fact that the receipt had arisen from the employment relationship, that it was not a mere gift, was related to an annual period and was, in his Honour's view, periodic and was made to supplement income. 115 The payments in the present case were periodical in the sense that they were paid usually in periods over a particular year. Certainly they did not relate to employment or services. The strongest case for the Commissioner is to be found in the Olympic Athlete Program grant which was expressly paid to assist athletes with living expenses. That grant was payable in periodical monthly payments. In my view and notwithstanding Harris' case, which is distinguishable, if only because the amount paid in that case did not have the character of a periodical payment, this grant had the character of income. 116 The Medal Incentive Scheme, which is the largest single grant paid to Ms Stone in the year is different. It was paid quarterly in the year of income, although looked at on a year by year basis and potentially, subject to not being paid but suspended if the athlete did not pursue training. It was intended to be "applied towards the ongoing professional and personal development and well being of an athlete and their other preparation and participation costs as a likely medal winner". Although the terms of the scheme did not state that the award was paid to make up income, to a great extent it was, for the award itself recognises that to compete in elite competition like the Olympic Games an athlete must devote time to training and provide amounts for participation costs. I accept that the issue whether the proceeds of this scheme are income is a question which lies on the border line of principle. So, it is not without some hesitation that I conclude that having regard to the terms of the award, its periodicity and its purpose of encouraging athletes towards medal status it does have the character of income. And this is so, notwithstanding that the award was not the product of any employment or an incident of any employment or business. 117 The Queensland Academy of Sport grant is in a different category in that it is not periodical in the sense which that word was used by the full Court in Harris. Grants were made yearly and Ms Stone had received various amounts in the 1997 and 1998 years as well as the benefits available to her under the Queensland scheme. With respect to the submission to the contrary I do not think that this amount can be seen to have been paid as consideration for being a member of the Australian Commonwealth games squad, in the sense that it constituted a product of some service rendered or some employment of Ms Stone. The fact that it was a criterion of the award that Ms Stone be resident in Queensland does not give the award the character of income, nor does the mere fact that membership of the Commonwealth Games team was a criterion of the award. Both are preconditions to the award but I am of the view that this grant does not have the character of income. 118 The only remaining grants in the year of income was the Preparation Grant from the Oceania Amateur Athletics Association to enable Ms Stone to attend to compete in the World Cup and the reward from Little Athletics for being role model of the year. The former may, perhaps, be seen as a reward for participation, although expressed to be a payment to assist Oceania athletes to compete. On the whole I do not think it is any different category from the amount paid by the Queensland Academy of Sport. I would find, therefore, that it was not income. The latter was conceded by the Commissioner not to be assessable and accordingly I need give no further consideration to it.

Summary of Conclusions. 119 In summary I am of the view that if Ms Stone was not carrying on a business the amount which Ms Stone should include in her assessable income in the year of income would nevertheless have been: 1. the sponsorship payments and value of benefits from DDS Consulting, ASICS and Multiplex as conceded. 2. the appearance fees. 3. the amount of $22,500 received under the Medal Incentive Scheme. 120 The other amounts which Ms Stone received in the year of income would not, in my view, have been income in ordinary concepts namely: 1. prize money won, none of which included a participation fee. 2. the Queensland Government Grant. 3. the Oceania Amateur Athletics Association grant. 4. the Little Athletics Reward as conceded. 121 I would accordingly dismiss the application to the Court. I have been advised that the parties have come to an arrangement concerning costs although I have not been made aware precisely what that arrangement is. I have been requested to defer making an order for costs until 6 December 2002 when the parties will be in a position to file consent orders. If no such orders are filed by 4 pm that day I would propose to order Ms Stone to pay the Commissioner's costs. I reserve liberty to either side to apply on 48 hours notice to relist the matter if necessary. I certify that the preceding one hundred and twenty-one (121) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill.

Associate: Dated: 29 November 2002 Counsel for the Applicant: D Bloom QC with J Momsen and D Graham

Solicitor for the Applicant: Blake Dawson Waldron

Counsel for the Respondent: T Pagone QC with S Steward

Solicitor for the Respondent: Australian Government Solicitor

Date of Hearing: 14 & 15 October 2002

Stone v Commissioner of Taxation

At a glance

Court

Decision date

Before

Source

Judgment (18 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (7)

Cited By (2)