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.