A referee isn’t the only person who can raise a red card. The Australian Taxation Office (ATO) can too – and it may have more severe consequences!
As a professional sportsperson in Australia, it’s crucial that you consider how the tax laws may affect your game.
The main factors involved in arranging professional athlete tax are outlined below, to clear up any confusion…
Are you an Australian resident for tax purposes?
One of the most important hurdles for a sporting professional is to determine whether you are an Australia resident for tax purposes.
It’s not as simple as it first sounds.
Your residency status affects the income that will be assessed in your tax return and the tax rate applicable for the financial year.
But the ATO uses a different residency test to other Australian agencies, such as the Department of Immigration and Border Protection. This means:
- You can be an Australian resident for tax purposes without being an Australian citizen or permanent resident; or
- You may have a visa to enter Australia but are not considered an Australian resident for tax purposes.
The ATO classifies any of the below situations as constituting Australian residency for tax purposes:
- You have always lived in Australia;
- You moved to Australia and live here permanently;
- You have been in Australia continuously for six months or more, and for most of the time you have been in the same job and lived in the same place;
- You have been in Australia for more than half of the income year, unless your usual home is overseas, and you do not intend to live in Australia.
An Australian resident for tax purposes is taxed on their worldwide income, whilst foreign residents are generally taxed on their Australian-sourced income.
Professional athlete tax rates
The individual tax rates for the 2018 financial year are as follows:
|AUSTRALIAN RESIDENT||FOREIGN RESIDENT|
|Taxable Income||Tax on Taxable Income||Taxable Income||Tax on Taxable Income|
|0 – $18,200||Nil||0 – $87,000||32.5% for each $1|
|$18,201 – $37,000||19% for each $1 over $18,200|
|$37,001 – $87,000||$3,572 plus 32.5% for each $1 over $37,000|
|$87,000 – $180,000||$19,822 plus 37% for each $1 over $87,000||$87,000 – $180,000||$28,275 plus 37% for each $1 over $87,000|
|$180,000 and over||$54,232 plus 45% for each $1 over $180,000||$180,000 and over||$62,685 plus 45% for each $1 over $180,000|
When reviewing the tax rates, it is clear that foreign residents do not have access to the tax-free threshold of $18,200 and are taxed at a higher rate.
This makes it imperative to correctly determine your residency status.
Key tax considerations for professional athletes
Determining your residency status is the first step to completing your Australian income tax return; but there are ways to deal with your income in a tax-effective manner, whatever your status.
- Applying the income averaging provisions
- Salary packaging your income;
- Negative gearing assets, such as rental properties;
- Ensuring you identify and include all deductions you can access; and
- Reviewing your ‘business’ structure.
Given the complexity of professional athlete tax and the importance of determining the correct residency status, consider contacting our professional advisors on (07) 3490 9988 for assistance.