Sneaky legal structures are allowing celebrities to drastically reduce the tax they pay on income generated by their fame and image. But a new government policy aims to bring the practice to an end.
Currently, celebrities can grant a licence to use their name or image – for example, a clothing brand printing a star’s face onto a T-shirt – to a third party, such as a trust or business.
It can then pay the income made through the licence to someone in a lower tax bracket.
Assistant Treasurer Stuart Robert said in a statement on Thursday that Treasury was concerned the use of these structures could mean “high-profile individuals are taking advantage of lower tax rates”.
In the example given in Treasury’s consultation papers, a celebrity named Jane could license her image to a trust and then accept a payment of $100,000 from a clothing manufacturer.
The manufacturer would then pay the money on to Jane’s unemployed husband Robert.
If Jane were in the top tax bracket, she’d be required to pay $45,000 of that income as tax, but by licensing the income to her husband, the tax owed would be reduced by more than $20,000.
“These benefits have created opportunities for high-profile individuals to take advantage of different tax rates and avoid paying tax at their marginal rate,” the consultation paper said.
Incoming laws yet to be finalised
The new arrangements will take effect from July 1 next year, but the government is yet to finalise the legislation itself, and is taking submissions from the interested parties until January 31.
Additionally, while the changes to these tax laws are expected to yield a gain for government revenue, the size of that gain has so far been described as “unquantifiable”, with no numerical estimate offered.
The 2018-19 federal budget included nine other policy initiatives with unquantifiable gains to revenue.
Approximately half of these ‘unquantifiable’ initiatives were aimed at improving the tax system’s integrity, something then treasurer Scott Morrison said had been a focus of the 2018-19 budget as a means of keeping the government living within its means.
“Honest and fair businesses and taxpayers are being ripped off by those who think they are above paying tax,” he said in his May 8 budget announcement.