Tax Advice For Sports Stars

There are numerous tax consequences to take into account if you wish to succeed in the sports industry. tax guidance for athletes Australia is a reliable resource for advice on tax planning and financial management for athletes. This blog post will provide you some insight into the types of considerations you should make when handling your finances as a professional athlete.

For any Australian sports star, getting the best tax guidance is essential. Whether you are a football player or an athlete, knowing how to take care of your money and keep it out of the hands of the government can be important. The easiest method to do this is to speak with a qualified accountant with experience in these kinds of situations. They will be able to advise you on what you should do right away to perhaps avoid incurring fines in the future for filing incorrectly.

Things An Athlete Should Know About Their Tax

Even though they may not be making significant amounts of money early in their careers, professional athletes must prepare their tax affairs. Early planning can result in large tax savings in subsequent years.

Few occupations provide you as many opportunities to lawfully minimize your taxes as that of a professional athlete. With the right guidance, athletes can average their income to better benefit from reduced tax rates, much like other specialized workers.

Successful athletes can occasionally make exceedingly high salaries. However, given that our top marginal tax rate is 45% and that our country has one of the largest tax burdens in the world, taxes may end up being the biggest outlay a professional athlete makes throughout the course of their careers.

Athletes will encounter a variety of financial opportunities and obstacles in a sports world that is continuously changing.

Are You A Resident?

The income that will be included in your tax return and the tax rate that will be applied for the fiscal year are both impacted by your resident status.

For tax purposes, the ATO applies a different residency test than other Australian government agencies, such as the Department of Immigration and Border Protection. As a result, you can live in Australia without being an Australian citizen or permanent resident.

According to the ATO, any of the following situations qualifies as Australian residency for taxes purposes:

• You've constantly resided in Australia;
• You went to Australia and now occupy this location permanently;
• You have been in Australia continuously for at least six months, and for the majority of that time, you have held the same position and occupied the same residence;
• Unless your normal home is abroad and you don't intend to live there, you have spent more than half of the income year in Australia.

For taxation purposes, Australian residents must pay taxes on their worldwide income, but temporary Australian residents and foreign residents often pay taxes only on their income that originates in Australia. There is no "one size fits all" rule that can be applied to every circumstance, and your residency status may alter from year to year. The impact on your tax responsibilities can be very severe if caution is not taken.

What Income Do You Pay Tax On?

You are required to report all income earned while a resident of Australia. You are eligible to a tax-free threshold, which means that the first $18,200 of your taxable income is exempt from taxation. You may also be required to pay a Medicare Levy of 2% of your taxable income.

You must include certain sorts of revenue in your assessable income, as examples:

• All awards and expenses received for contests
• All recommendations (in cash or in-kind)
• Every reward
• Wages and salaries
• Payments for holidays, extended service leaves, and any other employment-related benefits
• Earned interest on any savings
• Dividends gotten
• Any rental property earnings
• Gains from selling certain assets
• Overseas earnings (Australian residents only)

What Common Deductions Can You Claim?

To be eligible for a tax deduction, an expense has to be paid with after-tax income. Therefore, you are unable to request compensation and must establish a direct connection between the funds you received and the applicable expense.

Some common deductions for athletes in the professional sphere include:

• Expenses related to vehicles
• Travel costs such cab prices, Uber fees, and tolls on the roads
• Agent or manager fees (if paid by you and not your club or the federation)
• The portion of phone, internet, and pay-TV subscription fees that are attributable to work
• The cost of professional guidance from accountants
• Paying dues to player associations
• Replacement of training and equipment when sponsors don't give it
• Equipment repairs Training equipment depreciation

Income Averaging - What is It?

Did you know that athletes in the professional ranks could average their income over five years to qualify for a tax break during years with greater incomes?

The revenue of athletes frequently varies from year to year. Some people are able to benefit from income averaging to prevent paying larger amounts of tax in a year when income is in a higher tax band than in prior years.

In general, income averaging reduces the amount of tax due by comparing it to the sports-related income from the previous four years and adding a tax break to the "above average" amount.

Due to the low preceding year average revenue, the initial few years of your sporting career are very useful in this regard.

The possibility of income averaging applies to earnings from athletic endeavors. A sports expert like Oreon Sports is more likely to be able to determine your eligibility because income averaging legislation's methodology is complex.

Record Keeping

Keeping records is crucial. Only if you have receipts to back up your claims and spent money on things or services directly related to your income-generating activities can you deduct them from your taxes.

For three reasons, it's crucial to preserve your records so that you can record all of your revenue and expenses in an orderly manner in addition to keeping records:

• If the Australian Taxation Office decides to review or audit your return, it will be useful.
• Because your accountant doesn't have to spend time going through your receipts to find your tax deductions, it helps to lower the cost of producing your income tax return.
• You can be sure that you are not unintentionally forgoing tax deductions for which you are qualified.

Keeping track of your tax deductions and income records in one location is made simpler and more convenient by apps like the ATO's myDeductions.

Professional Sportsperson Tax Return and Deduction Checklist

You understand better than anyone the value of preparation and consistency if you want to achieve success as a professional athlete. It holds true whether you're competing on the track, court, or field, and it holds true when doing your taxes!

You could be in for a nasty surprise and miss out on the money you deserve if you don't plan ahead for your taxes before the end of the fiscal year. You'll be much ahead of the game if you plan ahead and keep meticulous records on everything. Another smart move is to enlist the assistance of one of our knowledgeable tax experts, who can guide you through the process and make sure you don't overlook any deductions.

You will first require an income statement from your employer if you are a professional athlete working for a business, club, or organization (previously called a "payment summary" or "group certificate"). This is a summary of all of your compensation for the fiscal year, including your salary, wages, allowances, and bonuses.

Since your employer should submit this declaration immediately to the ATO, you won't require a copy of it. Once this is filed, we can obtain the data for you and assist you in calculating your deductions.

What Do I Need To Know About Claiming Deductions?  

You have the right to deduct any money you spend throughout the tax year on goods or services that are directly tied to how much money you make, as you are aware. However, there are two things you should keep in mind:

• First, you must have spent the money on your own (your employer cannot have compensated you for it), and
• Second, you must maintain proof of the spending, such as an invoice or receipt.

What Deductions Can I Claim?  

You can deduct a variety of expenses as a professional athlete, including:

• Car expenses, including parking fees and tolls, if you commute between work sites (for instance, from the team's practice facility to the stadium for a game) or if you must transport bulky items of equipment that are required for training but cannot be left at the place of employment safely.
• Any costs associated with purchasing, maintaining, and cleaning any clothing items that are either distinctive to your group or organization or are worn as a team uniform (such as a shirt or a cap with a club emblem or logo on it)
• Any attire or accessories that provide protection, such as hats, mouthguards, anti-glare glasses, sports skins, and clothes with sun protection features like sunglasses and hats
• Health and fitness expenses such as gym membership fees, but not expenses for weight loss or nutritional problems, such as vitamins, minerals, or supplements, unless they are necessary to maintain the high degree of fitness required for your employment.
• Professional indemnity insurance and income replacement insurance
• Legal costs, such as those associated with a tribunal judgment, as well as fines and penalties for on-field behavior that are related to your performance as a player and are associated with the athletic event
• If it is being utilized to travel to a match, competition, or professional appearance, luggage such as overnight or trolley bags
• If the expenses are incurred as a result of the settlement, renewal, or renegotiation of an existing contract, or even the negotiation of a new deal, the player-manager fees
• Professional association fees
• Any costs associated with purchasing and insuring tools that are expressly needed for your job, including sports gear or resistance bands, or any costs associated with training and research materials used as part of your prescribed training schedule
• Self-education fees for taking any classes, training, or seminars especially connected to your area of work, such a training program on physical stamina that you sign up for to improve your performance at work.
• If not already covered by your company, phone and internet costs for any work-related use of your personal phone or device.
• If you must spend the night away from home while traveling for work (for instance, if you are playing a match interstate), you will be responsible for covering these costs yourself.

What can't I claim?  

You cannot deduct a number of significant expenses, including:

• Even if you only wear it for training and purchased it particularly to wear to training, wearing regular apparel to work that might also be worn outside of work (such as workout attire like sweatpants, jogging shorts, shorts, or t-shirts) is prohibited.
• Any childcare fees, even those incurred during competitions or on game days; Fines, penalties, and legal costs associated with behavior violations that occurred off the field; General medical bills or travel insurance
• The price of any meals or snacks you eat throughout a typical workday, even if your employer reimburses you for the cost of your meals.
• Any expenses related to grooming, such as paying for hair services and makeup purchases, even if your profession demands you to look your best.
• The expenses connected with getting from your house to work, regardless of how far away it is.

What records do I need to keep?  

You need to maintain track of your receipts and have a complete set of receipts if you want to earn a good tax return even if record-keeping may seem tedious at first. Making an easy-to-use system that you can rely on will enable you to stay on top of this throughout the year.

Remember that you are not required to preserve physical receipts and that you are permitted to maintain a digital copy (such as a photo or email of a receipt) as long as it is readable:

• What the supplier's name is
• Sum total of the outlay
• The type of goods or services
  Date of the document
• Date of the payment for the expense

Additionally, you are exempt from keeping receipts for outlays of less than $10 as long as they don't total more than $200.

What Happens If I Make A Mistake In My Tax Return?  

First and foremost, remain calm. We strongly advise taking care of it as soon as possible because we are aware that this can happen to anyone. To prevent fines and potentially even punishment from the ATO, it is imperative that you take great care when compiling the information and accompanying paperwork when filing your tax return and only legitimately claim deductions.

Special Professional Income Averaging (SPIA) for Athletes

We would like to encourage our semi-professional and professional athletes by giving them information on the tax environment in which they operate since the XXXI Olympiad in Rio is quickly approaching.

The Australian Government is aware that athletes may not be able to sustain a steady level of revenue from one year to the next since they may only be able to compete occasionally or for as long as they are physically competent.

Due to this, Australian tax law offers special tax treatment for players' sports-related income through "Special Professional Income Averaging" (SPIA).

The Australian Taxation Office (ATO) also permits sportsmen to write off expenses particular to their line of activity as work-related deductions. This article will outline common expenses athletes might deduct while discussing SPIA and its possible advantages.

Special Professional Income Averaging (SPIA)

When a person's income varies annually, higher tax rates are applied to high-income years while lower tax rates are applied to low-income years. This might put the taxpayer at a disadvantage when filing taxes.

Special professionals whose income tends to fluctuate can average their earnings over a four-year rolling period thanks to the Special Professional Income Averaging (SPIA) provision. This is anticipated to result in reduced tax rates for special professionals whose earnings tend to fluctuate. Additionally, this favorable tax status guarantees that a person won't have to pay more in taxes because of the irregular nature of their employment or income.

A person making $70,000 year, for instance, would make $2,450,000 overall over the course of a 35-year career. An annual income of $70,000 over the course of a 35-year career could result in a total tax liability of around $550,000. A person who earns $2,450,000 in a single year, on the other hand, may be subject to a tax liability of around $1,200,000, resulting in an additional $650,000 in tax.

Using a method established by the ATO, the tax concession may enable a sportsperson to apply lower tax rates to their sports-derived income, so reducing their overall tax liability. The sportsperson must compete in sports that largely rely on their physical skill, strength, or stamina and generate a taxable income of more than $2,500 in the financial year from those activities in order to qualify for SPIA. They must also be an Australian resident for tax reasons.

We point out that SPIA is also accessible to inventors, artists, crew members, and performers. Coaches, referees, umpires, sport administrators, and support staff cannot use SPIA, though.

Common Deductions For Sportspersons

Any taxpayer may deduct expenses they incurred that are related to the income they received during the fiscal year. But according to the ATO, going from home to work or vice versa is not typically regarded as job-related travel and hence cannot be deducted.

However, tax rulings have established that athletes are exempt and may be qualified to deduct the following travel expenses for trips to and from:

• training;
• matches and competitions;
• appointments with medical professionals;
• airports for sports-related travel; and
• public promotional appearances.

Using the cents per kilometer or logbook procedures, athletes can deduct these motor vehicle expenses.

A sportsperson may also be eligible to write off the following expenses:

• Association fees for players.
• Fees for gym membership.
• Equipment depreciation for training.
• Upkeep and repairs of the tools of instruction.
• Massage, physiotherapy, and other routinely incurred medical costs for athletes.
• Costs associated with attending training camps.
• Fees for player management.
• Purchase of vitamins and supplements.
• Cost of currency conversion.
• Insurance for travel.
• Employer-sponsored travel expenses.
• Laundering costs.
• Buying of athletic apparel (including boots and protective gear).
• Air fare and lodging costs for excursions related to sports.