Spriggs v Federal Commissioner of Taxation [2007]: A Case Study on Deductible Expenses under Section 8-1 of ITAA 1997

This article discusses the case of Spriggs v Federal Commissioner of Taxation [2007] and the deductibility of management fees under section 8-1 of ITAA 1997. It covers the issues, rules, and application of the case, as well as the conclusion and references.

Running head: TAXATION LAW
Taxation Law
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Table of Contents
Spriggs v Federal Commissioner of Taxation [2007]................................................................2
Introduction:...........................................................................................................................2
Issues:.....................................................................................................................................2
Rule:.......................................................................................................................................2
Application:............................................................................................................................4
Conclusion:............................................................................................................................5
References:.................................................................................................................................6

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Spriggs v Federal Commissioner of Taxation [2007]
Introduction:
The applicants are here AFL players employed to play the full time football under the
playing contract. The taxpayers claimed deductions for the management fees of $2,310 under
the “section 8-1 of the ITAA 1997”. The court allowed deduction because the activities
carried out pursuant to contract of employment does not amounted to business.
Issues:
The main issue is whether the fee of $2,310 paid to Connors Sports Management Pty Ltd
by Spriggs during the income year ended June 30, 2005 will be considered as allowable
deduction under “section 8-1 of the ITAA 1997” (Woellner 2013). To be precise, was the
management fee:
a. Occurred by Spriggs in generating assessable income during the income year 2005 is
under “section 8-1(a) of the ITAA 1997”?
b. Were the expenses occurred by Spriggs in conducting business with the objective of
deriving taxable income for the year 2005 under “section 8-1(a) of the ITAA 1997”?
c. Was the outcome occurred by Spriggs at the point too soon was relevant and
incidental to the revenue generating acts of Spriggs?
d. Whether the loss or outgoing are of capital in nature or capital under the “section 8-
2(a) of the ITAA 1997”?
Rule:
As per the “section 8 of the ITAA 1997” it is relevant for the taxpayer to obtain
deduction from the taxable income for any loss or outgoings up to the extent that is occurred
in producing or gaining the taxable income (Morgan, Mortimer and Pinto 2013). The act
provides that the expense must be necessarily occurred in performing the business activities

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for gaining their taxable income. Nevertheless, a taxpayer is not allowed to claim deduction
or loss under this section till the extent that the losses or outgoings are capital in nature or
whether the loss or outgoings is private or domestic in nature.
“Section 8-1 of the ITAA 1997” comprises of two positive limbs that offer the test for
deducting under “section 8-1” and excluding the same under “section 8-2 of ITAA 1997”
(Sadiq and Coleman 2013). The first positive limb of “section 8-1(a)” is directed towards
expenses which is occurred in producing their assessable income. As held in “Payne v FC of
T (2001)” the expenses must be in the course of generating taxable income. Citing “FC of T
v Snowden & Wilson Pty Ltd (1958)” the limb is not limited to situations where the revenue
is obtained from performing of business activities (Sadiq et al. 2014). Nevertheless, the court
in “Ronpibon Tin NL v CT (1949)” held that the expenses should be incidental and relevant
in gaining or deriving the taxable earnings.
Anything which is incidental and relevant should not be ascertained by referring to
the certainty or likelihood of the expenses leading to derivation of returns. Quoting “Fletcher
v FCT (1991)” it is necessary to recognize the nature of expenses in ascertaining whether the
outgoing is occurred in producing the taxable earnings (Jover-Ledesma 2014). Finally, even
though the item of expense cannot be drawn to a specific items of income that fact of itself
does not signifies that the expenses are non-deductible.
The first and second positive limbs overlay. It is not mutually exclusive. The positive
limb of “section 8-1 (b)” operates to allow deduction of business expenses (Krever 2014).
The business expenses should have carried on with the objective of producing taxable income
and should be with the first limb of assessable income.

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Application:
The court of law unanimously stated that the fees incurred by the apparent were
allowed for deduction under “section 8-1 (1) (a) of the ITAA 1997”. The expenses were
occurred by the taxpayers in the course of generating the taxable income from carrying out
the business of commercially using their sporting ability and related celebrity (Grange, Jover-
Ledesma and Maydew 2014). The court of law found that the each of the player’s contract
were entirely the contract of employment amid the clubs and taxpayers. Instead it was the
tripartite contract that included the AFL/NRL and their players that permitted players to
obtain earnings from non-playing acts.
The law court rejected the arguments of commissioner that the fees paid for
negotiating the contracts of players were only to get the new employment contracts.
Furthermore, it did not had any relation with the taxpayer income generating activities from
their non-playing businesses (Kenny 2013). The law court noticed that the taxpayers were
indulged in commercially exploiting their sporting ability. The business conduct comprised of
synergy between the two income generating activities and was expected by the framework
given by the playing agreements and associated documents.
Considering the activities in full, the business was established prior to incurring the
management fees. None of the appellants were exclusively the employee of their respective
club (Ato.gov.au 2018). Each used their sporting ability and related celebrity with different
clubs over the years till the time they played in AFL and NRL competition. There was the
collaboration amid the playing and non-playing activities as each comprised of revenue
generating activities.
The court of law in its unanimous decision held that the management fees will be
allowed as deductible expenses under the “section 8-1 (1) (b) of the ITAA 1997”. The

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management fee was necessarily occurred by the taxpayers in carrying out their business
activities (Ato.gov.au 2018). As a final point, the law court noticed that the fees occurred
were not capital expenditure under the “section 8-1 (2) (a) of the ITAA 1997”. Instead it was
the recurrent expenditure that was incurred by the taxpayers during their course of
performing their business in relation to forming a number of playing contracts that were of
revenue assets.
Conclusion:
On a conclusive note the management fees will be considered as the deductible
expenditure under the “section 8-1 of the ITAA 1997”. In the unanimous decision of the law
court it was upheld that the appeal from the taxpayers relating to the judgement of Full
Federal Court and the management fees paid to two professional footballers along with their
agents as for negotiating the contract with football clubs were deductible expenses under
“section 8-1 (1) of the ITAA 1997”.
The expenses cannot be held as capital expenditure denied deduction under “section
8-1 (2) of the ITAA 1997”. The decision of High Court upheld that the management fees
which was paid to each of the taxpayers were allowable deduction under both the “section 8-
1 (1) (a) and (b) of the ITAA 1997”. The law court rejected the submission of commissioner
that the expenses were capital since the playing contracts were revenue assets of short term
nature.

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References:
Ato.gov.au. (2018). Legal Database. [online] Available at:
https://www.ato.gov.au/law/view/document?docid=%22LIT%2FICD
%2FM92of2008%2F00001%22 [Accessed 21 Nov. 2018].
Grange, J., Jover-Ledesma, G. and Maydew, G. 2014. Principles of business taxation.
Jover-Ledesma, G. 2014. Principles of business taxation.: Cch Incorporated.
Kenny, P. 2013. Australian tax. Chatswood, N.S.W.: LexisNexis Butterworths.
Krever, R. 2014. Australian taxation law cases.
Morgan, A., Mortimer, C. and Pinto, D. 2013. A practical introduction to Australian taxation
law. North Ryde [N.S.W.]: CCH Australia.
Sadiq, K. and Coleman, C. 2013. Principles of taxation law 2013. Sydney, N.S.W.: Lawbook
Co./Thomson Reuters.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W. and Ting, A.
2014. Principles of taxation law.
Woellner, R. 2013. Australian taxation law select. North Ryde, N.S.W.: CCH Australia.