Explanatory Memorandum
(Circulated by authority of the Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing, the Hon Michael Sukkar MP)Chapter 5 - New Zealand sports teams members and support staff
Outline of chapter
5.1 Schedule 5 to the Bill amends the International Tax Agreements Act 1953 to disregard days NZ sportspersons on teams participating in cross-border competitions and their support staff spend in Australia due to COVID-19 in determining whether income derived from such competitions or supporting activities is taxable in Australia.
5.2 These amendments preserve the uniquely targeted outcome that Article 17(3) ordinarily achieves for cross-border sports in circumstances affected by COVID-19. The amendments also extend to the support staff of such sportspersons to ensure the intended policy is achieved.
5.3 All legislative references in this Chapter are to the International Tax Agreements Act 1953 unless otherwise stated.
Context of amendments
Application of the NZ Convention to NZ Sportspersons in Australia
5.4 Article 14 provides that NZ has an exclusive taxing right where a NZ resident individual derives income from employment exercised in Australia and is present in Australia for 183 days or less in a 12 month period and other conditions are met (for example, that the employer is not a resident of Australia).
5.5 Article 17(1) of the NZ Convention provides that some income, including income derived as a sportsperson, may be taxed by the country in which it is sourced regardless of Article 14. However, Article 17(3) excludes members of a recognised team regularly playing in a league competition organised and conducted in both countries from the operation of Article 17(1). Instead, the employment income of members of a recognised team is solely dealt with under Article 14.
5.6 Article 15 of the NZ Convention provides that fringe benefits are taxable only in the country that has the sole or primary taxing rights in relation to the salary or wages to which the benefits relate.
5.7 The overall effect is that the income tax and any associated FBT liabilities arising from providing fringe benefits to NZ resident sportspersons in relation to employment income derived while in Australia playing for teams in a league competition organised and conducted in both Australia and NZ arise only if they are present in Australia for more than 183 days in a 12 month period (even though they arise from the first day for other sportspersons and entertainers). This special treatment reflects the unique nature of organised cross-border sports which is recognised in the NZ Convention.
5.8 The employers' PAYG withholding obligations under section 12-35 of Schedule 1 to the TAA 1953 depend on whether the income paid to the sportspersons will be assessable to them, that is whether they are liable to tax in relation to it. Under section 12-1 of Schedule 1 to the TAA 1953, the obligation does not arise if the sportsperson's income is exempt income under section 6-20 of the ITAA 1997. The practical effect of the operation of Article 17(3) is that such income paid to sportspersons that are members of a recognised team will generally be exempt from income tax in Australia by the provisions of the NZ Convention incorporated into domestic law by the International Tax Agreements Act 1953.
COVID-19 Impact
5.9 The cross-border nature of Australia-NZ sports competitions necessarily requires regular travel between countries to play games. Even where 'travel bubbles' are in place, the uncertainty created by COVID-19 for travel (including as a result of evolving quarantine arrangements and flight restrictions), make cross-border movement to undertake sports competition matches impractical. The practical limitations COVID-19 restrictions present for training and playing matches means that some NZ cross-border-league sportspersons and support staff could spend more than 183 days in Australia in a 12 month period in circumstances where they would have usually spent the majority of their time in NZ (with only short trips to Australia to play games).
5.10 Such extended stays could undermine the intended outcome of Article 17(3) of the NZ Convention (which is to allow cross-border-league sportspersons to effectively be taxed in their countries of residence in connection with income from playing in cross-border-league events) by re-enlivening a taxing right over income derived from cross-border sports competitions that Australia and NZ have sought not to have arise.
Summary of new law
5.11 The amendments in Schedule 5 to the Bill reduce the impact of COVID-19 on the existing special treatment of income derived by NZ sportspersons from playing on teams in cross-border-league competitions under Article 17(3) of the NZ Convention. They also ensure that staff who are in Australia to support the sportspersons receive the same treatment.
5.12 The amendments in Schedule 5 to the Bill disregard the days NZ sportspersons playing in cross-border-leagues and their support staff spend in Australia due to the impact of COVID-19 from the calculation of the days they spend in Australia in a 12 month period for the purposes of Article 14(2) of the NZ Convention.
5.13 This has the effect of ensuring that NZ, as their country of residency for the purposes of the NZ Convention, retains exclusive taxing rights over income derived by NZ sportspersons playing in cross-border-leagues, even if they spend more than 183 days in Australia in a 12 month period, due to COVID-19.
5.14 As a consequence, such income received by such sportspersons and support staff is exempt income in Australia and corresponding PAYG and FBT obligations do not arise.
5.15 However, if a relevant sportsperson has income that is not derived from activities within the scope of Article 17(3), for example income from other employment, that income would not be covered by these amendments.
Detailed explanation of new law
5.16 Schedule 5 to the Bill modifies the operation of the NZ Convention, as incorporated into Australian law, to disregard days spent in Australia due to COVID-19 when determining the effect of Article 14(2) of the NZ Convention. This may make income received by NZ sportspersons and support staff from their activities as a team member in a cross-border competition, or in providing support services to the team, not taxable in some circumstances.
Relevant Income
5.17 The changes are limited to two types of income. The first is income referred to in Article 17(3) of the NZ Convention. This is income derived in respect of personal activities exercised by a sportsperson as a member of a recognised team regularly playing in a league competition organised and conducted in both Australia and NZ (except where the person is performing as a member of a national representative team). [Schedule 5, item 2, section 6B(1)(a), section 6B(5)]
5.18 The second type is employment income derived by NZ resident support staff from supporting sportspersons in deriving their income or from employment supporting the recognised teams of such sportspersons (within the meaning of Article 17(3) of the NZ Convention) to play in a cross-border league competition. [Schedule 5, item 2, section 6B(1)(b)]
Support Staff
5.19 Support staff are individuals who provide particular services to a sportsperson or to such a sportsperson's team. The services are those provided as a manager, coach, trainer, runner, physician, or physiotherapist; advertising or promotional services; and similar services. [Schedule 5, item 2, section 6B(4)(a)]
5.20 Support staff need to be employed by the sportsperson's employer (or a related body corporate of the employer) for the amendments to apply to them. [Schedule 5, item 2, section 6B(4)(b)]
Disregarded Days
5.21 Days are disregarded in counting the days the individual has spent in Australia for the purposes of Article 14(2)(a) of the NZ Convention if it would have been impractical for the individual to leave Australia continue to participate in the cross-border-league (as a sportsperson or support staff) because of COVID 19. Days are disregarded under Article 14(2)(a) only for income covered by Article 17(3) for sportspersons, or for income derived by support staff who support a sportsperson covered by Article 17(3) or their team. [Schedule 5, item 2, sections 6B(2) and 6B(3)]
Effect of Amendments
5.22 The amendments ensure that NZ retains its exclusive taxing right over income of sportspersons and their support staff derived from participation in a cross-border-league competition despite disruptions to and restrictions on travel due to COVID-19. This preserves the outcome that would ordinarily be achieved by Articles 17(3) and 14(2) of the NZ Convention.
5.23 This is achieved because income derived by NZ sportspersons from playing in cross-border-leagues (and by support staff) will not be taxable in Australia if their presence in Australia for more than 183 days in a 12 month period is due to the impracticalities of returning to NZ after each game (as they ordinarily would have) and continuing to participate in the cross-border-league competition due to COVID-19.
5.24 PAYG withholding obligations do not arise for employers of such sportspersons under section 12-35 of the TAA 1953 because subsection 12-1(1) applies. Provided the employer has no other employees for whom it has PAYG withholding obligations, the requirement to register for PAYG withholding will be removed.
5.25 FBT liability will not arise for the sportspersons' employers as the sportspersons are not employees for FBT purposes because the employer does not have a PAYG withholding obligation in respect of them. Furthermore, the operation of Article 15 of the NZ Convention limits taxation of fringe benefits to only the country which has the sole or primary taxing rights in respect of the income to which the benefit relates (which will be NZ).
Consequential amendments
5.26 The table in subsection 5(1), which lists agreements and related provisions in the International Tax Agreements Act 1953, is updated to reflect the addition of section 6B. [Schedule 5, item 1]
Application and transitional provisions
5.27 The amendments apply to income in the 2020-21 and 2021-22 income years. [Schedule 5, item 2, section 6B(2)]
5.28 However, days outside those income years may be relevant for the 183 day calculations because the 12 month period under Article 14 of the NZ Convention only needs to start or end in the income year.
5.29 The amendments affect FBT obligations in FBT years in which benefits related to employment in the 2020-21 and 2021-22 income years are provided.