Davidson and Commissioner of Taxation
[2005] AATA 835
•30 August 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 835
ADMINISTRATIVE APPEALS TRIBUNAL Nº VT2004/62
TAXATION APPEALS DIVISION
Re: CHRISTIAN JAMES DAVIDSON
Applicant
And: COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal: Mr E. Fice, Member
Date: 30 August 2005
Place: Melbourne
Decision:The Tribunal affirms the decision under review.
(sgd) E. Fice
Member
TAXATION – income tax – averaging provisions – Division 405 of the Income Tax Assessment Act 1997 - assessable professional income as a golf caddy – sportsperson – sporting competition
Acts Interpretation Act 1901 s 15A(1)
Income Tax Assessment Act 1997 Division 405
Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297
Commissioner of State Revenue v Viewbank Properties Pty Ltd [2004] ATR 501
REASONS FOR DECISION
30 August 2005 Mr E. Fice, Member
1. Mr Davidson, who derives assessable income as a caddy for a professional golfer, sought to have the averaging provisions under Division 405 of the Income Tax Assessment Act 1997 (ITAA) applied to his taxable income for the year ended 30 June 2002. By a Notice of Assessment dated 1 October 2003, the Commissioner of Taxation (“the Commissioner”) disallowed Mr Davidson's claim. The Commissioner assessed the amount of tax payable by Mr Davidson to be $10,035.45.
2. By letter dated 2 October 2003, Mr Davidson objected to the Notice of Assessment of 1 October 2003. On 15 January 2004, the Commissioner issued a Notice of Decision on Objection disallowing the objection in full. Mr Davidson seeks a review of the Commissioner’s decision.
3. Ms S. King, an accountant, appeared on behalf of Mr Davidson. Mr J. Moore of counsel appeared on behalf of the Commissioner. The Tribunal had before it the documents filed pursuant to s 37 of the Administrative Appeals Tribunal Act 1975, Exhibits A1 to A6 tendered on behalf of Mr Davidson and Exhibits R1 and R2 tendered on behalf of the Commissioner.
BACKGROUND
4. Mr Davidson is a professional golf caddy who works for competitors on the United States Professional Golfers Association (US PGA) tour. Between 2000 and 2004 he was employed by Mr S. Ginn, a professional golfer, as his caddy. Although he is paid by the professional golfer for whom he caddies, Mr Davidson's major source of income is his share of prizes which the golfer for whom he caddies wins on the tour. According to Mr Ginn, Mr Davidson was paid ten per cent of the prize money if Mr Ginn won a tournament; 7 per cent of the prize money if Mr Ginn finished in the top 10 of the competitors; and 5 per cent of the prize money if Mr Ginn finished outside of the top 10 of the competitors in the tournament. Because Mr Davidson's income is substantially dependent upon whether the golfer for whom he caddies is successful in a tournament, his income fluctuates significantly. For that reason, Mr Davidson seeks to take advantage of the provisions in Division 405 of the ITAA. Section 405‑1 provides the rationale for averaging income and, in so far as it is relevant, it provides:
Significant fluctuations can occur in the professional incomes of authors, inventors, performing artists, production associates and sportspersons.
To lessen the impact of these fluctuations on your marginal tax rates, special tax rates apply if your professional income is above your average.
…
PARTIES' CONTENTIONS
5. Essentially, Mr Davidson contends that he is a sportsperson and that he suffers from significant fluctuations in his professional income. Accordingly, he claims that he is entitled to take advantage of Division 405 of the ITAA. Section 405‑25 of the ITAA defines a sportsperson and sporting competition in the following terms:
…
(6) You are a sportsperson if you compete in a *sporting competition.
(7) A sporting competition is a sporting activity to the extent that:
(a)human beings are the only competitors in it, or it is one in which human beings:
(i)compete by riding animals or exercising other skills in relation to animals; or
(ii)compete by driving, piloting or crewing *motor vehicles, boats, aircraft or other forms of transport; or
(iii)compete with natural obstacles or natural forces, or by overcoming them; and
(b)participation in it by human competitors involves primarily their exercising physical prowess, physical strength or physical stamina.
(8) However, the participation:
(a)of a navigator in the activity of car rallying; or
(b)of a coxswain in the activity of rowing; or
(c)of a competitor in a similar role in some other activity;
need not involve primarily exercising physical prowess, physical strength or physical stamina for the activity to be a sporting competition.
6. Mr Davidson contends that in his role as a golf caddy, he participates as a competitor in a sporting competition, namely golf. He further contends that, although his participation in that sporting competition does not involve primarily exercising physical prowess, physical strength or physical stamina, a golf caddy is a competitor, in a similar role to that of a navigator in the activity of car rallying or of a coxswain in the activity of rowing.
7. In brief, the Commissioner contends that a golf caddy does not compete in the sport of golf; and that, although golf is a sporting competition, golf caddying is not in itself a sporting competition.
CONSIDERATIONS
8. Central to the application of the averaging provisions set out in Division 405 of the ITAA, is the notion that, as far as sportspersons are concerned, they must compete in a sporting competition. Section 405‑25(6) and s 405‑25(7) make that very clear. Furthermore, although a sporting competition is an activity which ordinarily requires human competitors exercising physical prowess, physical strength or physical stamina, exceptions are made in the case of a navigator in the activity of car rallying, a coxswain in the activity of rowing or a competitor in a similar role in some other activity. Participation by those persons need not involve primarily exercising physical prowess; physical strength or physical stamina for the activity to fall under the ITAA definition. Nevertheless, those exclusions do not, in any way, detract from the requirement that, in order to fall within Division 405, human beings must compete.
9. The New Shorter Oxford English Dictionary defines compete in the following way:
…Be a rival, bear comparison (with another, in a quality); strive, contend, take part in a competition, (with or against another, for a thing, in doing); strive for superiority in; be commercially competitive.
10. Ms King contends that taking part in a competition is precisely what a caddy does. However, when one examines the definition of competition, it involves the action of competing or contending with others. The question then is whether what a caddy does during a golf tournament constitutes an action of competing or contending with others.
11. Taxing statutes are governed by the general principles regarding interpretation of statutes (Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 at 320 and Commissioner of State Revenue v Viewbank Properties Pty Ltd [2004] ATR 501 at 38). In interpreting a statute, extrinsic material can be relied upon in the circumstances set out in s 15AB(1) of the Acts Interpretation Act 1901, which provides:
15AB(1) Subject to subsection (3), in the interpretation of a provision of an Act, if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material:
(a)to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or
(b)to determine the meaning of the provision when:
(i)the provision is ambiguous or obscure; or
(ii)the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act leads to a result that is manifestly absurd or is unreasonable.
The Explanatory Memorandum to the ITAA may be regarded as one form of extrinsic material (Acts Interpretation Act 1901 s 15AB(2)).
12. Division 405 of the ITAA was derived from Division 16A of the Income Tax Assessment Act 1936 and was introduced into the taxation legislation as part of the Taxation Laws Amendment Bill (No. 4) 1987. It was rewritten into the ITAA by the Tax Law Improvement Bill (No. 1) 1998, but the differences between Division 405 and Division 16A have no bearing on Mr Davidson's appeal. The Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 4) 1987 is a significant aid in the interpretation of the relevant provisions of the ITAA. It provides that:
…
"sport" is the central concept to the provision of a system of averaging for sportspersons. It is defined by reference to the activities by which a sportsperson competes and, by competing, takes a different role in the activities from those whose role is ancillary to the competitor – these persons are excluded either directly (in proposed section 158F - -see below) or because their role does not involve them primarily in the exercise of physical prowess, physical strength or physical stamina.
Sport, for the purposes of the proposed Division 16A, is so much of a sporting activity as satisfies certain specified conditions. By referring to 'so much' of the activities, the definition excludes activities which are carried out as preliminary to the competitive part of sport, for example, by strappers or grooms in the preparation of horses for racing. It is not intended, however, to exclude jockeys (who are clearly competitors) from having their income from track‑work riding being treated as eligible assessable income (see below).
…
Under section 158F (see below) certain activities which might otherwise be taken to be activities which are part of a "sport" are specifically excluded.
…
Section 158F: Activities that do not result in taxpayers being treated as eligible persons
The purpose of proposed section 158F is to put beyond doubt that certain activities will not result in a person qualifying as an eligible person on the basis of being a "sportsperson" (see above for an extensive discussion of this term in the notes to new section 158B). The non‑qualifying activities specified in the section are:
(a)coaching or training competitors in sport;
(b)umpiring or refereeing sport;
(c)administering sport;
(d)being a member of the pit crew in motor sport;
(e)being a theatrical or sports entrepreneur;
(f)owning or training animals;
…
13. Section 158F is picked up in s 405‑30(2) of the ITAA.
14. Accordingly, in order to satisfy the requirements of s 405‑25(6), which defines sportsperson, the activities conducted by a professional golf caddy must be examined to see if they meet the definition, that is of competing in a sporting competition. A professional golf caddy need not exercise physical prowess, physical strength or physical stamina by reason of the exceptions as set out in s 405‑25(8) of the ITAA. However, such a person must nevertheless compete in a sporting competition.
15. Mr M. Tritton, a professional golf caddy, provided a sworn witness statement dated 28 July 2005 and also gave oral evidence. He has worked as a professional golf caddy for approximately nine years in Japan and the United States of America. He claimed to be one of the most successful and experienced caddies in Australia. Mr Tritton said that all PGA golfing tournaments require the player to utilise the services of a caddy. A copy of Part VI. of the 2005 PGA Tour Tournament Regulations (Conduct of Players) confirms Mr Tritton's evidence that caddies must be employed for all practice, qualifying, pro‑am and tournament rounds. Mr Tritton said that his conduct is the responsibility of the golfer participating in a tournament. If there are any breaches of the tournament regulations, the golfer can be fined, reprimanded, have his membership suspended, be expelled from the PGA Tour or may be visited with any other penalty that the Players' Committee deems appropriate. According to Mr Tritton, the role of a caddy in the course of a tournament involves the following:
…
· ensuring that correct advice is given in respect of each hole on the relevant golf course, including advice on slopes, condition of turf, bunkers and hazards before every stroke played
· ensuring that correct advice is given to the golfer in respect to distance for each stroke play, including the line and speed and where the ball sits
· ensuring that the correct club selection is made for each stroke play
· counting the number of clubs in the bag prior to play and ensuring each club played has been cleaned and organised correctly back into the bag on match play
· keeping the golf balls clean during match play
· ensuring the golf shoes are cleaned and maintained during match play
· if it is wet during match play ensuring that the golf equipment and the player remain dry
· during match play, carry the golf bag
· preparing and maintaining the yardage book that is required during match play
· during match play ensuring correct advice is given in respect to wind direction for each stroke played
· ensuring that the golfers scorecard is marked and signed correctly
· provide to the golfer an optimal mental state by keeping the golfer confident and in a good state of mind
16. Mr Ginn, in a signed undated statement, said that he required Mr Davidson to perform the following duties as part of his employment:
…
-checking the course prior to a tournament
-keeping clubs, shoes and any other equipment clean and dry during a tournament
-…[providing] yardages for each shot, either to the pin, or carries over bunkers, water etc
-checking the pin positions prior to a round
-knowing which direction the wind is coming from
-selecting clubs for each shot
-reading putts
-helping me with my swing or putting stroke on the practice ground
-stretching both pre and post round
-keeping my scorecard
Mr Ginn said that Mr Davidson was paid a percentage of the proceeds from each competition on the Tour, being 5 per cent if Mr Ginn finished outside of the top 10, 7 per cent if he finished within the top 10 and 10 per cent of the prize money if Mr Ginn won.
17. Mr Davidson maintains that his activities bear strong similarities to the activities of a navigator in a rally car and a coxswain in the activity of rowing. He claims that the caddy is a required member of the team. He also says that the caddy participates in the competition just as the navigator and the coxswain participate in their respective sports as members of a team. However, in my opinion, the analogy between a golf caddy on the one hand, and a coxswain and a navigator on the other, is not sound. A coxswain in a rowing race steers the boat while the other members of the team row. They are two discrete activities which are required to be coordinated in order for the crew of the boat to succeed. Similarly, the navigator of a rally car navigates the rally course while the driver strives to complete that course in the minimum possible time. They are discrete activities, the combination of which results in the team either winning or loosing. However, putting to one side the activities that a caddy conducts prior to the actual competition, in the course of a round of golf, which involves hitting a golf ball between the tee and the green with the minimum number of strokes, the caddy's only role is advisory. Ultimately, it is the player who selects the club for the shot to be played and it is only the player who hits the ball.
18. There are also some other significant differences between the professional golf caddy and the rally car navigator and coxswain. The 2004 edition of the Rules of Rowing, published by The United States Rowing Association, describes a coxswain as a member of the crew and subject to all rules governing competitors, unless specifically accepted. A coxswain is a competitor. Similarly, the general prescriptions applying to all Federation Internationale de l'Automobile (FIA) (the body governing auto sport) rally championships, trophies, challenges or cups provide that a crew is made up of two persons on board each motor vehicle. The two members of the crew are nominated as driver and co‑driver. Both members of the crew may drive during the rally and each one must possess an FIA driver's competition licence for the current year, which is valid for the event. By way of contrast, the United States Golfing Association, in its Rules and Decisions of Golf, 2004‑2005, defines a caddy as one who assists the player in accordance with the rules, which may include carrying or handling the player's clubs during the play. A competitor is defined as a player in the stroke play competition. It is therefore my opinion that a caddy's role is ancillary to the competitor, as the respondent contends. The caddy is not part of a team which is competing in a round of golf, nor is he, in his own right, a competitor. The only competitor in a round of golf is the player.
CONCLUSION
19. In order to take advantage of the provisions set out in s 405‑20(2) of the ITAA, Mr Davidson must fall within the definition of sportsperson as set out in s 405‑25(6) of the ITAA. In order to meet that definition, Mr Davidson must compete in a sporting competition. In my opinion, a professional golf caddy does not compete in a golf tournament. The golf caddy's role can be properly described as ancillary to, or supportive of, the activity of the competitor, the golf player. It is the golfer who competes for the prize money and, if successful, receives it. A golf caddy is employed by the golfer and, although his rewards derive from the proceeds of the golfer's winnings, he is not awarded prize money if the golfer, in fact, wins the tournament. Furthermore, the golfer is responsible at all times for the conduct of the caddy on the course. The activities described by Mr Tritton and Mr Ginn, essentially, fall into two categories: duties prior to a tournament and duties in the course of the tournament. The described duties prior to a tournament cannot be said to engage the caddy in any form of competition. While no doubt the caddy's role in the course of a tournament is vital to the golfer, it is strictly an advisory role, as it is only the player who is permitted to strike the ball which is the only competitive activity in this sport. The golf caddy is not a competitor in the sport of golf.
20. The decision of the Commissioner should be affirmed.
I certify that the twenty [20] preceding paragraphs are a true copy of the reasons for the decision herein of
Mr E. Fice, Member
(sgd) Catherine Thomas
Clerk
Date of Hearing: 29 July 2005
Date of Decision: 30 August 2005
Advocate for the applicant: Ms S. King, accountant
Counsel for the applicant: Mr J. MooreSolicitor for respondent: ATO Legal Services
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