AAT Decision
Australian Tax Law Cases Assignment 2 Semester 2, 2020 1 Felix Roundtree and the Federal Commissioner of Taxation Material facts 1. Felix Roundtree (24) is currently employed at GJ-Wifi,1 and is pursuing a Bachelor of Commerce at Drapes University. He is three-years into the four-year degree and resides at home with his parents, where they have agreed to let him live rent-free until his studies are complete. 2. Felix and his friends have always been interested in card and board games, and from a young age (15) have got together on weekends to play classics such as Minimonster, Oligopoly, Peril and Detonating Felines. The group would often dress-up in costume for these events and film sketches in-between games (recorded on VHS) for their family and friends to watch. 3. Following high school, as Felix and his friends moved to different parts of Australia for University, it became difficult for them to play games together. To address this issue, Felix and his friends sought to migrate their analogue gameplay online. For the last few years, Felix and his friends have “linked-up” each weekend to play the online card- games “Enchanted the Following” and “Dwellingrock” which each allow for multi- player ‘versus’ modes. Felix and each of his friends, have continued their tradition of filming their gameplay and now broadcast their sessions live on streaming platforms such as “Spasm.tv”. 4. Felix is widely regarded as one of the best Dwellingrock players in history. Despite only broadcasting on Friday and Saturday nights, and never for more than 4 hours in one session, Felix has been crowned Dwellingrock World Champion three times in the past 5 years.2 5. The Dwellingrock World Championships are an annual event3 where the top performing Dwellingrock players – based on average rank achieved throughout the 1 He has been a casual employee since 2014 and does not envision leaving any time soon. 2 Felix won the championship in 2015 (the inaugural championship), 2016 and 2017. He came in 10th and 11th place in 2018 and 2019 respectively. No prize money was won by Felix in the either the 2018 or 2019 tournaments. Felix won, AUD$10,000 in each tournament from 2015 to 2017. 3 Held on the first weekend in July of the relevant year. Australian Tax Law Cases Assignment 2 Semester 2, 2020 2 year – are invited to compete in an entirely virtual e-Sports tournament with the winner taking home a prize pool of AUD$10,000.4 6. When streaming on “Spasm.tv”, Felix’s chat and stream feed is quite popular and regularly has a viewership in excess of 5,000. His audience often make minor monetary contributions to his stream through the platform’s ‘donation’ facility. It is not uncommon for Felix to make anywhere between $500 to $1,000 during his stream. On Sundays, Felix reviews his live stream and compiles a short 10-15 minute highlight reel which he uploads to “YouCircle.com” (YouCircle). Felix is equally popular on this platform with over 150,000 subscribers. His highlight reels are the most viewed content on his YouCircle channel with views often exceeding 100,000 within 48 hours. 7. The popularity of his videos and extensive following has enabled Felix to monetise his content since 2015, though he only opts to do this every so often. A popular video is capable of producing anywhere between $500 to $1,000. 8. Given his success with Dwellingrock since mid-2015, Felix has been approached by various organisations to promote their products for either free merchandise or subscription, a grant or donation of money, or a commission based on units sold (collectively, called endorsements). Each time an organisation donates money or enters into a commission-based incentive arrangement, Felix makes a “giveaway” video where he donates the money to those less fortunate at random. These giveaway videos ironically do very well online and are often monetised. 9. For the years ended 30 June 2016, 2017, 2018 and 2019, Felix earned the following amounts: Year 2016 2017 2018 2019 Spasm.tv – all in the form of “donations” $3,000 $6,500 $4,500 $9,500 YouCircle – all from monetised videos5 $10,000 $15,000 $10,000 $8,000 4 For more on Dwellingrock, see Appendix A. 5 The program operates in a very similar fashion to this scheme: https://creatoracademy.youtube.com/page/lesson/revenue-basics https://creatoracademy.youtube.com/page/lesson/revenue-basics Australian Tax Law Cases Assignment 2 Semester 2, 2020 3 Value of endorsements $25,0006 $20,0007 $5,0008 $5,0009 Issues and contentions 1. For each of the income years described above, Felix reported income earned and claimed appropriate deductions from his job at GJ-Wifi. 2. He did not include any of the receipts listed above, nor any of his prize-winnings from the Dwellingrock World championships. 3. At all relevant times, Felix contends that he was pursuing a hobby and never intended to turn a profit from his online activity, nor rely on the income to meet his (limited) living expenses or daily needs. Notably, money that was not given away was put into savings,10 and used to fund spontaneous holidays or getaways from time-to-time. 4. The Commissioner of Taxation (Commissioner) sought to assess Felix in all relevant income years, and on all receipts from Felix’s online and gaming activity. The Commissioner has issued Amended Notices of Assessment (ANOA) for each of the relevant years. 5. Felix objected to the ANOA’s within the relevant timeframe and on, what he considered, appropriate grounds but was unsuccessful. Felix now seeks to elevate the matter to the Administrative Appeals Tribunal (AAT) 6. The Commissioner in his Statement of Facts Issues and Contentions (SFIC) relies on the follow two arguments: a. Felix’s conduct, at all relevant times, was similar to a person carrying on the business of professional gaming, or in the alternative, a person operating as an online entertainer; and/or, 6 $10,000 relates to the value of a new gaming computer provided by Axure Computers. The remainder is cash which was subsequently given away. 7 $10,000 relates to the value of a new visual and audio equipment provided by Boos Video and Sound. The remainder is cash which was subsequently given away. 8 All cash which was subsequently given away. 9 All cash which was subsequently given away. 10 Interest was declared. This is not in issue. Australian Tax Law Cases Assignment 2 Semester 2, 2020 4 b. The receipts should, in any case, be brought to account as statutory income as they were akin to a profit-making scheme, or series of transactions. Requirements 1. You are a Senior Member of the Taxation and Commercial Division of the AAT and have been tasked with delivering a decision in this matter. 2. Your written decision should: Consider if the AAT has appropriate jurisdiction to hear the matter. Consider the application of Administrative Appeals Tribunal Act 1975 (Cth); Tax Administration Act 1953 (Cth); Income Tax Assessment Act 1936; and/or Income Tax Assessment Act 1997 (Cth) Articulate the issue(s) and distil the material facts from the text provided. You are permitted to make reasonable assumptions. Importantly however, you should address what is being specifically contested, by what party and on what grounds. Consider each relevant year in context and apply and contest relevant legislation and case law in support of your decision. Consider both Felix’s and the Commissioner’s arguments in your decision and ensure you conclude on balance. 3. Importantly, you DO NOT need to consider the operation of provisions in the Income Tax Acts which deal with special professionals or income averaging. Your arguments should be squarely grounded on the principles we have explored in class, or that appear in the relevant chapters of the textbook. 4. Further, beyond the jurisdiction of the tribunal, you are NOT required to explore any additional procedural issues which you might contemplate. You may assume for the purpose of this assignment that all additional procedural matters have been attended to, and that the matter on foot is in a position to proceed uninhibited by technicalities. Australian Tax Law Cases Assignment 2 Semester 2, 2020 5 Formatting requirements 1. Your decision should be no longer than 3,000 words (excluding footnotes) and must conform to proper legal structure, writing and AGLC4 referencing. AGLC4 conventions as to headings and bibliography can be ignored for the purpose of this assessment. The word count does not include headings, cover pages or footnotes. Note, however, that footnotes which convey substantive discursive text which otherwise could have appeared in the body of your document will be included in the word count. 2. The body of your assignment must adopt either Calibri, Arial or Times New Roman 12pt font. The text must be line spaced to 1.5 and paragraph spaced to 6pt after text. Paragraphs must be numbered correctly, and headings or subheadings must appear