FEDERAL COURT OF AUSTRALIA Stone v Commissioner of Taxation [2003] FCAFC 145 INCOME TAX – income according to ordinary concepts – whether monies received by appellant income – whether appellant carrying on a business – where appellant an elite athlete – where appellant received prize monies, grants, sponsorship and attendance fees – where appellant also employed Income Tax Assessment Act 1997 (Cth) s 6-5(1), 6-5(2) Income Tax Assessment Act 1936 (Cth) Federal Court Rules O 52 r 22(3) Stone v Commissioner of Taxation [2002] FCA 1492 varied Justinian's Institutes 4.3.4 Digest of Justinian 9.2.9.4 JOANNA STONE v COMMISSIONER OF TAXATION N1371 OF 2002 HEEREY, EMMETT & HELY JJ 27 JUNE 2003 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N1371 OF 2002 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: JOANNA STONE APPELLANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGES: HEEREY, EMMETT & HELY JJ DATE OF ORDER: 27 JUNE 2003 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. the appeal be allowed in part; 2. the orders of the primary judge be varied so as to provide that the matter be remitted to the respondent to reassess according to law, in accordance with these reasons; 3. the respondent pay the appellant's costs of the application and the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N1371 OF 2002 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: JOANNA STONE APPELLANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGES: HEEREY, EMMETT & HELY JJ DATE: 27 JUNE 2003 PLACE: SYDNEY REASONS FOR JUDGMENT THE COURT: 1 The appellant, Joanna Stone ('Ms Stone'), in addition to being employed as a senior constable in the Queensland Police Force, is one of Australia's leading javelin throwers. She has not experienced the problems referred to in Justinian's Institutes 4.3.4 and Digest of Justinian 9.2.9.4. However, she has experienced other problems, which involve the respondent, the Commissioner of Taxation ('the Commissioner'). The Commissioner says that Ms Stone is liable to pay income tax under the Income Tax Assessment Act 1997 (Cth)('the 1997 Act') in respect of certain monies she has received in connection with the pursuit of her javelin throwing activities ('the Activities'). THE PROCEEDING 2 The dispute between Ms Stone and the Commissioner relates to the year of income ended 30 June 1999 ('the year of income'). Ms Stone disclosed assessable income in the sum of $39,832, being her salary as a police officer. She noted in her return that she had received other amounts in respect of the Activities, which totalled $136,448. She did not show those amounts as assessable income and made no claim for any deductions relating to the Activities. 3 The Commissioner assessed Ms Stone to income tax on the basis that her assessable income included all of her receipts in respect of the Activities. Ms Stone objected against the assessment on the basis that no part of those receipts were assessable income. In the alternative, she claimed to be entitled to deductions for outgoings incurred in deriving the receipts in question. The Commissioner accepted that, if the receipts were assessable income, Ms Stone was entitled to deductions of $19,739. He amended her assessment accordingly but otherwise disallowed the objection. 4 Being dissatisfied with that objection decision, Ms Stone appealed to the Court. The only question before the primary judge was whether the receipts in question were assessable income of Ms Stone in the year of income. The quantum of the receipts was not in dispute. The receipts in question were as follows: * Prize money at local and international sporting events: $93,429 * Grants: + AOC Medal Incentive Scheme; $22,500 + Queensland Academy of Sport; $5,400 * Appearances: $2,700 * Sponsorships: $12,419 Total: $136,448 In addition, Ms Stone also received $1,600 from the Oceania Amateur Athletics Association and $1,000 from Little Athletics for being the 'role model of the year'. 5 Ms Stone conceded before the primary judge that the receipts relating to sponsorships were assessable income. The Commissioner also conceded before the primary judge that the grant from Little Athletics was not assessable income of Ms Stone. 6 The primary judge concluded that Ms Stone was carrying on a business and that all of the rewards of that business and the rewards that are incidental to that business are income in accordance with ordinary concepts: see Stone v Commissioner of Taxation [2002] FCA 1492. His Honour concluded, therefore, that all of the disputed amounts were assessable income of Ms Stone. 7 Although it was not necessary for him to do so, his Honour also expressed views as to whether the receipts would be assessable income on the assumption that Ms Stone was not engaged in carrying on a business in relation to the Activities. His Honour concluded that receipts in respect of appearances and grants from the Medal Incentive Scheme had the character of income but that the receipts in respect of prize money and grants from the Queensland Academy of Sport and the Oceania Amateur Athletics Association were not income. 8 The order made by the primary judge was that the application to the Court be allowed in part and that the objection decision of the Commissioner be set aside and, in lieu thereof, the objection of Ms Stone be allowed in part. His Honour remitted the matter to the Commissioner to reassess, in accordance with law, by the allowance of such deductions as should be agreed between the parties or, failing agreement, as the Commissioner should determine. 9 Ms Stone then appealed to the Full Court from the orders of the primary judge in so far as their effect was that the disputed receipts were assessable income. On the appeal, the Commissioner contended that, even if Ms Stone was not carrying on a business, the prize money and the grants from the Queensland Academy of Sport and the Oceania Athletics Association were assessable income according to ordinary concepts. However, no notice of that contention had been filed by the Commissioner in accordance with O 52 r 22(3) of the Federal Court Rules. Order 52 r 22(3) relevantly provides that, if a respondent proposes to contend that the judgment should be affirmed on grounds other than those relied on by the Court below, but does not seek a discharge or variation of any part of the judgment, the respondent must file and serve a notice of that contention. Ms Stone argued that the Commissioner should not be permitted to advance that contention in the absence of compliance with O 52 r 22(3). 10 There was some debate as to whether a notice of contention was required. However, in the face of opposition on behalf of Ms Stone, the Commissioner sought leave to file a notice of contention. The issue is whether the Commissioner should be permitted to contend for assessability of the prize money and grants, absent a conclusion that the Activities constituted carrying on a business by Ms Stone. 11 Had the primary judge not reached the conclusion that Ms Stone was engaged in a business activity, his Honour would not have made the orders that he made. Rather, his Honour would have made different orders concerning the prize money and certain of the grants as indicated above. In so far as the Commissioner wished to support his Honour's orders on different grounds, it was necessary to comply with Order 52 rule 22(3). 12 Senior counsel for the Commissioner frankly acknowledged that no notice of contention had been filed because the view had been taken that it was not necessary to do so. Be that as it may, that view was erroneous. Senior counsel for Ms Stone indicated that a different course might have been taken by Ms Stone had a notice of contention been filed in accordance with the Federal Court Rules. This is not a case where the failure to file a notice of contention was an oversight. It was a deliberate decision, albeit erroneous. It was only when pressed that the Commissioner sought leave to file a notice of contention. 13 The assessability of the grants and prize money, absent a finding that Ms Stone was not carrying on a business, was an issue before the primary judge and it was not suggested that Ms Stone was taken by surprise. Rather, it was suggested that it was unfair because of arrangements apparently in place for treating the proceeding in some way as a test case. The Court was not furnished with any details of the arrangements. Since the question of assessability of the prize money and grants was in issue below, the appropriate course is to grant leave to the Commissioner. However, the question of costs may require further argument if the Commissioner were to succeed on the contention. THE RELEVANT STATUTORY PROVISIONS 14 While it was common ground that the 1997 Act was the only relevant statute, no reference was made to it by the primary judge. His Honour appears to have proceeded on the basis that the Income Tax Assessment Act 1936 ('the 1936 Act') was applicable to the year of income. That in itself is of no great significance, since it was also common ground that the language of the 1997 Act was not materially different from the corresponding provisions of the 1936 Act. 15 Section 6-5(1) of the 1997 Act provides that '[y]our assessable income includes income according to ordinary concepts, which is called ordinary income' (emphasis original). Section 6-5(2) then provides: 'If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.' Thus, the task of the Court is to determine whether the receipts of Ms Stone in question are 'income according to ordinary concepts'. 16 Clearly enough, not every receipt is income. On the other hand, it was common ground between the parties that receipts from the carrying on of a business are income according to ordinary concepts. Hence attention was directed to the question of whether or not the Activities amounted to carrying on a business by Ms Stone. Before dealing with that question, it is necessary to describe the Activities in some detail. THE ACTIVITIES OF MS STONE 17 Ms Stone gave evidence by affidavit and orally and was cross-examined in respect of a number of issues. His Honour found that Ms Stone gave her oral evidence in a way that was frank and truthful and the Commissioner expressly indicated that he did not contend that Ms Stone should not be believed on her oath. The primary judge did not disbelieve Ms Stone although his Honour observed that her affidavit evidence 'perhaps sought to understate her desire to obtain financial assistance'. Be that as it may, Ms Stone's evidence must, in the light of his Honour's findings, be taken at face value. Accordingly, the Full Court is in as good a position as the primary judge to draw such conclusions as may be necessary from the primary facts found by his Honour. THE EARLY YEARS 18 Ms Stone's interest in javelin throwing began in around 1987, when she was 14 years old. By 1989, at the age of 16, she had represented Australia in junior competition in both discus and javelin. She received a silver medal in the javelin and a bronze in the discus. After returning to Australia, she decided to specialise in javelin throwing. One reason for that choice is that she is physically slight. 19 Success in athletics requires not only constant training, but also constant participation in competition. In the case of athletes who have reached international standard, competition in international competition against world-class athletes is necessary. If Ms Stone was to improve, therefore, it was necessary for her to participate in contests with world-class athletes. 20 In 1994 Ms Stone competed in local and state athletics competitions organised by various athletics associations, and in several competitions in Australia organised by Athletics Australia. No prize money as such was offered in those competitions. However, she also attended Grand Prix athletics meetings run by Athletics Australia in Adelaide and Hobart in February 1994. In deciding what competition she should compete in, Ms Stone was assisted by consultation with her coach. She was initially coached by a Mr Des Frawley and later by his son, Michael. 21 There was available for the Grand Prix series of meetings (seven in all) a prize money bonus pool. Athletes were awarded points depending upon various criteria. Prize money was payable to athletes eligible to score points for being placed first, second or third in competitions. Ms Stone could not recall whether she was placed in those meetings, but did not receive any prize money. 22 On two occasions in late 1994, Ms Stone suffered injuries brought on by her javelin throwing that required surgery and subsequent rehabilitation. 23 During 1995, Ms Stone competed in local and state athletics meetings for which no prize money was offered. She also competed in the Sydney Grand Prix (part of the Optus Grand Prix series for that year), where she was placed first and won $250. In that series there was also a prize money bonus pool, but she did not win any of that money. 24 In 1995, for the first time, Ms Stone received payments totalling $5,196 under the Olympic Athlete Program. The first payment covered a period of six months. The amount of payment under that program depended upon world ranking. At the time, Ms Stone was apparently in the top 25 athletes in the world in javelin throwing. The purpose of the program was to assist Olympic athletes, in order to encourage them to continue to train hard. Athletics Australia, which was closely associated with the program, wished to ensure that everything was done for athletes who were performing to Olympic standards. 25 The Olympic Athlete program was not developmental. That was the responsibility of the relevant State athletics body. Rather the program was intended to provide support to athletes to assist with living expenses. It was means tested. Athletes earning $50,000 per year or more were not eligible. Performances, and thus benefits under the program, were the subject of review on a six weekly basis. An amount of $1,500 for each athlete benefited was paid to the State sporting body as a sport science/medicine allocation. That amount was not directly payable or paid to the athlete and the amounts paid on her account could not constitute income derived by Ms Stone. 26 In mid 1994, Ms Stone was selected as a member of the Queensland Academy of Sport's Athletic Squad Program for the 1994/1995 athletics season in the 'World Class' Category. To receive benefits under that program, Ms Stone signed an agreement with the Queensland Academy of Sport. It provided that she was to be provided with benefits which went to training and coaching, travel for her coach and herself for Australian Grand Prix and New Zealand competitions, access to sports science, physiotherapy (maximum $200), massage (maximum $3,200), competition uniforms, tracksuits, joggers etc and access to an education program. 27 Selection for the Queensland Academy of Sport Track and Field Squads was based on Athletics Australia standards for the World Juniors and World Championships 'A' Qualifying marks. The criteria were based upon performance in the previous twelve months. Membership of the squads was subject to achievement of consistent performances throughout the competitive season. The financial assistance provided could be suspended if the athlete's performances deteriorated. Ms Stone continued to be in the Program and to receive benefits throughout the period to June 1996. For the 1995/1996 season, she was categorised as a member of one of the 'Olympic Squad' Categories. THE YEAR ENDED 30 JUNE 1996 28 In the year ended 30 June 1996, Ms Stone continued to compete and train. She attended numerous national and international athletics meetings during that time. The majority of them were in July and August 1995 in Europe and included the International Amateur Athletics Federation World Championships in Gothenburg, Sweden held from 11 August 1995 to 13 August 1995. Her goal at the time was the 1996 Olympic Games, which were to be held in Atlanta, USA. Athletics Australia provided a physiotherapist to travel with her and arranged, and presumably paid for, accommodation and transport. She was placed fifth in the final in Gothenburg with a personal best throw. In consequence, she was ranked fifth in the world. She won no prize money. 29 Also in 1995, Ms Stone competed in Zurich at a high level international athletics meeting where she was placed second and in Linz, where she also came second. No prize money was on offer for those meetings and no appearance fees were paid, except for the meeting in Zurich where she was placed second and won $US4,400. In the 1995 Olympic Dream Titan Challenge on 19 November 1995, she won $2,000 prize money. 30 In 1996, after consultation with her coach she competed in a number of overseas athletics meetings. Prize money may have been offered at some of the meetings. In the Grand Prix meeting held in Sydney on 11 February 1996 and the Australian National Championships held in March 1996 Ms Stone was placed first. In the various international competitions she was placed variously from second to fifth. In the overall Optus Grand Prix Series for 1996, in which she competed in one event only on 11 February 1996, she was placed equal ninth. She participated in the special prize pool moneys and received $1,125 together with another $510 as a share of the gate takings. 31 Ultimately, Ms Stone was selected for the Australian Olympic team for Atlanta and, in consequence, received a cheque for $500, said to be for reimbursement of costs and expenses in preparation for the Olympic Games. That was one of the benefits payable under agreements signed by those selected for the team and it may be inferred that Ms Stone signed such an agreement. Other benefits received were a daily living allowance, medical massage and physiotherapy treatment, travel, accommodation and ground transport as determined by the Australian Olympic Committee, insurance of various kinds, tickets to games events, team uniform and training apparel and equipment as well as potential amounts payable to successful athletes together with eligibility to participate in an Olympic Job Opportunity Programme designed to assist athletes to obtain employment and training suitable to their abilities and which recognise the special needs of athletes. One might assume that latter benefit was of no interest to Ms Stone by reason of her career with the Queensland Police Service. 32 From early in 1990 until 1996-1997, Ms Stone's mother, with the approval of Ms Stone, circulated many business concerns in Queensland seeking sponsorships. In October 1995, Ms Stone received her first sponsorship engagement, with ASICS Tiger Oceania Pty Limited ('ASICS'), a sports goods manufacturer. However, the agreement came about almost as a matter of chance and as a result of an introduction from her fellow Australian athlete and friend, Louise Currey. 33 Under the arrangement with ASICS, ASICS supplied Ms Stone with free sports clothing and boots worth up to $2,000 per year. There were also performance bonuses if she won a gold, silver or bronze medal in the 1996 Olympic Games or the 1997 World Championships. In return, Ms Stone granted to ASICS the exclusive right and licence to use the 'Athlete Endorsement' and agreed to appear at certain nominated promotional events, such as trade shows. The agreement was to run until October 1997. 34 On 22 May 1996 Ms Stone was advised by Athletics Australia that she was to be funded by its Australian Institute of Sport Olympic Athlete Program scholarship scheme to the extent of an annual payment of $10,020 payable monthly. In fact in the year ended 30 June 1996 she received a total of $10,889 under that scheme. Additionally, she was provided with sports science and medicine services under the Olympic Athlete Program. Her entitlement was to be reviewed after the Olympic Games in Atlanta. 35 In addition, Ms Stone received a grant of $5,380 by way of a single annual payment from the Queensland Academy of Sport. The qualification for that payment was that she was a Queensland resident who was selected to be a member of an Olympic, Commonwealth or Paralympic Games team in the prior year. The grant was discretionary. In the same period she was again a member of the Queensland Academy of Sport's Athletic Squad Program, which entitled her to benefits in the 'Olympic Squad Category'. The benefits were of the same kind as those made available to her in the preceding year. 36 In this period, the Queensland Police Sporting Association, of which Ms Stone was a member, donated to Ms Stone the sum of $600 to assist her preparation for the 1996 Olympic Games. The Caboolture Shire Council also gave her $1,600, to assist in part with travel to Atlanta. 37 In the year ended 30 June 1996 Ms Stone made five personal appearances. However, she was only paid for one of them, namely $300 for coaching at the Toowoomba Clinic on 26 May 1996. THE YEAR ENDED 30 JUNE 1997 38 In the financial year ended 30 June 1997, Ms Stone competed in 11 competitive athletics meetings, including the Olympic Games at Atlanta. The Olympic Games were held from 19 July 1996 to 4 August 1996. Ms Stone was placed 16th. 39 Ms Stone was unable to say whether prize money was on offer at many of the meetings. In a meeting in London she was placed 2nd, but received no prize money. She did, however, receive prize money in five meetings in Australia, where she was placed 1st on four occasions and 2nd on one occasion. Generally, the prize was $250. However, the prize she was awarded for 'Athlete of the Meet' in the Sydney Grand Prix meeting was $3,000. Following the completion of the 1997 Grand Prix Series she received $4,000 from a special bonus prize pool. She also received a prize of $10,000 for being Grand Prix Female Athlete of the Year. 40 On 6 November 1996, Ms Stone was awarded $650 per month by Athletics Australia as part of the Olympic Athlete Program. That followed a review of the funding criteria for that scheme. She also qualified for sports medicine/science under the scheme. Around that time, the participation of the Australian Institute of Sport in this program ceased, which was thereafter the responsibility of Athletics Australia. The monthly payment was said to be made to offset expenses incurred in training and competition. However, to be entitled to the payment, there was no requirement to produce receipts for any such expenses. Ms Stone was required to state that she did not earn a gross income of more than $50,000. She was also required to state that she was not a professional athlete. There was no definition of that term. In March 1997 the payment under the Olympic Athlete Program increased to $835 per month. In consequence Ms Stone received a total of $9,140 from the program in the year ended 30 June 1997. 41 On 13 May 1997, Ms Stone entered into another sponsorship contract, this time with Multiplex Constructions (Qld) Pty Limited ('Multiplex'). According to Ms Stone, the offer of the contract was not solicited by her but came from the Chief Financial Officer of that company who was a family friend. Under the contract, Ms Stone agreed to use her best endeavours to endorse and promote Multiplex. She agreed to make appearances at various kinds of events and could be required to appear 20 times in any 12 month period. However, she was not in fact called upon to do so. Ms Stone attended three to four Multiplex functions per year. She also agreed to wear advertising material on her sports clothing. The agreement was to expire on 31 December 2000, although Multiplex had an option to extend the term until December 2004. Multiplex, for its part, was to provide Ms Stone with a Holden Commodore motor vehicle to be replaced at three yearly intervals. The vehicle doors were to be painted with a Multiplex identification. 42 In October 1996, Ms Stone was invited to participate in the 1996/1997 Queensland Academy of Sport program. Under that program she received $1,200 in the financial year ending 30 June 1997 as a training allowance and became entitled to the same kind of benefits as she was entitled to in the previous year. The program, as in other years, required Ms Stone to sign an agreement with the State of Queensland, which bound her to work towards realising her full potential. 43 The ASICS agreement continued during that year. Ms Stone also received a donation from the Caboolture Shire Council again, but this time of $350. 44 Ms Stone made nine personal appearances during the year. All of them were unpaid. THE YEAR ENDED 30 JUNE 1998 45 The 1997 World Championships were held in Athens over the period from 2 August 1997 to 10 August 1997. Ms Stone was selected as a member of the Athletics Australia squad on the basis of her being placed first at the 1997 Australian Championships in March 1997. Ms Stone was placed second in the World Championships and won $40,961. The Zurich Grand Prix was held four days after the World Championships. Ms Stone was again placed second and won $US8,000. $US3,000 of that was appearance money, that is to say money that she was paid, whether or not she won. In this period Ms Stone attended meetings in Hechtel and Tata (both in Europe), where she was placed first in each meeting. However she won no prize money for her participation in those meetings and, so far as she was aware, there was no prize money on offer in any of them. 46 In December 1997, Ms Stone had an operation to remove a loose fragment of bone. At the same time, her shoulder was operated on in a serious surgical procedure. Both operations resulted from injuries as a result of javelin throwing. In the result, she did not compete from September 1997 until June 1998. 47 In the 1998 year of income, Ms Stone received, for the first time, a total of $10,500 in at least two instalments under the Australian Olympic Committee's Medal Incentive Scheme. That scheme was implemented with the objective of ensuring that Australia be ranked in the top five nations on both the overall and gold medal counts in the Olympic Games to be held in Sydney in the year 2000. The funding for the scheme came from the Australian Sports Commission as complemented by assistance from State Institutes and Academies of Sport. Athletes and coaches winning medals at the 1996 Olympic Games or in World Championships or other agreed major international events were eligible, in the year following their win, to payments under the scheme. 48 Benefits under the scheme were subsequently extended to all athletes and coaches of athletes where the athlete finished fourth in nominated benchmark events and to those who came close to winning medals or who put in a meritorious performance indicating that they were likely to win a medal in Sydney. The scheme provided for payment of an amount depending upon the medal won. The Australian Olympic Committee also announced that grants of $3,000 would be made to athletes who were selected in the 2000 Australian Olympic Scheme who were not otherwise receiving payments under the Medal Incentive Scheme. 49 In the year ended 30 June 1998 Ms Stone also entered into a sponsorship agreement with DDS Consulting Pty Limited ('DDS'), a Brisbane company involved in database development. The agreement involved payment of $5,000 per year until the 2000 Olympics, in return for which Ms Stone agreed to have promotional photographs taken and attend functions. In fact she did not perform any services for DDS, nor was she paid the whole amount promised. She received $2,502 in the year of income from DDS. 50 Ms Stone's sponsorship arrangement with ASICS continued, under which she received sporting equipment and clothing, as well as a cash amount of $5,000, to recognise her success in the world championships. Likewise, the arrangement with Multiplex, under which that company provided a car for her use, also continued. 51 Ms Stone received a training allowance of $1,200 from the Queensland Academy of Sport under that body's Athlete Squad program. She also received, by way of a donation, an amount from the Police Sporting Association of $350 to assist her sporting endeavours. She won the 1997 Queensland Sportswoman of the Year, for which she received a prize of $500 by way of a gift voucher and an expenses paid trip to New York to attend the USA Women's Sports Foundation 19th Annual Salute to Women in Sport. She travelled to New York for that function. 52 During the year, Ms Stone attended a total of 31 functions at which she was either a guest, a speaker or an interviewee. She was paid for six of the appearances. For the remainder she was not paid. On one of the occasions, an appearance at the Queensland Academy of Sport, she asked that she not be paid because she was of the view that that body had already given her considerable assistance. However, she was still paid. 53 Sometime in the year ended 30 June 1998, Ms Stone entered into a management agreement with a Mr Bob Hynes of World Sport Pty Limited. Mr Hynes approached her and offered to be her manager. This led to the signing of an agreement for a period of 18 months. The agreement with Mr Hynes provided that he was to be paid a percentage of any sponsorship arrangements he negotiated. Hence, when Ms Stone entered into the arrangement with DDS, he was paid a commission, notwithstanding that Mr Hynes did not introduce Ms Stone to DDS. It seems that Mr Hynes tried to arrange other sponsorship arrangements for Ms Stone but failed to achieve success. Ms Stone terminated the agreement after about nine months and thereafter Ms Stone had no manager. THE YEAR OF INCOME 54 Ms Stone began the year of income as a member of the Olympic Games A squad. It was a requirement of selection by Athletics Australia for both the Commonwealth Games and the Olympic Games that an athlete compete in a variety of meetings and perform to a high standard. The World Cup was one of the meetings that Athletics Australia regarded as necessary for selection. However, Ms Stone's training regime required her to avoid risks from competing, where possible, particularly having regard to her injured elbow. In consequence, she chose not to compete in either the Australian Grand Prix Series or the European Grand Prix Circuit. She also chose not to travel overseas for more than six weeks at a time, which limited the amount of overseas meetings she attended. In the result, she only travelled overseas twice in the year of income. 55 The meetings Ms Stone competed in, her placing, together with the prize money won, and an indication of whether prize money was offered, can be summarised as follows: Meeting Place Prize Prize Offered? Brisbane 1st NIL no Goodwill Games (USA) 1st $US6,000 yes Cth Games Trials 1st NIL no World Cup (September) 1st $US50,000 yes 56 Ms Stone also received a Preparation Grant of $1,600 from the Oceania Amateur Athletics Association as part of assistance for Oceania athletes to compete in the World Cup. Injury, particularly arising from the World Cup meeting, however, caused her to withdraw from the Commonwealth Games Team so that she did not compete in the Commonwealth Games, although she attended the Games as Female Track and Field Team Captain. 57 During the year of income, Ms Stone received the following grants: * AOC Medal Incentive Scheme $22,500 * Queensland Academy of Sport – bonus $5,400 * Little Athletics (role model of the year) $1,000 58 Ms Stone made up to 31 personal appearances during the year of income. She was paid a total of $2,700 for four of those appearances. Many of the organisations involved were community or charitable functions, some were sporting functions and some were interviews with media. In addition to the appearances, Ms Stone gave numerous television interviews for which she was not paid. 59 Sponsorship with ASICS and Multiplex continued in the year. From ASICS, she received a cash performance bonus of $7,500 and a bonus of $4,000 for her performance in the World Cup in addition to sporting wear. Ms Stone also attended a number of Multiplex functions and wore some training gear with the Multiplex name on it. She was paid a total of $2,919 by DDS in monthly instalments under her sponsorship arrangement with that company. THE PERIOD SINCE THE YEAR OF INCOME 60 Because of her fear of exacerbating her injuries, Ms Stone did not compete in local or overseas competitions, including the World Cup after the year of income. She continued to receive funding under the Olympic Medal Incentive Scheme, and received direct assistance from Athletics Australia as part of the Olympic Athlete Program. She received benefits, but no payments, from the Queensland Academy of Sport athlete squad program and continued to make a number of personal appearances (17 in all) but was paid only in respect of one of them. 61 However, Ms Stone competed in a local athletics meeting in August 2000 and in the Olympic Trials in August 2000. She was placed second in each. They were the minimum meetings she could attend to qualify for the Olympic Games. Ultimately, she competed in the Olympic Games, but her performance was hampered by injury and she was placed only seventeenth. She has neither seriously trained, nor competed, since the Olympic Games in Sydney. During those Games, she received $3,400 from the Australian Olympic Committee, being a daily allowance. She also received amounts paid to her under the Olympic Team Membership Agreement, which were said to be reimbursement for part of the costs and expenses incurred in preparation for participation in the Olympic Games. 62 She continued to receive sponsorship benefits from ASICS and Multiplex until the end of June 2001 and made a number of appearances for which she received no payment. MS STONE'S POSITION WITH THE QUEENSLAND POLICE SERVICE 63 Throughout the whole of the period described above, Ms Stone continued to be employed full time with the Queensland Police Service. In the 1995 year, she was an investigating officer in the Missing Persons Unit. At various times she undertook training courses that were intended to further her career. She transferred in May 1997 to the Queensland Police Academy Training and Education Department, on the Constable Development Program, where she was responsible for marking assignments of police personnel completing that program and assisting in the redesign of the program training packages. 64 The Queensland Police Service maintained a 'Sporting Leave Policy'. At relevant times, that policy permitted consideration to be given for leave for training or taking part in sporting events. Leave so granted was paid. The policy provided that, subject to Police Service requirements, a maximum of seven calendar days per year might be granted to any officer selected as a competitor in an Australian State or national team. Ms Stone received paid leave in various periods, although some of it might have been recreational leave. 65 From 26 June 1995 to 4 July 1995, Ms Stone was granted leave in order to compete in the 1995 World Championships. On 17 June 1996, she was granted further leave to attend the 1996 Atlanta Olympic Games. She had further leave in the period from 14 July 1997 to 13 August 1997 to enable her to attend the 1997 World Cup, and from 27 August 1998 to 24 September 1998. Under the relevant industrial award, she was entitled to flexi leave as well as recreation leave and sporting leave and this gave her some flexibility with her training. She did not, at any relevant time, take leave over and above that available to her under the award. 66 In July 1997, Ms Stone commenced a course of legal studies, a prerequisite for promotion to the rank of sergeant. She completed Policing 1 on 21 November 1997 and was advised in 1998 that she had completed all the requirements for promotion to the rank of Senior Constable. She was promoted to that position with the Queensland Police Service on 1 July 1998 and continued in that position during the year of income. As a Senior Constable she earned $39,832 per annum. In the year of income she continued with the Constable Development program working two days at the Academy and the balance of the week at home. 67 From 11 October 1997 until 2 February 1998, Ms Stone only worked part time at the Queensland Police Academy. It was the only time she worked other than full time. During that time, she successfully completed her course in Legal Studies. She was also undergoing rehabilitation from surgery during the period and did not compete in any athletics competition. 68 Ms Stone was pressured to resume full time employment and did so, although she was able to arrange her duties so that she worked two days a week in the office and was able to complete the remainder of her workload from home. This flexibility enabled her to work at her javelin training as well as undertaking her full workload. 69 In about July 2000, Ms Stone transferred from the Queensland Police Academy to become an organiser for the Australia and New Zealand Police and Emergency Services games held from 10 November 2001 to 17 November 2001. On 4 December 2001, she transferred to the Recruitment Sector of the Service assisting with recruiting applicants to the Queensland Police Service. Apart from taking maternity leave in early March 2002, she has continued to work full time with the Queensland Police Service. ASSESSABILITY OF THE RELEVANT RECEIPTS 70 The primary judge formulated the principal question as being whether Ms Stone was carrying on a business in addition to her police duties. His Honour considered that, if there is a business, it might colloquially be spoken of as the business of 'a professional athlete'. His Honour made clear that, in using the term 'professional', he was intending to indicate no more than an athlete who is carrying on an activity which is a business. His Honour then formulated the question of whether it could be said that Ms Stone was turning her talent to account for money. His Honour considered that the case was 'on the borderline' but concluded, 'not without some doubt', that Ms Stone, by the time of the year of income, had begun to turn her talent to account for money and, therefore, was carrying on a business. The consequence was that all of the rewards incidental to that business were assessable income of Ms Stone in the year of income. 71 There is no dispute about the relevant legal principles. The only dispute is as to how those principles should be applied in the present circumstances. However, that is not simply a matter of fact. The question of whether the facts as found by the primary judge amount to the carrying on of a business is itself a question of law. 72 As indicated above, it was common ground that the assessability of Ms Stone's receipts in respect of sponsorship income was not in dispute on the hearing of the appeal. Nevertheless, the Commissioner attached some significance to the fact of the sponsorship arrangements as being indicative of a systematic application by Ms Stone of her talents as a javelin thrower for the commercial objectives of her sponsors, for which she was rewarded. The Commissioner supported his Honour's findings that the manner in which Ms Stone engaged in the Activities, at least by the year of income, indicated that she was carrying on the business of a sportswoman. 73 The matters relied on by the Commissioner included: * the sponsorships of Ms Stone by ASICS, DDS and Multiplex; * the employment by Ms Stone of a manager; * the attempted athlete ownership concept of Mr Giles (see at [84]-[86] below); * Ms Stone's high profile and appearances in the media and elsewhere; * Ms Stone's mother's canvassing for sponsors (see at [78] below). The Commissioner contended that the evidence 'plainly supported' a finding that the profit motive was a substantial purpose of Ms Stone, although he also accepted that it was plain that that was not her predominant purpose. The Commissioner contended that it does not matter whether the purpose is characterised as a desire to obtain a profit or a desire to obtain financial assistance. In either case, so the Commissioner argued, the desire is 'to obtain income'. 74 Whether a person is carrying on a business will depend upon a number of factors and no single factor will be determinative in a particular case. Thus, it will be relevant to determine whether a relevant activity is carried on in a businesslike way and in accordance with commercial principles. If there is system in the activity, coupled with repetition and continuity, that will be indicative of a business. An important factor is whether the relevant activity has a purpose of profit making. However, the fact that the activity does not actually produce a profit is not decisive. Indeed, even where it is not expected to derive a profit, an activity may nevertheless be properly characterised as the carrying on of a business. 75 An athlete might be able to turn his or her talent to account for money in a number of ways. Thus, an athlete may derive prize money from performances in competition or contest. Whether prize money is derived would clearly be measured by reference to the degree of success achieved. Secondly, an athlete might be paid simply for participating in a particular competition or contest. However, it is unlikely that an athlete will be paid to participate unless the athlete has already achieved a measure of success in the sport concerned. Thirdly, an athlete might receive payments for attending functions, whether or not the attendance involves speaking. Again, such engagements would not be offered to an athlete unless the athlete has already achieved some measure of success. Finally, an athlete might receive payments by reason of her or his sponsorship of particular products or services. It is not in doubt that receipts from such a source will be assessable income. Once again, however, an athlete will not have an opportunity of deriving income from such a source without first achieving a measure of success in his or her sport. 76 It is necessary to consider whether Ms Stone undertook the Activities for the purpose of obtaining receipts of the nature described above in a way that demonstrates that obtaining the receipts was the object of the Activities. It is relevant to consider whether there has been some system in the way in which she has engaged in the Activities and whether she has engaged in the Activities in a business like way in accordance with ordinary commercial principles. 77 Sportsmen and sportswomen who can fairly be said to be carrying on a business would be expected to choose the competitions and contests in which they compete, with a mind directed towards the reward that is likely either for having participated, or for having performed well, in the particular contest or competition. A sportsman or sportswoman engaged in a business activity would choose a competition or contest where the prize money is likely to be maximised. That would not necessarily involve choice of the competition or contest where the prize money is greatest, unless the sportsman or sportswoman had a prospect of real success in the contest. However, Ms Stone did not select the competitions in which she competed on the basis of likely receipt of money but rather on the basis of the need to participate in competitions in order to gain competitive experience. Thus, it could not be said that Ms Stone's criteria for choosing contests and competitions in which she competed was indicative of a business activity. 78 Ms Stone's mother, with her approval, sent out letters seeking sponsorship quite widely in the community in the early 1990s. Ms Stone's mother also prepared, on a home computer, a document entitled 'Resume of Joanna Stone (Javelin Thrower)' ('the Resumé'). The Resumé contained five sections headed as follows: A Personal Profile B Sponsorship Proposal C Athlete Profile D Progress and Achievements E Photo Profile The section dealing with sponsorship contained a heading 'What I can do for a sponsor'. A version of the document prepared in about 1997 noted Ms Stone's current sponsorships of ASICS sporting goods and Oakley sunglasses. The Resumé was reasonably widely distributed at least in Queensland. 79 Ms Stone said that expenses associated with participating in javelin throwing included javelins, javelin boots and other necessary throwing equipment and clothing. Those items wear out quickly when subjected to intensive training and competition. For example, she said that javelins themselves cost approximately $1,000 and javelin boots cost approximately $350 a pair and may wear out within weeks. 80 She also required a range of training equipment to maintain necessary fitness levels. In addition, she incurred costs for surgery, medical treatment, physiotherapy and pharmaceutical products in order to continue training and competing despite injuries sustained in the Activities. She has also incurred travel costs, both interstate and international, to train and compete and numerous other miscellaneous costs, including coaching fees. 81 However, Ms Stone said that she had never needed to earn money from the Activities to meet her necessary costs of living, training and competing. She said that her police salary had always been sufficient to meet such expenses, although without funding, it would have placed a strain on her. She said that, when she received offers of grants and sponsorships, she accepted the offers, which assisted her in meeting the expenses of training and competing. 82 The evidence did not make clear whether the sponsorships obtained by Ms Stone came about as a result of solicitation or whether, the sponsors approached Ms Stone as a result of her achievements. As indicated above, ASICS approached Ms Stone as a result of her connection with Louise Currey. Ms Stone said that DDS approached her. She also said that her relationship with Multiplex arose because her father had been a centre manager of little athletics at Deception Bay. There, he met the financial controller of Multiplex, whose father-in-law was a good friend of Ms Stone's parents. The conclusion is available that the sponsorship came about because of the personal relationship and not as a result of solicitation. 83 During the period from 1997 to 1998, Ms Stone had a management agreement with Mr Hynes, which provided that he was to be paid by way of a percentage of the sponsorships thereafter entered into. The fact that Ms Stone agreed that Mr Hynes would be her business manager indicates a degree of interest in sponsorship. However, that, of itself, is equivocal. The primary juge found that Ms Stone had little surplus money from her salary to pay her sporting and travelling expenses and, in the absence of a sponsorship, had to draw upon the resources of her family. Sponsorship would defray some at least of these costs. In any event, the arrangement did not run its intended course of 18 months, having been terminated by Ms Stone after nine months. 84 Mr Kelvin Giles became Ms Stone's coach in 1997 after the relationship with her former coach, who had been with her since she was 15, came to an end. In September 1997, Mr Giles sent a facsimile communication to Mr McKinna of ASICS telling him that it was vital that 'we' (that is, a reference to both Mr Giles and Ms Stone) procure corporate support in order to free Mr Giles from his then current business responsibilities. Mr Giles suggested to Mr McKinna a sponsorship of himself and Ms Stone as a team. The facsimile said that Mr Giles was 'currently circulating the corporate sector with this concept in the hope that we can find a solution to [Ms Stone's] coaching problem'. The facsimile, which was sent to a number of companies, was accompanied by a document prepared by Mr Giles. 85 Mr Giles did not accept money for coaching an athlete. He had previously coached the Brisbane Broncos football team but did not want to be involved with football any more. The proposal was a means for him to work as a coach in Australia outside football. The document prepared by Mr Giles said that Ms Stone would be available, outside training and her police commitments, to attend corporate events, as would Mr Giles. 86 The concept proposed by Mr Giles does not appear to have been taken up by anyone to whom it was offered. Clearly, it had as one of its purposes the benefiting of Mr Giles. It might also suggest that, in so far as Ms Stone approved the steps taken by Mr Giles, Ms Stone was conscious of the benefits of obtaining sponsorship. She accepted that the facsimile and accompanying document was sent with her authority. Once again, the desire to obtain sponsorship is equivocal in circumstances where it was necessary for Ms Stone to obtain sponsorships in order to achieve the aims that she had set out to achieve. 87 While Ms Stone clearly pursued sponsorships, it could not be said that they reveal a systematic application of her talents as a sportswoman for the commercial objectives of her sponsors. She sought sponsorship in order to further her aims as a sportswoman. She did not perform the Activities in order to derive income from sponsorships. 88 The grants from the Medal Incentive Scheme, the Queensland Academy of Sport and Oceania Amateur Athletics Association are payments that would not have been made but for Ms Stone's prowess and achievements as a javelin thrower. The fact that she sought them out and that they were paid on a regular basis, however, is not indicative of a business activity. 89 The payments received for appearances can also be similarly characterised. The payments would never have been received but for Ms Stone's prowess and achievements. Nevertheless, their occurrence is not so systematic that one could conclude that they were part of the carrying on of a business. 90 All of the above matters must be weighed against the fact that Ms Stone was engaged full time in her career as a policewoman. One could not characterise her activities in the Police Service as anything other than a career. She has pursued advancement in the Queensland Police Service by additional study and by taking steps to secure promotion within the Service. While she may have been given leave from the Police Service in order to pursue the Activities, it is clear that she is pursuing a full time career in the Police Service. 91 If an athlete engages in training and competition outside ordinary working hours that is a practical indication that her or his purpose is likely to be the enjoyment of competition, the excitement of winning and the honour and glory that goes with it, rather than profit making. Ms Stone did not carry on a business. She had a full time occupation as a police woman. In her spare time, she trained for and competed in top-level athletic contests and competitions. She entered them whether or not prize or appearance money was on offer. The grants and sponsorship that she obtained defrayed the considerable expenses involved in her pursuit of the Activities. 92 Of course, one can carry on a business as well as other activities. However, in circumstances where Ms Stone has a full time career and the so called 'business' is said to be that of a sportswoman, the evidence points against a business activity. The evidence indicates that Ms Stone is a career police woman, who has achieved considerable success in an athletic sporting activity for which she has been rewarded. She has not been engaged in a business activity to exploit her sporting prowess or to turn her talent to account in money. 93 The Commissioner eschewed reliance on a principle that prize money from any sporting contest was assessable income, but suggested that there was some intermediate category between sportsmen or sportswomen for whom sport or athletic contest is clearly a recreation, pastime or hobby, on the one hand, and sportsmen and sportswomen who are turning their talent to account in money by the pursuit of business activity, on the other. The Commissioner contended that the prize money is income according to ordinary concepts because of the direct connection between the use of Ms Stone's skill and ability with the javelin and the receipt by her of substantial sums of money as the product of that skill and ability. The Commissioner also contended that the prize money was a reward for services provided. That is to say, they were rewards for sporting performance that amounted to the provision of a service. The Commissioner attached significance to the size of the prizes as being reflective of the value of the service provided. 94 However, the quantum of prize money cannot determine its character as income. Once it is concluded that Ms Stone was not carrying on business as an athlete, there is no reason for concluding that prize money awarded to her should be treated as income. Certainly, her skill and ability enabled her to win the prize money. Further, there was clearly a connection between her skill and ability as a javelin thrower and the receipt of the prize money. However, that of itself is insufficient. Ms Stone has not performed a service by throwing her javelin. She has not charged a fee for entertainment. 95 The Commissioner was unable to formulate a principle whereby prize money would be assessable income notwithstanding that the recipient of the prize money was not engaged in a business activity. He was unable to formulate the criteria for an intermediate category of sportsman and sportswoman who is neither carrying on a business nor simply engaged in a recreation, pastime or hobby. Absent a finding that Ms Stone was carrying on a business, the prize money was not assessable income. 96 The grants in dispute were not made in order to compensate Ms Stone for income that she would otherwise have derived. They were grants made to enable her to bear the additional costs and expenses of competing. Those costs and expenses include, as indicated above, training and coaching expenses, apparel and gear and travel. The grants are not income according to ordinary concepts. In particular we disagree with the primary judge's conclusion, which he reached with 'some hesitation', that the payments made under the AOC Medal Incentive Scheme were income according to ordinary concepts. His Honour found, correctly in our view, that 'the amounts were paid to athletes precisely because they were elite athletes whom it was hoped would, with encouragement, ultimately form part of the Australian Olympic team and procure medals for Australia'. 97 The payments were not a reward for services. However, his Honour proceeded on the basis that 'to a great extent' the award was paid to make up income. We disagreed. Neither from the point of view of the AOC, nor from the point of view of Ms Stone was the award designed to make up income. 98 In the absence of a finding that Ms Stone has been engaged in a business activity, there is no basis for concluding that either the prize money she has won or the grants she has been given constitute assessable income. She has competed in competition or contests, albeit knowing that there may be a prize for success. In the absence of a finding of business activity, the prize money and grants are not income according to ordinary concepts. 99 On the other hand, the appearance monies are in the same category as the sponsorship payments. They are payments made as reward for a service, being attendance at the function or whatever may be required. The receipts for appearances are therefore assessable income. CONCLUSION 100 The appeal should be allowed in part and the orders of the primary judge varied so as to provide that the matter be remitted to the Commissioner to reassess according to law, in accordance with these reasons, and for the Commissioner to pay Ms Stone's costs of the application. The Commissioner should pay Ms Stone's costs of the appeal. I certify that the preceding one hundred (100) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Court. Associate: Dated: 27 June 2003 Counsel for the Applicant: D H Bloom QC with J H Momsen Solicitor for the Applicant: Blake Dawson Waldron Counsel for the Respondent: G T Pagone QC with S H Steward Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 23 May 2003 Date of Final Submissions: 6 June 2003 Date of Judgment: 27 June 2003