FEDERAL COURT OF AUSTRALIA Commissioner of Taxation v Spriggs [2008] FCAFC 150 INCOME TAX – professional footballers playing as employees of their clubs – incidental activities in the way of endorsements, media and personal appearances carried on as a business – fee paid to manager for negotiating playing contract – whether an allowable deduction Held: not an allowable deduction Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Federal Commissioner of Taxation v Maddalena (1971) 2 ATR 541 referred to Agassi v Robinson (Inspector of Taxes) [2006] 1 WLR 1380 cited Adamson v NSW Rugby League Ltd (1991) 27 FCR 535 cited Federal Commissioner of Taxation v Payne (2001) 202 CLR 93 applied Partridge v Mallandane (1886) 18 QBD 276 cited R W Parsons, Income Taxation in Australia – Income, Deductibility, Tax Accounting, 1985, The Law Book Company Limited THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v DAVID RAYMOND SPRIGGS VID 1187 of 2007 THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v MARK RIDDELL VID 1188 of 2007 GOLDBERG, BENNETT AND EDMONDS JJ 22 AUGUST 2008 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 1187 of 2007 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Appellant AND: DAVID RAYMOND SPRIGGS Respondent JUDGES: GOLDBERG, BENNETT AND EDMONDS JJ DATE OF ORDER: 22 AUGUST 2008 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The appeal be allowed. 2. Order 1 made in VID 314 of 2007 on 29 November 2007 be set aside. 3. There be no order as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 1188 of 2007 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Appellant AND: MARK RIDDELL Respondent JUDGES: GOLDBERG, BENNETT AND EDMONDS JJ DATE OF ORDER: 22 AUGUST 2008 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The appeal be allowed. 2. Order 1 made in VID 313 of 2007 on 29 November 2007 be set aside. 3. There be no order as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 1187 of 2007 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Appellant AND: DAVID RAYMOND SPRIGGS Respondent IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 1188 of 2007 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Appellant AND: MARK RIDDELL Respondent JUDGES: GOLDBERG, BENNETT AND EDMONDS JJ DATE: 22 AUGUST 2008 PLACE: MELBOURNE REASONS FOR JUDGMENT THE COURT: INTRODUCTION 1 These are appeals from orders of the Court ([2007] FCA 1817 and 1818) that gave effect to the primary judge's conclusion that each of the respondents, Mr David Spriggs ('Spriggs') and Mr Mark Riddell ('Riddell'), were entitled, in calculating his taxable income for the year ended 30 June 2005, to a deduction under s 8-1(1) of the Income Tax Assessment Act 1997 (Cth) ('the 1997 ITAA') for a fee paid to his agent or management company in that year. 2 Both Spriggs and Riddell are professional sportsmen. In the relevant year of income, Spriggs was under contract to play in the Australian Football League ('AFL') and Riddell was under contract to play in the National Rugby League ('NRL'). 3 On the hearing of the appeals, Senior Counsel for the Commissioner conceded that there was no critical distinguishing feature between each case; in other words, the Commissioner's appeals either both succeeded or they both failed. For that reason, oral argument on the hearing of the appeals focused on the facts of one of the cases, Riddell's case, albeit not to the exclusion of Spriggs' case. THE FINDINGS BELOW (1) Spriggs 4 In Spriggs' case, the claim for a deduction under s 8-1(1) of the 1997 ITAA was for a fee of $2,310 that Spriggs became liable to pay to Connors Sports Management Pty Ltd ('CSM') in the year of income ended 30 June 2005. 5 In November 1999, at 18 years of age, Spriggs was selected by Geelong Football Club ('Geelong') as the number 15 draft pick in the AFL National Draft. The AFL conducts the elite Australian Football Competition throughout Australia ('the AFL Competition') and it determines the rules and regulations of the AFL Competition. Those rules and regulations, including the AFL Player Rules, are binding on players and clubs participating in the AFL Competition. The AFL Competition is also regulated by a Collective Bargaining Agreement between the AFL and the AFL Players' Association Incorporated. The CSM Representation Agreement 6 After he was drafted by Geelong, Spriggs entered into an agreement with CSM ('the CSM Representation Agreement') on 7 January 2000. The term of the CSM Representation Agreement was for two years, but it was extended by agreement between the parties and the agreement remained in place for the year ended 30 June 2005. 7 Under cl 2 of the CSM Representation Agreement, Spriggs agreed to appoint CSM to be his exclusive agent to represent him in negotiating his AFL Standard Playing Contract, endorsements, merchandising, appearances and media contracts. By cl 3, CSM was entitled to three per cent of Spriggs' total gross earnings for the term of the CSM Representation Agreement. Spriggs agreed to pay CSM 20% of the total gross earnings in relation to marketing and media activities. Change of clubs 8 Spriggs was contracted to Geelong for the 2000 – 2004 seasons. On 31 October 2004, when his 2003/2004 contract terminated, Spriggs was de-listed by Geelong. Because he was registered as an AFL player with Geelong, he was eligible to nominate for the National Draft and to be selected by another AFL club. The AFL National Draft is conducted in accordance with the AFL Player Rules and enables clubs to select from players on a list of eligible players nominated for the draft. Players who wish to be included in the AFL National Draft must complete and lodge a prescribed nomination form. CSM negotiated terms with the Sydney Football Club ('the Sydney Swans') and after agreeing on terms of employment, Spriggs entered the AFL National Draft by lodging an AFL National Draft Nomination Form specifying minimum requirements based on the agreement CSM had negotiated with the Sydney Swans. The Sydney Swans selected Spriggs in the AFL National Draft on 20 November 2004 and he entered into a fixed-term playing contract with the Sydney Swans on 9 December 2004. What the fee was really for 9 On 20 December 2004, CSM issued an invoice for a fee of $2,310, including GST of $210 ('the CSM fee'). The notation on the invoice read: 'Management and promotional services by CSM for season 2004'. The primary judge rejected the contention that this description was determinative and found that the CSM fee was paid by Spriggs to CSM for negotiating the new contract (at [46]). This finding was not challenged on appeal. Other relevant findings 10 The primary judge found that the standard AFL playing contract that Spriggs entered into with the Sydney Swans was a contract of employment (at [47]). The primary judge also found that in the year ended 30 June 2005, Spriggs was carrying on a business for the purpose of gaining or producing his assessable income and that the CSM fee was incurred by Spriggs in carrying on that business (at [53]). 11 Spriggs earned some sponsorship income through his appearance in the 'Men for All Seasons' calendar and other activities but, in the year ended 30 June 2005, his total income of $106,869, apart from interest income of $215, was derived exclusively from his employment contract (see the primary judge's reasons at [29] – [31]). (2) Riddell 12 In Riddell's case, the claim for a deduction under s 8-1(1) of the 1997 ITAA was for a fee of $21,175, including GST of $1,925 ('the SFX fee'), that Riddell became liable to pay to SFX Sports (Australia) Pty Limited ('SFX') in the year of income ended 30 June 2005. 13 Riddell began his professional NRL career in 1998 and since then he has played in the NRL Competition on a full-time basis under six different NRL Playing Contracts for three different NRL clubs. 14 Each NRL club is bound to the NRL by the 'NRL Rules', which were adopted from time to time by the NRL to govern the NRL Competition. The NRL Rules include, as Schedule 6, the NRL Playing Contract and Remuneration Rules ('the NRL Playing Rules'). The NRL Playing Rules expressly acknowledge that a player may receive 'Remuneration' as well as other income in a variety of forms from a variety of sources: Pts 8.3, 8.4 and 8.5 of the NRL Playing Rules. 15 Players must be registered to play in the NRL Competition: rules 23, 38 and 39 of the NRL Playing Rules. Application for registration is governed by rules 40 and 41 of the NRL Playing Rules. Any person who wishes to participate as a player in the NRL Competition must, amongst other things: ' … (2) Be a party to a current NRL Playing Contract with a Club; (3) Agree with the NRL: (a) To comply with, and be bound by, the NRL Rules … … (f) To grant to the NRL the right to use his name and image in connection with the promotion or marketing of the NRL Competition …' (Rule 40) 16 Each NRL club is required by the NRL Playing Rules to engage players under the standard NRL Playing Contract. The relationship between the NRL, each NRL club and the NRL players is also governed by a Collective Bargaining Agreement ('the Rugby League CBA') negotiated by the Rugby League Professionals Association with the NRL. The provisions of the Rugby League CBA are expressly incorporated into the standard NRL Playing Contract. The SFX Management Contract 17 On 6 June 2001, Riddell entered into an agreement with SFX for the period 6 June 2001 to 6 June 2006, under which he engaged SFX to manage exclusively his affairs ('the SFX Management Contract'). By cl 4 of the SFX Management Contract, Riddell was obliged to pay SFX seven per cent of all contract money paid to Riddell, including bonuses that SFX negotiated but excluding match payments. Change of clubs 18 During the 2001, 2002, 2003 and 2004 seasons, Riddell played rugby league football for the St George Illawarra Rugby League Football Club ('St George'). Before the end of the 2004 season, St George gave permission to Riddell to approach other clubs. Between April 2004 and June 2004, Mr Darryl Mather of SFX negotiated with representatives of Parramatta National Rugby League Club Limited ('Parramatta') and Cronulla-Sutherland District Rugby League Football Club Limited the terms of a new playing contract for Riddell. On 22 June 2004, Riddell entered into a new playing contract with Parramatta for the 2005, 2006 and 2007 seasons. What the fee was really for 19 On 17 November 2004, SFX issued an invoice to Riddell with the notation '2005 Management Fees' totalling $21,175 inclusive of GST. The primary judge found that the SFX fee was compensation for SFX negotiating the new playing contract with Parramatta (at [39]) and accepted the evidence that the management fee related entirely to the professional services for the negotiation of the new playing contract (at [40]). This finding was not challenged on appeal. Other relevant findings 20 The primary judge found that the standard rugby league playing contract that Riddell entered into with Parramatta was a contract of employment (at [25] and [41]). The primary judge also found that in the year ended 30 June 2005, Riddell was at all relevant times carrying on a business (at [45]). 21 During the year ended 30 June 2005, Riddell earned $11,394 from promotional activities negotiated by SFX, income from his playing contracts with St George ($44,564) and Parramatta ($175,610), the match fee ($970) for playing rugby league for New South Wales and an appearance fee ($900) from a television station (at [31]). THE COMMISSIONER'S CONTENTIONS ON APPEAL 22 The Commissioner contended that the conclusion of the primary judge should be reversed on one or more of the following bases: (1) neither the CSM fee nor the SFX fee was incurred 'in' gaining or producing Spriggs' or Riddell's assessable income within s 8-1(1) of the 1997 ITAA; (2) neither fee was necessarily incurred in carrying on a business for the purpose of gaining or producing Spriggs' or Riddell's assessable income within s 8-1(1); and (3) alternatively, if either fee did satisfy s 8-1(1), it was an outgoing of capital, or of a capital nature, and therefore not deductible by reason of s 8-1(2)(a). 23 The Commissioner's argument on contentions (1) and (2) was predicated principally, if not totally, on the judgment of the High Court in Federal Commissioner of Taxation v Maddalena (1971) 2 ATR 541 and, in particular, the reasons of Menzies J in that case, with whom Barwick CJ, Windeyer, Owen and Walsh JJ agreed. 24 In relation to contention (2), the Commissioner also relied on the definition of 'business' in subs 6(1) of the Income Tax Assessment Act 1936 (Cth) ('the 1936 ITAA') (now found in s 995-1 of the 1997 ITAA), which precludes 'occupation as an employee' from itself constituting a business. 25 In relation to contention (3), the Commissioner's argument was that the employment contract under which each taxpayer would gain his assessable income was in the nature of a structural asset and the outgoing to obtain it was on capital account. 26 During the course of the hearing of the appeals, Senior Counsel for the Commissioner conceded that the non-playing activities of each taxpayer were a business, but noted that the fee in each case was not incurred in carrying on those activities; it was incurred, on the findings of the primary judge in [9] and [19] above, for the services of the agent/manager in negotiating the contract of employment relating to playing activities. THE RESPONDENTS' CONTENTIONS ON APPEAL 27 The respondents contended that Maddalena was to be distinguished by reference to temporal context and the changes in the nature of athleticism as a professional pursuit that have occurred since it was decided; by reference to the facts in Maddalena, and by reference to the primary judge's proper rejection of the application, in the present cases, of what is said to be the sole basis upon which Maddalena was decided, namely, that the relevant outgoings were incurred at a point too soon to be regarded as being incurred 'in' gaining assessable income. 28 The respondents contended, undoubtedly correctly, that entitlement to a deduction under the first positive limb does not depend upon there being a business. 29 In their written submissions, the respondents wrote that they did not contend that the contractual arrangement with the relevant club amounted to or constituted a business, but what they did contend led, they further contended, to the same ultimate conclusion. It went something like this: (1) The contractual arrangement with the club must be viewed within the broader income-generating framework of the respondents as professional sportsmen and, so viewed, they were engaged in business in the relevant year of income as the primary judge found; (2) the ordinary notion of business extended, even if the definition of business in s 995-1 of the 1997 ITAA did not, to include, inter alia, services provided for a club under a contract of employment; (3) this permitted one to regard income generated from playing with the relevant club as income from a business; and (4) it follows that the fees were not incurred at a point too soon but rather were incidental and relevant to the broader income-earning activities (the business) of the respondents. 30 On the facts found by the primary judge, the respondents contended, inter alia, that, in incurring the management fees, the advantage they sought was not an enduring advantage because it did not result in altering the framework within which the income producing activities were to be carried on in future but rather was a part of those activities within their income earning framework. 31 By a notice of contention dated 5 February 2008, the respondents contended, inter alia, that if, contrary to the findings of the primary judge, their activities as professional sportsmen did not constitute a business, the management fees were outgoings incurred in the course of gaining or producing their assessable incomes in general within the first positive limb in s 8-1(1)(a). ANALYSIS 32 We think it might be helpful to set down, what seem to us to be, some self-evident propositions untrammelled by legislative intervention, earlier authority or the facts of the present cases. 33 First, it does not necessarily follow that a person whose activities, either full-time or part-time, can be characterised as those of a professional sportsperson, is carrying on a business as such. For example, where a person carries on those activities as the employee of another, that person will not, by virtue of those activities, be carrying on a business; like any other employee, the person will be carrying on those activities in performance of his/her duties as an employee. The employer may be carrying on a business, but that is beside the point. Assuming for present purposes the efficacy of such arrangements, there are many examples of high profile professional sportspersons carrying on their sporting activities, as well as activities incidental thereto, through companies they own and control: see Agassi v Robinson (Inspector of Taxes) [2006] 1 WLR 1380. 34 Second, a part-time professional sportsperson may carry on activities other than those which characterise him or her as such (non-sporting activities). These non-sporting activities may be totally divorced from his/her activities as a professional sportsperson and they may be carried on as an employee or they may constitute the carrying on of a business. If the carrying on of these non-sporting activities constitutes the carrying on of a business and they are totally divorced from his/her activities as a professional sportsperson, the business is likely to be separate and discrete from any business constituted by the carrying on of his/her activities as a professional sportsperson. 35 On the other hand, a full-time professional sportsperson may carry on non-sporting activities which are incidental to his/her activities as a professional sportsperson, e.g., commercial endorsements and media and personal appearances. If his/her activities as a professional sportsperson constitute the carrying on of a business, then these incidental non-sporting activities are likely to be integrated, both on an organisational and financial basis, as part of that business. On the other hand, if his/her activities as a professional sportsperson are carried on as the employee of another, then these incidental non-sporting activities are likely to be a business in their own right, separate and discrete from his/her activities as an employee. Federal Commissioner of Taxation v Maddalena (1971) 2 ATR 541 36 In Maddalena, the High Court was concerned with the deductibility of travelling expenses and legal costs incurred by a professional rugby league footballer in negotiating and settling a contract to play rugby league with a new club (Newtown). The taxpayer also made his living as an employee electrician. Menzies J, with whom the other members of the High Court agreed, found, contrary to the conclusion of the Board of Review, that the taxpayer's contract with Newtown was a contract of service; in other words, he was also an employee of the Newtown Club. In denying the deductibility of the expenditure in question, his Honour said (at 549, 550): 'Does then the expenditure in question fall within the description of an outgoing "incurred in gaining or producing" his assessable income, or was it an outgoing "necessarily incurred in carrying on a business"? I think not. It is, I think, worthwhile looking at the taxpayer's earnings as an electrician to illustrate what I regard as the decisive difference to be observed here. Had the taxpayer claimed as a deduction the expenses of changing from one job to another as an employee electrician his outlay would not have been an allowable deduction. The expenditure would have been incurred in getting, not in doing, work as an employee. It would come at a point too soon to be properly regarded as incurred in gaining assessable income. Nor would the expenditure have been an outgoing in carrying on a business. There is a difference of first importance for present purposes between an electrician who seeks work as an employee and an electrician who seeks contracts to do work as a principal. In the former case the electrician would not have a business; in the latter he would. In the latter, therefore, what he spent to obtain contracts to do electrical work would be properly regarded as an outgoing of his business. There is, however, a clear distinction between the two cases. What I have said about the taxpayer as an electrician is, I think, equally applicable to him as a professional footballer, and moneys spent to obtain a new employment are not allowable deductions for income tax purposes under sec. 51. The claim for a deduction under sec. 64A for legal expenses incurred "in carrying on a business for the purpose of gaining or producing assessable income" fails for the same reasons.' 37 In agreement, Barwick CJ said (at 548): 'The cost to an employee of obtaining his employment does not form an outgoing incurred in the course of earning the wages payable in the employment.' 38 And Walsh J said (at 550, 551): 'If the respondent was engaged as an employee in playing football and if in consequence he cannot be held to have been carrying on a business, I am of opinion that the argument submitted to this Court that the respondent was entitled nevertheless, under the first limb of sec. 51(1) of the Act, to have allowed the deductions which are in dispute, should not be accepted.' 39 Prior to the extract from his reasons reproduced in [36] above, Menzies J, relevantly for present purposes, said (at 549): 'Of course, in his career as a professional footballer, a player who is successful ordinarily moves from grade to grade and from club to club. His employment is part-time and it is common for a player to play football in representative teams as well as with his club. Thus, for instance, in the agreement between the taxpayer and Newtown it is provided that "the player shall not be restricted or debarred from training and/or playing with any Australian Inter-State Combined Sydney Combined Country Group Inter Group or other representative team for which he may be selected". When playing with such a representative team the player would not be playing as a servant of his club. Nevertheless, while training and playing with Newtown, I consider that he does so as a servant of that club. Furthermore, it is common knowledge that because a man is a successful professional he can earn fees from advertising and other sources which, of course, form part of his assessable income. Nothing I say in this judgment bears upon expenditure to earn such fees. Here it is the agreement with Newtown that the taxpayer spent money to secure.' Is Maddalena distinguishable? 40 The primary judge concluded that the Commissioner's reliance on Maddalena was misplaced (Spriggs at [56]) and involved '… argument by analogy [which] must never be allowed to obscure the particularity of the arrangements in question' (Spriggs at [61]; Riddell at [52]). The caution inherent in that proposition is well-founded. 41 The primary judge distinguished Maddalena on the following grounds: (1) Spriggs incurred the CSM fee within a framework in which he produced his assessable income as a professional footballer consisting of the AFL Player Rules, the Representation Agreement and the Standard AFL Playing Contract (at [57]). Riddell incurred the SFX fee within a framework created by the contractual arrangements under which he played (at [49]). (2) The management fee was not incurred prior to the generation of the income because the income was ongoing. That fee was incurred after the playing contract was signed, not before, and could not be charged if no playing contract was negotiated. Maddalena sought to claim travelling expenses and legal expenses which were incurred before, and regardless of whether or not, a playing contract was secured. The management fee incurred by Spriggs/Riddell did not 'come at a point too soon to be properly regarded as incurred in gaining assessable income' (Spriggs at [58] and [63]; Riddell at [50] and [53]). (3) Maddalena concerned an era of professional sportsmen and women which bears little or no resemblance to professional sport in the 21st century (Spriggs at [61]; Riddell at [52]). (4) The factual matrix in Maddalena was different because Maddalena played football part-time; Spriggs was a full-time professional footballer and Riddell was a full-time professional rugby league player (Spriggs at [63]; Riddell at [53]). 42 The Commissioner submitted that none of these grounds for distinguishing Maddalena withstood scrutiny: (1) There was a 'framework' of rules in Maddalena, consisting of the rules of the NSW Rugby Football League. As explained in the case stated by Gibbs J, Maddalena's original club, Wests, was at all relevant times affiliated with and subordinate to the Illawarra Rugby League which in turn was affiliated with and subordinate to the Country Rugby Football League of NSW (Maddalena at 541, 542). The club to which he transferred, Newtown, at all relevant times belonged to the Sydney Rugby League which in turn belonged to the Metropolitan District Rugby Football League. Both the Country Rugby Football League of NSW and the Metropolitan District Rugby Football League were affiliated with and were subordinate to the NSW Rugby Football League. Clause 30(c) of the Constitution Standing Orders and Competition Rules of the NSW Rugby Football League was in the following terms: 'A player who signs as a professional player should note carefully that he is in effect tied to his club and cannot subsequently sign for any other club unless he is released – either by transfer or by the club agreeing to strike his name from their list of registered players.' Maddalena complied with that rule when he transferred from Wests to Newtown (indeed, he received a share of the transfer fee). The Commissioner submitted that the framework in Maddalena does not differ in any relevant respect from that in these cases: for example, see Adamson v NSW Rugby League Ltd (1991) 27 FCR 535, where Hill J held that the contract between a footballer and his club is a contract of employment. (2) In relation to the second ground for distinguishing Maddalena, the Commissioner submitted the critical question is the nature of the service for which the fee was paid, not the time at which it was paid or became payable. The service for which each taxpayer paid his fee was to obtain an employment contract, as it was in Maddalena. Each taxpayer incurred the fee at the moment when the employment contract was signed. (3) The third difference perceived to exist was that Maddalena concerned an era of professional sportsmen and women which bears little or no resemblance to the present era. Given her findings that each fee was payable by an employee in order to secure an employment contract, the particular changes identified by the primary judge of 'the absence of electronic media, let alone the internet' (Spriggs at [61]; Riddell at [52]), do not, the Commissioner submitted, appear to bear on the deductibility of the fee. Further, although the internet did not exist in the 1960's, it is a matter of common memory that both rugby league and Australian Rules football were covered extensively by radio and television at that time. (4) The primary judge's final grounds for distinguishing Maddalena's Case were that Maddalena played football part-time and that the legal and travelling expenses in Maddalena were incurred regardless of whether he obtained a playing contract. Although it is true that Maddalena was a part-time footballer, whereas Spriggs and Riddell were employed full-time, the Commissioner submitted that this difference should not affect the deductibility of the expenditure incurred in obtaining a new contract. The Court in Maddalena made it clear that the taxpayer, when working full-time as an employed electrician, would not have been entitled to claim as a deduction the cost of securing new employment as an electrician. 43 Clearly, the factual matrix in Maddalena was different to the factual matrix in Spriggs and Riddell, but the distinguishing features relied upon by the primary judge do not result in the principles laid down in Maddalena not being applicable in Spriggs and Riddell. We accept the submissions of the Commissioner that none of the grounds advanced by the primary judge for distinguishing Maddalena justified not applying Maddalena to Spriggs and Riddell. The Statutory Definition of Business 44 The definition of 'business' in subs 6(1) of the 1936 ITAA '… includes any profession trade employment vocation or calling but does not include occupation as an employee' is now found in s 995-1 of the 1997 ITAA. The definition is not exhaustive; activities which do not fall within the positive limb of the definition may nevertheless constitute a business under the ordinary notion of the word. Because of the excluding limb, 'but does not include occupation as an employee', it is clear that the word 'employment' is intended to cover and include other situations and is not confined to a situation where a person is an employee. As was said by Denman J in Partridge v Mallandane (1886) 18 QBD 276 at 278: 'I do not think employment means only where one man is set to work by others to earn money; a man may employ himself so as to earn profits in many ways.' In other words, the word 'employment' would cover the case of a self-employed person, but not the case of an employee. CONCLUSIONS First Limb 45 Having regard to the primary judge's unchallenged findings in [9] and [19] above, that the subject fee in each case was paid for negotiating the employment contract: in Spriggs, the contract with the Sydney Swans and in Riddell, the contract with Parramatta, the outgoing was not incurred 'in' gaining or producing assessable income, in the sense of being incurred 'in the course of' deriving the employment income: see Federal Commissioner of Taxation v Payne (2001) 202 CLR 93 at [14]. In that case, the majority (Gleeson CJ, Kirby and Hayne JJ) said (at [14]): 'To adopt and adapt the language used in Ronpibon, neither the taxpayer's employment as a pilot nor the conduct of his business farming deer occasioned the outgoings for travel expenses. These outgoings were occasioned by the need to be in a position where the taxpayer could set about the task by which assessable income would be derived. In this respect they were no different from expenses incurred in travelling from home to work.' Similarly, the outgoing here was not occasioned by the taxpayer's employment as a professional footballer/rugby league player, but '… by the need to be in a position where the taxpayer could set about the task by which assessable income would be derived'. 46 In this sense, the outgoing was not an expense of 'working' or a 'working expense'. As the late Professor Parsons observed in his seminal work: Income Taxation in Australia – Income, Deductibility, Tax Accounting, 1985, The Law Book Company Limited, at [5.47]: 'The result in Maddalena would, presumably, have been the same had it been approached not in terms of contemporaneity but in terms of the distinction between structural and working expenses.' 47 For these reasons, we respectfully disagree with the primary judge's conclusion (Spriggs at [43]; Riddell at [35]) that the management fee was relevant and incidental to Spriggs' income as a professional AFL footballer/Riddell's income as a NRL player. Second Limb 48 At the outset, we have to say that we find the respondents' contentions at [29] above extremely elusive. We think that this stems from the fact that even if one steps back and takes a wider view or scrutiny of the taxpayer's playing activities, there is, on the evidence, nothing but the activities performed pursuant to the employment contract; and the respondents concede that does not amount to or constitute a business. The other activities involving endorsements, appearances and the like may constitute a business; and the Commissioner concedes that they do (see [26] above). But even if those non-playing activities constitute a business, as indicated in [35] above, those activities are separate and discrete from the taxpayer's activities as a player; those latter activities are carried on in performance of the taxpayer's duties as an employee. 49 If, as we believe to be the case, any business carried on by the respondent in the relevant year of income is confined to his non-playing activities, then an outgoing entirely incurred in negotiating and concluding a playing contract of employment, which on the evidence subsumes the whole of the playing activities, is not incurred in the course of carrying on that business. Excluding Limb 50 In the face of our conclusions on the first and second limbs, it is unnecessary to consider s 8-1(2) of the 1997 ITAA. Had we been of a contrary view on either of the first or second limbs, we would have been of the view that s 8-1(2) had no application. This is one of the cases where an affirmative conclusion under one or both of the positive limbs precludes an affirmative conclusion on the application of the excluding limb. Status as a Test Case 51 During the hearing of the appeal, we were informed by Senior Counsel for the Commissioner that each of these cases is a test case. The question which immediately arises is: a test case as to what? Our conclusion that the CSM fee is not an allowable deduction to Spriggs in the 2005 year of income and that the SFX fee is not an allowable deduction to Riddell in the same year is predicated on the finding, supported by the evidence and not challenged on appeal, that each fee was paid entirely for negotiating the employment contract: in Spriggs, the contract with the Sydney Swans and in Riddell, the contract with Parramatta. In this regard, our conclusion says nothing, nor should it be taken to say anything, about the deductibility of fees paid by professional sportsmen to managers and agents for their services which cannot be so confined. 52 In our view, the appeals should be allowed. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Goldberg, Bennett and Edmonds. Associate: Dated: 22 August 2008 Counsel for the Appellant: Mr D Bloom QC, Mr R Brett QC and Mr M Flynn Solicitor for the Appellant: Australian Government Solicitor Counsel for the Respondents: Mr F G A Beaumont QC, Mr A Myers QC and Dr N Orow Solicitor for the Respondents: DLA Phillips Fox Date of Hearing: 8 May 2008 Date of Judgment: 22 August 2008