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Created on Monday, 05 February 2007 16:46

Last Updated on Friday, 28 December 2012 18:56

When is an Athlete in Business?

Your career as an athlete typically starts as an amateur and ends in a career. Seen from the perspective of the tax office, your career is a business. The FG Niedersachsen had to decide exactly "when" a business starts and amateur sport ends (June 23, 2005, re 5 K 374/02) in the case of motorcycle races and advertised sponsoring.

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The plaintiff, a motorcyclist, registered his trade for "arranging for and renting of advertising space". He then submitted a VAT return only for his business for the renting side of business. The defendant tax office rejected his claim thereby reducing his credit for input tax paid. The tax office took the position that the input tax deductions prior to registering the business were private costs not eligible for deduction. These costs were occasioned for private and not professional reasons. Pri-vate costs are only exceptionally eligible for deduction. Therefore, the tax office also retro-actively changed previous tax assessments accordingly. Ouch!!

After unsuccessfully contesting the changes, the plaintiff went to first court and also lost. The costs in dispute were not deductible since the court considered them private. The plaintiff's argument was that his taxable income was inseparably connected to his sport ac-tivities. A significant part of his income was to paid advertisements as a resulted of his achievements in sports and for newspaper coverage. Only by participating in races did he achieve success and notoriety. However, the court held that he remained a non-business amateur until formal registration of his business after which his activities first became professional.

The court's holding places great weight upon the formal registration as the cut-off date for amateur status and commencement of a professional business qualifying for tax deductions. The required connection between business costs and business income is established by registration. And this means only formal registration will defiantly lock in deductions.

Hint:

Costs previous to formal commencement by registration of your business are not deductible unless you prove they are directly related to starting the business, for example start-up and registration fees.

Published on the old CMS: 2007/2/5
Read on the old CMS till November 2008: 52 reads