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Thursday, 25th April 2024 |
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| Professional sports persons do have a real need for a tax relief. Their need has been made more acute by previous legislation introduced by the Minister for Finance. But is the Minister’s solution the appropriate solution, and does the problem extend beyond high profile athletes? |
The tax break
The Finance Bill has unveiled a tax break for professional sports players. Provided the sports player is Irish resident in the year in which they permanently cease their professional sports playing, they may choose any prior ten years in which they were Irish resident and which not earlier than 1990/91, and claim to have their tax liability for those years recomputed. This recomputation is on the basis of disregarding 40 per cent of their gross receipts from the playing of the sport.
The 40 per cent deduction is computed by reference only to receipts from the playing of the sport. Ancillary activities such as sponsorship moneys, participation in advertising and promotions, personal appearances, or licensing the use of the individual’s image to endorse products etc are not taken into account. It can include salaries, bonuses, etc where the sports person carried on his vocation as an employee. It can include match or performance fees and prize moneys and appearance moneys where the individual carries on his vocation as a self-employed person.
To the extent that the recomputation on this basis discloses a lower tax liability than that which originally arose for the individual, a repayment of tax (without interest) will be made.
This proposal has been subjected to widespread criticism. However the criticism has largely focused on the failure to extend the scheme to non-professional persons. Only a few heads have been pushed above the parapet to object to the idea in principle.
The motive
At first sight one could be forgiven for suspecting that the Minister had indulged in a vote grabbing exercise. Sports persons are popular heroes and association with them does no harm to a politician. Remember a Taoiseach celebrating the winning of the Tour de France?
However the Minister has solid grounds as justification for the measure he has proposed. It is a fact that professional athletes do have a short earning life. There are of course exceptions as witness some former heavyweight boxing champions still earning big money in the ring well into their forties. But for many who make big money, that big money comes in a short few years.
Those years are also typically years of relative youth during which they may give little thought to the future or to saving. Those who devote themselves to professional sports in their late teens and twenties may sacrifice the opportunity to obtain a solid education and training in an other area of economic life. There would seem therefore to be some argument for special treatment for the sports person.
Why a hand out?
One might ask why the professional sports person, who can well afford professional advice on his financial affairs, does not make adequate provision for the lean years ahead, while he is still a high earner? Why should he look to his fellow taxpayers to give him a big handout when he leaves the sports field?
There is a simple answer to that question. The tax relief that is available to a self-employed sports person for pension contributions is severely limited, as is the case with any self-employed person. The maximum pension contribution by any self-employed person, which can attract tax relief, is ?76,200 per annum. That limit was imposed by the Minister only two years ago.
Most self-employed persons may hope to make pension contributions perhaps over a 30-year period. If they do so up to the maximum permitted at present, they would make total contributions of approximately ?1.9m. But contrast that with the professional sports person, whose high earning period may occur entirely within ten years. His ability to fund a pension scheme may be restricted to approximately ?0.76m, well under one half of that of another self-employed person.
There is some recognition in the tax code of the short earning life of the sports player. He is allowed almost twice the funding rate that other persons would be entitled to in their 20s and 30s but he is still subject to the same annual limit referred to above as is any desk jockey in an office.
If you contrast a professional sports player with, say, a shopkeeper who is self-employed, what is the principal financial contrast between them? Assuming that the sportsman succeeds in earning in ten years what the shopkeeper earns over 30 or 40 years, the main difference will lie in the fact that the shopkeeper will be able to build up a pension fund more than twice that of the sportsperson.
Does this not suggest that the best solution would have been to remove the annual limit on pension contributions? That would put the sportsperson and the shopkeeper on equal footing in terms of taxation and finance.
The obvious objection is of course that the State could not afford to give tax deduction for pension payments entirely without limit. But this objection could be met by imposing a lifetime, rather than an annual, limit on tax deductions for pension contributions. In place of a ?76,200 per annum restriction, why not introduce a lifetime restrictions of, say, ?2.5m. In such a case a top athlete who earned huge sums in a few years and then had to retire through injury would be able to get the same pension breaks as a more sedate shopkeeper obtains over 30 or 40 years.
What about the money dealer?
The solution adopted by the Minister smacks of populism. Athletes are not the only high earners who may have short earning careers. It can apply equally to entertainers, models, foreign exchange dealers and money dealers, and a wide range of activities. Of course it is not quite as ‘sexy’ to announce a 40 per cent tax break for a foreign exchange dealer on the grounds that he burns out early, as it is for a rugby player with whom one can be photographed. But the objective arguments for a change in the tax system are the same for both. |
John Bradley is Head of Personal Financial Services in KPMG and President of the Institute of Taxation in Ireland. He is author of ‘PRSI and Levy Contributions’ published by the Institute of Taxation in Ireland.
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| Article appeared in the March 2002 issue.
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