Income Averaging for Athletes: How Professional Sportspeople Can Manage Fluctuating Income

For many professional athletes, income does not follow a predictable pattern.

A player may spend several years earning comparatively modest income before securing a professional contract, signing endorsement deals or achieving significant prize money. In other cases, injuries, team changes or retirement can result in income varying considerably from year to year.

Recognising this, the Australian tax system includes special income averaging provisions that may help eligible athletes reduce the impact of fluctuating income levels. The Australian Taxation Office (ATO) classifies qualifying athletes as "special professionals" who may be eligible for this concessional tax treatment.

At Rise Accountants, we assist professional athletes and sportspeople across Australia with tax planning, compliance and business advisory services, helping them understand how tax rules apply throughout different stages of their careers.

Why Athlete Income Often Fluctuates

Unlike many traditional professions, sporting careers are often characterised by significant changes in income.

Income can vary due to:

·         Professional contracts

·         Match payments

·         Bonuses and incentives

·         Sponsorship agreements

·         Endorsement income

·         Prize money

·         Representative appearances

·         Injuries or time away from competition

As a result, an athlete may move between tax brackets several times throughout their career.

The income averaging provisions were introduced to help address this issue by recognising that some athletes earn highly variable income from year to year.

What Is Income Averaging?

Income averaging is a concessional tax treatment available to certain "special professionals", including eligible sportspersons.

In simple terms, income averaging can reduce the amount of tax payable in years where eligible professional income increases significantly compared to previous years.

The purpose is to smooth the effect of fluctuating earnings over time rather than having unusually high-income years taxed entirely at higher marginal tax rates.

While the calculation itself can be complex, the concept recognises that athletes often experience income spikes that may not continue throughout their entire career.

Who May Be Eligible?

According to the ATO, athletes may be eligible for income averaging if they:

·         Are Australian residents during the income year

·         Qualify as a special professional

·         Meet the eligibility requirements for taxable professional income

Eligibility depends on individual circumstances and the nature of the income earned.

Not all income connected to sport is automatically eligible.

What Types of Income May Qualify?

For many athletes, eligible professional income may include:

·         Playing contracts

·         Match payments

·         Performance bonuses

·         Prize money

·         Endorsement income

·         Promotional appearances

·         Sponsorship arrangements

However, not all income earned by an athlete necessarily qualifies for income averaging.

Some income sources may be treated differently depending on how they are earned and structured.

Because the rules can become technical, obtaining advice before lodging a tax return can help ensure income is classified correctly.

Why Tax Planning Matters for Athletes

Athletes often have relatively short earning windows compared to many other professions.

Periods of peak earnings may only last a few years, making proactive tax planning particularly important.

Areas worth considering include:

Cash Flow Management

Higher income can result in higher tax obligations.

Setting aside funds throughout the year can help avoid cash flow pressure when tax liabilities become due.

Superannuation Contributions

Additional superannuation contributions may be worth considering depending on your circumstances and long-term financial goals.

Business and Investment Structures

Some athletes earn income through sponsorship arrangements, image rights, business activities or investments.

The way these activities are structured can have significant long-term implications.

Future Career Planning

Many athletes eventually transition into coaching, media work, business ownership or other careers.

Early financial planning can help support these future opportunities.

Record Keeping Remains Important

Regardless of whether income averaging applies, maintaining accurate records is essential.

Athletes should generally retain documentation relating to:

·         Contracts

·         Sponsorship agreements

·         Endorsement income

·         Prize money

·         Travel expenses

·         Professional development activities

·         Work-related expenses

Good record keeping can assist with both tax compliance and financial planning.

Common Mistakes Athletes Make

Some of the most common tax issues encountered by athletes include:

·         Failing to set aside money for tax

·         Assuming all sporting income is treated the same way

·         Poor record keeping

·         Overlooking deductible expenses

·         Not seeking advice when income increases significantly

As an athlete's career develops, financial decisions often become more complex.

Obtaining advice early can help identify opportunities and avoid costly mistakes.

Professional Tax Advice for Athletes

Income averaging can provide valuable benefits for eligible athletes, but the rules are not always straightforward.

Determining eligibility, identifying qualifying income and ensuring tax returns are prepared correctly often requires a detailed understanding of both taxation and sporting income arrangements.

At Rise Accountants, we assist athletes, contractors and high-income professionals with:

·         Individual tax returns

·         Tax planning

·         Income averaging advice

·         Cash flow planning

·         Business structures

·         Investment planning

·         Ongoing business advisory

Whether you're signing your first professional contract or managing multiple income streams later in your career, understanding your tax position can help you make more informed financial decisions.

Frequently Asked Questions

What is income averaging for athletes?

Income averaging is a concessional tax treatment available to eligible athletes and other special professionals. It is designed to help manage the tax impact of fluctuating income from year to year.

Do all athletes qualify for income averaging?

No. Eligibility depends on individual circumstances and whether the athlete meets the ATO requirements for special professional income averaging.

Does income averaging eliminate tax?

No. Income averaging does not remove tax obligations. It may reduce the impact of higher tax rates in years where eligible income increases significantly.

Should athletes still do tax planning if income averaging applies?

Yes. Tax planning remains important for managing cash flow, superannuation, investments and future financial goals.

Can an accountant help determine eligibility?

Yes. An accountant can help review income sources, assess eligibility, prepare tax returns and provide advice tailored to an athlete's circumstances.