Artificial Intelligence has transformed from a futuristic buzzword into a tangible business tool. One of the most cutting-edge applications we are seeing among our corporate clients is the creation of a "Digital Twin."
By training a grounded AI model on a founder or key executive's voice, writing style, and physical appearance, companies can generate hyper-realistic synthetic photos, blog posts, audio podcasts, and social media videos, all without the executive ever stepping foot in a recording studio.
The marketing efficiencies are undeniable. However, the tax strategies being pitched around these Digital Twins are leading many founders straight into a regulatory trap.
Part 1: The "Tax-Free" Digital Twin Strategy
On paper, the strategy proposed to many founders and key executives sounds like a masterclass in corporate structuring and IP law. It usually goes like this:
The Setup: The company wants to use the founder's Digital Twin for marketing content.
The Offshore Middleman: To generate the synthetic media, the company pays a subscription or generation fee to an overseas AI platform.
The Licensing Agreement: The overseas platform then pays a "content usage fee" or "IP licensing fee" back to the founder's Discretionary Family Trust in exchange for the legal right to use the grounded AI model based on the founder's likeness.
The "Tax Benefit": The company claims a tax deduction for the marketing expense (lowering corporate tax). Meanwhile, the Discretionary Trust receives the licensing income and distributes it to family members in lower tax brackets.
In this scenario, the founder supposedly generates a highly tax-effective new income stream while completely avoiding personal income tax at the top marginal rate.
There is only one problem: Under Australian law, this structure is entirely illegal.
The Reality Check: ATO Taxation Determination TD 2023/4
The Australian Taxation Office (ATO) is hyper-aware of high-profile individuals attempting to alienate income generated from their "fame" or public persona to related entities. To close this loophole, the ATO issued Taxation Determination TD 2023/4, which alters how image rights, likeness, and "fame" are taxed in Australia.
1. You Cannot Sub-License Your Face or Voice
The ATO's ruling explicitly states that income derived from the commercial exploitation of your name, image, likeness, identity, reputation, or signature must be assessed as your personal income. It does not matter if an overseas AI platform generates the synthetic output.
2. Australia Does Not Recognise "Property Rights" in Fame
In some jurisdictions, your "Right of Publicity" is recognised as a distinct, assignable property right. Australia does not recognise this. Because your likeness is not considered alienable property under Australian common law, any agreement where you "license" your Digital Twin to your Family Trust is viewed by the ATO as an ineffective tax avoidance scheme.
The Cross-Border Withholding Risk
Beyond the personal income tax trap, injecting an overseas AI supplier into the payment flow creates a secondary risk: Foreign Royalty Withholding Tax. If an Australian company pays an overseas supplier a fee that includes the right to use "intellectual property", the ATO may classify that payment as a royalty. Australian businesses are legally obligated to withhold tax on royalties paid overseas.
How to Structure Your Digital Twin Legally (While Alive)
While the "tax-free trust distribution" loophole is closed, your company can still legally and commercially benefit from using a Digital Twin:
The Corporate Deduction: The company pays the overseas AI platform for the software service (SaaS) or the generation of the synthetic media. This remains a legitimate, deductible marketing expense for the company.
The Personal Income Assessment: If the founder is to be remunerated for the use of their likeness or voice model, the company (or the platform) must pay the founder directly.
Marginal Rates Apply: The founder must declare this usage fee on their individual tax return.
Part 2: The Posthumous Risk (What Happens When You Die?)
While we have established that a living founder cannot assign their likeness to a trust for tax purposes, an entirely different legal crisis emerges regarding a founder's Digital Twin after they pass away.
While Australia lacks a dedicated right of publicity, deceased individuals' estates are not entirely without legal weapons if a digital replica is used commercially. The Australian Consumer Law (ACL) and the common law tort of 'passing off' can sometimes be leveraged if an AI-generated likeness is used to falsely imply that the deceased person (or their estate) endorsed a product or service. However, this relies heavily on the deceased having an established business reputation or goodwill. Furthermore, if a deepfake is created simply to tarnish a deceased person’s reputation rather than to sell a product, the estate is largely powerless. Under Australian law, a cause of action for defamation dies with the person (actio personalis moritur cum persona).
The United States continues to aggressively widen this legal gap. In addition to state-based laws, the proposed federal NO FAKES Act, reintroduced to the US Congress in 2026, specifically targets unauthorised digital replicas. Under this proposed legislation, the right to control AI-generated visual or voice replicas survives an individual's death and can be enforced by their heirs or executors for up to 70 years post-mortem. This creates a concrete, monetizable, and highly protective legal framework for digital remains that Australia simply does not possess.
Recent developments in Australian copyright policy do, however, offer a glimmer of hope against unauthorised AI cloning. In late 2025, the Australian Government explicitly rejected calls from big tech companies to introduce a broad "Text and Data Mining" (TDM) exception for AI training. This means tech companies cannot legally scrape and ingest copyrighted works, such as your recorded voice, published videos, or written text, to train their generative AI models without permission and compensation.
The Solution: Estate Planning for Digital Twins
Beyond merely appointing a digital executor, creators and business owners are increasingly treating their potential "digital twin" as a distinct asset in their estate planning. Legal professionals are now drafting explicit post-mortem licensing clauses and 'AI directives' within wills. These clauses expressly state whether the deceased consents to their likeness, voice, or writing being used to train AI posthumously, and can explicitly assign the commercial rights of any digital exploitation to specific beneficiaries.
The Bottom Line for Business Owners
Innovation in AI offers incredible leverage for marketing, but it does not rewrite the Australian tax code or succession laws. If a tax strategy relies on moving the commercial value of your personal identity into a trust, it will fail an ATO audit. Likewise, if your will does not account for your digital remains, your estate may lose control of your likeness entirely.
If you are developing grounded AI models, licensing your likeness, or want to secure your digital footprint in your estate planning, the team at James Wan & Co. can ensure your commercial contracts and wills are robust and compliant. Contact us today to secure your digital future.
