Private ruling: Tax exempt status of a sporting body
Date of advice: 5 March 2018
Published: June 2018
Ruling period: Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022 | Year ended 30 June 2023 | Year ended 30 June 2024 | Year ended 30 June 2025 | Year ended 30 June 2026 | Year ended 30 June 2027 | Year ended 30 June 2028 | Year ended 30 June 2029 | Year ended 30 June 2030
Date scheme commenced: 1 July 2018

Ruling: Q1: Is the Entity exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a society, association or club established for the encouragement of a game or sport under item 9.1(c) of the table in section 50-45 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: Background 1. The Entity promotes sport. 2. The Entity has members. 3. The Entity undertakes sporting and non-sporting activities. 4. The Entity generates revenue from a number of sources. 5. The Entity has provided details of its income, expenses and assets. 6. The Entity has sports related objects. 7. The Entity’s constitution provides that the income and property can only be used to promote the purpose of the Entity. 8. The Entity’s constitution details that property of the Entity must not be paid to or distributed among the members upon winding up. 9. The Entity is governed by the Board.

Relevant legislative provisions: Income Tax Assessment Act 1997 (Cth) Section 50-1 | Income Tax Assessment Act 1997(Cth) Section 50-45 | Income Tax Assessment Act 1997(Cth) Section 50-47 | Income Tax Assessment Act 1997(Cth) Section 50-70 | Income Tax Assessment Act 1997(Cth) Section 995-1 | Australian Charities and Not-for-profits Commission Act 2012 Section 25-5

Reasons for decision: Summary: The total ordinary income and statutory income of the Entity will continue to be exempt from income tax pursuant to section 50-1 of ITAA 1997 as it is an association established for the encouragement of a game or sport, pursuant to item 9.1(c) of the table in section 50-45 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 50-1 of the ITAA 1997 exempts from income tax the total ordinary and statutory income of an entity covered by section 50-45 of the ITAA 1997. Item 9.1(c) of the table in section 50-45 of the ITAA 1997 provides that a society, association or club established for the encouragement of a game or sport shall be an exempt entity, subject to special conditions in section 50-70 of the ITAA 1997. Accordingly, to be an exempt entity described in item 9.1(c) of the table in section 50-45 of the ITAA 1997, an entity must: (a) be a society, association or club; (b) be established for the encouragement of a game or sport; and (c) meet the special conditions specified in section 50-70 of the ITAA 1997. | Detailed Reasoning - (a) Society, Association or Club: The words ‘society’, ‘association’ or ‘club’ are not defined in the ITAA 1997 and have their ordinary meaning. The members of the Entity currently pursue the common purpose of promoting, developing and encouraging a sport and are governed by the Entity’s governing document. The Entity is a society, association or club for the purposes of section 50-45 of the ITAA 1997. | Detailed Reasoning - Game or sport: The terms ‘game’ or ‘sport’ for the purposes of section 50-45 of the ITAA 1997 are not defined in the ITAA 1997 and have their ordinary meanings. Taxation Ruling TR 97/ 22 Income tax: exempt sporting clubs (TR 97/22) provides the Commissioner’s view on what constitutes an exempt sporting club. TR 97/22 provides a non-exhaustive list of activities that are considered a ‘sport’ for the purposes of section 50-45 of the ITAA 1997. Paragraph 11 of TR 97/22 refers to the meaning in the Macquarie Dictionary which defines ‘encouragement’ to mean ‘stimulation by assistance’ and provides that encouragement can occur directly by: ● forming, preparing and entering teams and competitors in competition in the game or sport; ● coordinating activities; ● organising and conducting tournaments and the like; ● improving the abilities of participants; ● improving the standards of trainers and coaches; ● providing purchased or leased facilities for the activities of the game or sport for the use of Club Members and visitors; or ● encouraging increased and wider participation and improved performance. And can occur indirectly: ● through marketing; or ● by initiating or facilitating research and development. The Entity encourages sport in a number of ways. | Detailed Reasoning - Main purpose: Paragraph 41 of TR 97/22 provides that to be eligible for exemption, a club’s main purpose must be to encourage a game or sport. The main purpose can only be ascertained after objectively weighing the club’s features, including the constituent document and the activities they undertake. The constituent documents will help identify the purpose for which the organisation was established and should be consistent with the aim of encouraging a game or sport. The activities must then demonstrate that the organisation’s main purpose is the encouragement of a game or sport. Paragraph 15 of TR 97/22 lists the features that are highly persuasive in supporting a conclusion that the main purpose of a club is to encourage a game or sport: ● the club conducts activities in the relevant year that are directly related to the game or sport; ● the sporting activities encouraged by the club are extensive; ● the club uses a significant proportion of its surplus funds in encouraging the game or sport; and ● the club’s constituent documents emphasise that the club’s main purpose is to encourage a game or sport and the club operates in accordance with those documents. Relevant but less persuasive factors are listed at paragraph 16 of TR 97/22 and include: ● a high level of participation by members in the game or sport; ● the members of the committee, or persons who control the direction of the club are predominantly participants in or concerned with the encouragement of the game or sport (as distinct from the day to day management of the club); ● voting rights in the club vest only in members involved in the encouragement of the game or sport, whether by personal participation or by encouraging participation by others; and ● the club promotes itself to patrons and the public as one encouraging the game or sport, and its advertisements and publicity emphasise the game or sporting facilities provided. Paragraph 14 of TR 97/22 also states: A club's main purpose can only be ascertained after objectively weighing all of the club's features described in paragraphs 15 and 16. The presence or absence of a feature may not conclusively determine that the club's main purpose is or is not the encouragement of a game or sport. It can be difficult to determine a club's main purpose when the club conducts other activities, particularly social or commercial activities. The fact that a club also encourages social and other activities does not, of itself, preclude a club from being exempt. As noted by Lockhart J in Cronulla Sutherland Leagues Club Limited v FC of T 90 ATC 4215 at 4225 ( Cronulla ), where a club conducts other activities, which are merely ancillary to the encouragement of the game or sport, it can be accepted that the main purpose may be that of encouragement. However, where the main purpose becomes the carrying out of those other activities, a club is not exempt. Nor is it exempt if it continues to be involved in the game or sport to a substantial degree but is equally involved with another purpose or purposes. As Lockhart J went on to state in Cronulla at 4225: But if it has two co-ordinate objects, one of which is outside the exemption, the exemption cannot apply because it would be impossible to say that one object is the main or predominant object. The club is still exempt provided the encouragement of a game or sport is the club's main purpose. On the other hand, if the club's main purpose is providing social amenities and licensed club facilities to its members, the exemption does not apply even if sport is extensively encouraged. In Terranora Lakes Country Club Limited v. FC of T 93 ATC 4078; (1993) 25 ATR 294 ( Terranora ), the club provided and promoted an extensive range of sporting activities including golf, bowls, tennis and other sports, games and pastimes. The club also had extensive social facilities that were used by the club’s members and also by a large number of non-members. In the most recent year reported in the case, 90.3% of the club’s income came from poker machines, bar trading and catering but only 16.9% was spent on sporting activities. The Court ruled in favour of the taxpayer and concluded that the main purpose of the Club was the promotion of athletic sport and not one established for the purpose of carrying on a business of gambling, provision of entertainment and food, and the selling of time-share units. Hill J concluded that, while the social activities of the club were extensive and could be seen as an end in themselves, the activities were pursued as a means of financing the extensive sporting activities conducted by the Club. While the non-sporting activities were vital to the club’s financial survival, they were neither equal nor predominant in importance to the sporting activities. In St Mary's Rugby League Club Limited v. Federal Commissioner of Taxation 97 ATC 4528; 36 ATR 281 ( St Mary's ), Hill J found that the significant social activities of a sporting club were acceptable if the club was formed principally for sport and if the sport was financed by the social activities. It was acceptable in that case that only 20% of the funds earned by the social activities of the club were spent on football. Hill J emphasised the importance of the club’s constitution which stated that the principal aim of the club was the support of local football and that a large amount of the club’s activities were sport related. It was also important that the club’s history was centred on the support of local football and that the club rules required a certain proportion of its funds to support local football. Therefore, in order for an entity to be exempt as a society, association or club established for the encouragement of a game or sport, the revenue raising purposes must remain only a means to a sporting end. Where a society, association or club’s main purpose is providing social amenities and licensed club facilities to its member the exemption does not apply. | Detailed Reasoning - 1. Activities directly related to a game or sport: It has already been established that the activities of the Entity are directly related to a sport. | Detailed Reasoning - 2. The sporting activities encouraged by the Club are extensive: TR 97/22 provides that where the sporting activities encouraged by the sporting club are very extensive it is highly persuasive that the club’s main purpose is the encouragement of sport. The Entity is extensively involved in encouraging sport. Based on the information provided, it is considered that the non-sporting activities are ancillary to the main purpose of promoting sport. In any event the funds from those non-sporting activities are or will be, for the most part, expended on furthering the Entity’s main purpose of encouraging and developing the sport. As such, it is considered that the Entity conducts extensive sporting activities. | Detailed Reasoning - 3. The Club uses a significant proportion of its funds to encourage the game or sport: The Club should use a significant proportion of its surplus funds in encouraging its game or sport. As Lockhart J noted in Cronulla it is a significant matter if a club has the potential to apply its surplus funds for purposes that have nothing to do with the encouragement of a game or sport. The Commissioner considers that the majority of the Entity’s funds are used directly to promote a sport. The income and expenses related to events indicates that the social activities of the Entity are ancillary or incidental to the sporting purpose. The Commissioner accepts that the Entity uses a significant portion of its funds to encourage sport. | Detailed Reasoning - 4. The objects in the constituent document: The constitution of the Entity should be consistent with the aim of encouraging a game or sport. The objects of the Entity are set out in the Entity’s constitution. The purpose of the Entity is to promote, develop and encourage the game or sport. The constituent documents emphasise that the main purpose of the Entity is to encourage a game or sport and that other activities that the Entity may become involved in must support the Entity’s overarching purpose of promoting, developing and encouraging the game or sport. | Detailed Reasoning - 1. High level of participation by members in the game or sport: The Entity has members. There is no requirement that members participate in the game of sport. As the level of participation of members cannot be definitively ascertained, this feature is not persuasive. 2. The members of the committee are predominantly participants in or concerned with the encouragement of the game or sport (as distinct to the day to day management of the club) The Board governs the management and control of the Entity. However, it is not clear what role each of the members of the Board has in the day to day running of the Entity and whether they otherwise participate in or encourage the game or sport. It is considered that this feature is not persuasive. 3. Voting rights in the club vest only in members involved in the encouragement of the game or sport, whether by personal participation or by encouraging participation by others There is no requirement that voting members are either personally involved, or encourage participation, in the game or sport. Therefore, voting rights do not vest only in members who encourage or are involved in sport. This feature is not persuasive. 4. The club promotes itself to patrons and the public as one encouraging the game or sport, and its advertisements and publicity emphasise the game or sporting facilities provided. The Commissioner accepts that the Entity promotes itself to patrons and the public as one encouraging the game or sport. | Detailed Reasoning - Conclusion – Main Purpose: After consideration of the features discussed above it is considered the Entity is established for the encouragement of a game or sport. Although the Entity undertakes a number of social activities, the Commissioner accepts that the social activities are ancillary and are undertaken as a means of financing the encouragement and promotion of the game or sport. Therefore, the Entity is established for the main purpose of encouragement of a game or sport. | Detailed Reasoning - Meet the special conditions specified in section 50-70 of the ITAA 1997.: Section 50-70 of the ITAA 1997 sets out the special conditions for item 9.1. Subsection 50-70(1) of the ITAA 1997 states: (1) An entity covered by item 1.7, 2.1, 9.1 or 9.2 is not exempt from tax unless the entity is a society, association or club that is not carried on for the purpose of profit or gain of its individual members and that: (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or (b) is a society, association or club that meets the description and requirements in item 1 of the table in section 30-15; or (c) is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country in which it is resident. and the entity satisfies the conditions in subsection (2). | Detailed Reasoning - Society, Association or Club: The Entity is a society, association or Club. | Detailed Reasoning - Not carried on for the profit or gain of its members: Subsection 50-70(1) of the ITAA 1997 requires that a club must not be carried on for the purpose of profit or gain to its individual members. This is known as the non-profit requirement. Where members, in their individual capacity, are to receive profits or assets from an association it will fail the non-profit test. A club usually ensures they operate on a non-profit basis by including non-profit clauses in their constituent documents. A club’s actions must also be consistent with the non-profit requirement. The Entity has the necessary non-profit clause and dissolution clauses in its constitutional document. It is accepted that the Entity is not carried on for the profit or gain of its members. | Detailed Reasoning - Has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia: For a club to meet this condition, it must have a ‘physical presence’ in Australia and, to that extent, incur its expenditure and pursue its objectives principally in Australia. The Entity has a physical presence in Australia. It is located in Australia and incurs its expenditure and pursues its purposes principally in Australia. It is considered that the Entity meets the ‘in Australia’ requirement. | Detailed Reasoning - Governing rules and application of income and assets: Subsection 50-70(2) of the ITAA 1997 provides that the Association must: (a) comply with all the substantive requirements in its governing rules; and (b) apply its income and assets solely for the purpose for which the entity is established. Taxation Ruling TR 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt (TR 2015/1) provides guidance in respect of the conditions in subsection 50-70(2). Paragraph 9 of TR 2015/1 provides that an entity’s ‘governing rules’ are those rules that authorise the policy, actions and affairs of the entity. Paragraphs 18 and 19 of TR 2015/1 explain that the substantive requirements in an entity’s governing rules are those rules that define the rights and duties of the entity and include rules such as those that: ● give effect to the object or purpose of the entity ● relate to the non-profit status of the entity ● set out the powers and duties of directors and officers of the entity ● require financial statements to be prepared and retained ● set out the criteria for admission as a member of an entity ● require an entity to maintain a register of members, and ● relate to the winding-up of the entity. Based on a review of the Entity’s constituent document, which incorporates the Entity’s objects, it is accepted that the Entity complies with the substantive requirements set out in its constitution. Paragraphs 33 to 35 of TR 2015/1 provide that an entity must solely apply its income and assets for the purpose for which the entity is established. However, where the misapplication or misapplications of part of the income or assets are immaterial in amount and are a one-off misapplication or occasional misapplications, the income and assets condition will still be satisfied. As previously determined, the activities of the Entity demonstrate that the Entity is complying with the main purposes for which it was established. Accordingly, it is accepted that the Entity applies its income and assets solely for the purpose for which it was established. The Entity satisfies the ‘Special Conditions’ specified in section 50-70 of the ITAA 1997. | Detailed Reasoning - ACNC type entity condition: Section 50-47 of the ITAA 1997 provides that an entity that is covered by any item in Division 50 of the ITAA 1997 and is an ACNC type of entity is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act). The expression ‘ACNC type of entity’ is defined in subsection 995-1(1) of the ITAA 1997 to mean an entity which meets the description of a type of entity in column 1 of the table in subsection 25-5(5) of the ACNC Act. Broadly, an entity capable of being a registered charity is an ACNC type of entity. Taxation Ruling TR 2011/4 Income tax and fringe benefits tax: charities sets out the Commissioner’s views on the meaning of 'charitable' in the terms 'charitable institution' and 'fund established for public charitable purposes' by reference to principles established by court decisions. Paragraph 57 of TR 2011/4 provides that recreational or sporting purposes are not charitable, regardless of motivation or the benefits to the community that can result. The Commissioner considers the main purpose of the Entity is the promotion of a game or sport. As the Entity has a non-charitable purpose, it is not capable of being a registered charity. The Entity is therefore not an ACNC type of entity and section 50-47 of the ITAA 1997 is not applicable. | Detailed Reasoning - Conclusion: The total income of the Entity is exempt from income tax pursuant to section 50-1 of the ITAA 1997 as it is a club established for the encouragement of a game or sport, pursuant to item 9.1(c) of the table in section 50-45 of the ITAA 1997.