Private ruling: Exempt entities
Date of advice: 6 June 2016
Published: July 2016
Ruling period: December 20AA to June 20BB | July 20BB to June 20CC | July 20CC to June 20DD
Date scheme commenced: • Company X is a public company limited by guarantee

Ruling: Q1: Will Company X be exempt from income tax under section 50-1 of the ITAA 1997 by virtue of being an association for the encouragement of a game or sport under section 50-45 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: • Company X is a public company limited by guarantee • It was incorporated in Australia and registered in 20AA • The registered offices are located in New South Wales • Company X has Y members • Company X has been granted rights to organise, stage and commercially exploit sport • Company X's constitution set out the entity's objects. • Company X's has non-profit clauses. • Company X's management team comprises Chief Executive Officer, a Chief Operating Officer and a Senior Management Team. Additionally, Company X has a board of directors that approves all major decisions. • The majority of Company X's expenditure will be incurred in Australia. In addition, the majority of expenditure will be to Australian recipients • Company X is currently conducting a formal process to allocate sporting events. A minimum of Z% of matches will be held in Australia

Relevant legislative provisions: Income Tax Assessment Act 1997 50-1 | Income Tax Assessment Act 1997 50-45 | Income Tax Assessment Act 1997 50-70

Reasons for decision: Detailed Reasoning - Issue 1: Does the entity satisfy the required conditions under sections 50-45 and 50-70 of the Income Tax Assessment Act 1997 (ITAA 1997)? | Detailed Reasoning - Question 1: Will Company X be exempt from income tax under section 50-1 of the ITAA 1997 by virtue of being an association for the encouragement of a game or sport under section 50-45 of the ITAA 1997? | Summary: Company X satisfies the conditions to have income tax exempt status as a society, association or club established for the encouragement of a game or sport. | Detailed Reasoning - Detailed reasoning: Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states: 'The total *ordinary income and *statutory income of the entities covered by the following tables is exempt from income tax. In some cases, the exemption is subject to special conditions.' (* as defined in section 995-1 of the ITAA 1997) The tables referred to in section 50-1 of the ITAA 1997 are contained in sections 50-5 to 50-45 of the ITAA 1997. A society, association or club established for the encouragement of a game or sport is listed at item 9.1 (c) in the table in section 50-45 of the ITAA 1997. The society, association or club must meet the special condition detailed in section 50-70 of the ITAA 1997. An entity is therefore exempt from income tax as a society, association or club established for the encouragement of a game or sport if it: • is a society, association or club, • is established for the encouragement of a game or sport, and • satisfies the special conditions. | Detailed Reasoning - Society, association or club: The term 'society, association or club' is not defined in the ITAA 1997. The term is therefore construed according to the ordinary meaning of the words. In Douglas v Federal Commissioner of Taxation 36 ATR 532; (1997) 77 FCR 112; 97 ATC 4722 reference was made by the court to the definitions contained in the Concise Oxford Dictionary for each of these terms. 'Society, association or club' was accepted by the court as referring to a voluntary organisation having members associated together for a common or shared purpose. The members of Company X voluntarily associate together for a common purpose and common interest. Company X has a management committee and rules of association. Company X is an 'association, society or club'. | Detailed Reasoning - Established for the encouragement of a game or sport: Taxation Ruling TR 97/22 Income tax: exempt sporting clubs describes the circumstances under which a society, association or club is considered to be established for the encouragement of a game or sport. Game or sport 'Game' and 'sport' are not defined in the ITAA 1997 and are therefore given their ordinary meaning. Paragraph 38 of 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. The constituent documents of Company X reference its association with sports namely, to foster and develop sport in Australia. It is accepted that Company X is an organisation associated with a game or sport. Encouragement A society, association or club will only be exempt from income tax if it has as a main purpose the encouragement of a game or sport. Encouragement can occur directly or indirectly. TR 97/22 details features considered to be persuasive of supporting a conclusion that the main purpose of a club is to encourage a game or sport. Paragraph 15 of TR 97/22 describes highly persuasive features which are present when a club is for the encouragement 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 TR 97/22 also lists other features considered relevant at paragraph 16; • 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 day to day management of the club) • voting rights in the club vest only in members involved in encouraging 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. Company X conducts activities associated with sport. It is organising and conducting a significant number of competitive sporting events. The objects and activities of Company X demonstrate that it is actively involved in encouraging and promoting sport. | Detailed Reasoning - Special conditions: Section 50-70 of the ITAA 1997 states that an entity covered by item 9.1 is not exempt from income tax unless the entity is not carried on for the profit or gain of its members and; • it has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia, or • it is a deductible gift recipient, or • it is prescribed by law in the income tax regulations and it is located outside Australia and is exempt from income tax in its country of residence. Non-profit requirement Paragraphs 9 and 21 - 23 of Taxation Ruling TR 97/22 discuss the non-profit requirement. A society, club or association established for the encouragement of a game or sport is non-profit if it is not carried on for the profit or gain of its individual members. Organisations satisfy the non-profit requirement if their constituent documents prevent them from distributing profits or assets among members while the organisation is functional and on winding up. The organisation's actions must be consistent with this requirement. The Constitution of Company X prevents distribution to members. Company X is not carried on for the profit or gain of its individual members. Has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia Company X is located in Australia and carries on its activities of organising sports events in Australia. Company X conducts some activities outside of Australia however a minimum of Z% of sporting events will be conducted in Australia. Further, the majority of Company X's expenditure will be incurred in Australia and therefore satisfies the requirement to pursue its objectives and incur its expenditure principally in Australia. Company X satisfies the special conditions contained in section 50-70 of the ITAA 1997. Therefore, Company X is therefore exempt from income tax as a society, association or club established for the encouragement of a game or sport as it; • is a society, association or club, • is established for the encouragement of a game or sport, and • satisfies the special conditions.