Private ruling: Income Tax Exemption
Published: May 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2012.

Ruling: Q1: Is the Club exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an association or club established for the encouragement of a game or sport as described in item 9.1(c) section 50-45 of the ITAA 1997? | A1: Yes.

Relevant facts and circumstances: Background The Club was a sporting club to cater for the sporting needs of the youth in the local area. It consisted of many sports sub-clubs. As a result of changes to the way the club operated it was no longer considered exempt from income tax. Facts. The Club is proposing to reverse the changes made to the manner in which it operates and is requesting a ruling on its income tax status once the changes are implemented. It is proposed that the Club will govern, administer and operate sporting sub-Clubs. The sporting clubs all play in local sporting competitions and promote sporting activities within the local community. Further they provide opportunities for the development and coaching of junior athletes. The sporting clubs also have senior teams that participate in local competitions. Details of Sporting Clubs have been provided. The Club plans to build a sporting facility and has provided details of its current activities of a sporting and social nature. Constitution. The Club has provided its Constitution. Its objects show a primary object of promoting sport. The Club has an appropriate non profit and dissolution clause in its Constitution. The Club's Constitution provides details of its membership categories and voting rights. Only those with a sporting background can be elected to the Board of management. You have supplied the Club's Annual Report.

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

Reasons for decision: Summary: We accept that the Club will be 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 for the relevant period of this Ruling. This decision is based upon the facts as described. The Club is therefore entitled to income tax exemption for the relevant period of this ruling pursuant to section 50-1 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Pursuant to section 50-1 of the ITAA 1997, a sporting club which is established for the encouragement of a game or sport and which is not carried on for the purposes of profit or gain to its individual members, as described in item 9.1(c) of the table in section 50-45 of the ITAA 1997, is exempt from income tax, subject to the special conditions in section 50-70 of the ITAA 1997 being satisfied. The special conditions essentially require the club not to be carried on for the purpose of profit or gain of its members and to have a physical presence, incur its expenditure and pursue its objectives principally in Australia. | 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. Taxation Determination TD 95/56 refers to the definition of 'association' in paragraph 2 and states: The Shorter Oxford Dictionary defines the term 'association' to be 'a body of persons associated for a common purpose; the organisation formed to effect that purpose'. The Macquarie Dictionary defines 'association' as being 'an organisation of people with a common purpose and having a formal structure'. Olsson J, in Quinton v. South Australian Psychological Board (1985) 38 SASR 523, also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose. The Club was established as a sporting club. Under the proposal, the Club will have many players of various sports. The Club is a Limited Company and is governed by a Board who are a body of persons with a common purpose. The Club is a society, association or club. The Club also has a physical presence in Australia, incurs its expenditure in Australia, and pursues its objects in Australia. Paragraph 7 of Taxation Ruling TR 97/22 provides that for a club to be exempt from income tax under section 50-45 of the ITAA 1997, it needs to satisfy the following: 1) It cannot be carried on for the purpose of profit or gain to its individual members; 2) It must be for the encouragement of a game or sport, and 3) That encouragement must be the club's main purpose. | Detailed Reasoning - It cannot be carried on for the purpose of profit or gain to its individual members: Paragraphs 9, 10 & 23 of TR 97/22 provide guidance for when an organisation might not be carried on for the purpose of profit or gain to its individual members. The constitution of the Club contains an appropriate non-profit clause. The constitution of the Club contains an appropriate dissolution clause for a non profit entity. Taking into account the above non profit and dissolution clauses, we are satisfied that the Club is not carried on for the profit or gain of individual members. | Detailed Reasoning - It must be for the encouragement of a game or sport: Paragraph 11 of TR 97/22 provides guidance on the meaning of encouragement and the different ways in which an entity could encourage a game or sport. 1) Forming, preparing and entering teams and competitors in competitions in the game or sport The Club will have many players of sport, fielding teams in local competitions in junior and senior levels. They also have representatives at state representative level. 2) Co-ordinating activities The Club will provide officials, referees and umpires to the local sporting associations in which the sub-Clubs participate. Coaching clinics and accreditation courses are also undertaken. 3) Organising and conducting tournaments and the like The Sub-Clubs Reports attached to the Annual Report show the Club will be involved in organising and conducting tournaments and Grand Finals, etc. 4) Improving the ability of participants Each sporting sub-Club has its own supply of trainers, referees and coaches and will be supported by the Club. 5) Improving the standard of trainers and coaches The Club has actively supported improving the ability of sub-Club administrators by providing training on Sports Administration 6) Providing purchased or leased facilities for the activities of the game or sport for the use of club members and visitors The club will lease appropriate property for the use of the sub-Clubs. 7) Marketing The Club promotes itself as a "Sporting Club" on its main building and in the Annual Report. Its principal activity is listed in its Annual report as a sporting and athletic club supported by licensed operations. Summary It can be seen from the above discussion that the Club will be conducting activities directly related to sport by organising, hosting and participating in sporting events at the local and state levels, by providing umpires and other officials at these events and by coaching and entering teams and competitions at different levels of competition. It is also noted that the Club's sub-Clubs have been successful at winning various competitions they have entered and it is considered that the Club will be carried on for the encouragement of a game or sport during the period relevant for this ruling. | Detailed Reasoning - That encouragement must be the club's main purpose: Paragraph 13 of TR 97/22 states: To be exempt, the main purpose of the club must be the encouragement of the relevant game or sport Paragraph 15 of TR 97/22 lists features that are highly persuasive in supporting a conclusion that the main purpose of the club is to encourage a game or sport: Paragraph 16 of TR 97/22 lists relevant but less persuasive features in supporting a conclusion that the main purpose of the Club is to encourage a game or sport. 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, including those 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. Difficulties can arise in determining a club's main purpose where the club conducts other activities, particularly social or commercial activities. Where a club conducts other activities, particularly social or commercial activities, which are merely ancillary or incidental or secondary to the encouragement of the game or sport, we accept that the main purpose may still be that of encouragement. In this case, the Club has conducted extensive social activities common to a large social club with gaming machines. Lockhart J in Cronulla Sutherland Leagues Club Limited v. FC of T 90 ATC 4215 at 4225; (1990) 21 ATR 300 at 312 ( Cronulla Sutherland ) said: It may have other objects or purposes which are merely incidental or ancillary thereto or which are secondary and even unrelated to the main object or purpose without disqualifying the body from the exemption. 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 said in Cronulla Sutherland at ATC 4225; ATR 312: 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. Therefore, the fact that a sporting club also encourages social and other activities does not, in itself, preclude the club from being exempt. The club is still exempt provided the encouragement of a game or sport is the club's main purpose. However conversely, 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 encouraged. Findings | Detailed Reasoning - 1. Highly persuasive features:: a) The club conducts activities in the relevant year that are directly related to the game or sport The Club will have many players of sport, fielding teams in local competitions in junior and senior levels. Therefore, it has been established that the Club will be conducting extensive activities directly related to the games or sport it promotes. It will do this by participating in numerous competitions and tournaments, organising and running competitions, providing umpires and officials for the games, coaching participants in the sports, and encouraging members to participate and support the various sports they promote. b) The sporting activities encouraged by the club are extensive The Club will conduct many sports with many participants. The sporting activities encouraged are considered as extensive. The Club will put a lot of time and effort into preparing for and entering tournaments, pennant and other competitions. Furthermore, its historical and current activities indicate a strong and continuing association with games and sports. c) The club uses a significant proportion of its funds in encouraging the game or sports. For the first year of the proposed arrangement, the applicant states the amount spent on sporting sub-Clubs is expected to be significant. In addition, prior year accumulated funds are proposed to be spent on the construction of a sporting facility used predominantly to promote a game or sport. d) The club's constituent documents emphasise that the Club's main purpose is to encourage a game or sport. The Club's Constitution indicates that the Club is primarily established for the purpose of promoting sports. This finding is further strengthened by the fact that only persons involved or previously involved in sport either as a participant or administrator can be elected as a Board member. | Detailed Reasoning - 2. Relevant but less persuasive features:: a) High level of participation in sport encouraged by the club. No figures have been provided of actual members who are participating in sport. In addition to the level of members participating in sport, the Club is located within close proximity to the sporting fields and the Club has viewing areas which allow its members to actively participate as spectators of the various sports conducted by the Club. b) 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). Based upon clauses of their Constitution, it is accepted that persons who control the Club are predominantly participants in or concerned with the encouragement of sport. c) 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. The Club's Constitution allows full voting Rights to members. There is no stipulation that these members must be participants in or actively encourage sport. d) 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 Club was established to promote local sport in the local area. Its history was primarily one of promoting sport with its sub clubs. The Club's constitution, activities, control & history point to the Club having a main object or purpose of encouraging or promoting a sport. | Detailed Reasoning - Conclusion: Based on the information provided, we accept that on balance the main purpose of the Club is the encouragement of a game or sport pursuant to item 9.1(c) of the table in section 50-45 of the ITAA 1997. The features of the Club leading to this conclusion are summarised as follows: · The Club conducts extensive activities directly related to sport by organising, hosting and participating in sporting events at various levels, providing umpires and other officials at these events, and by coaching and entering teams and competitors in different levels of competition; · The Club 's constituent documents emphasise its main purpose is to promote and encourage sport, and it operates in accordance with those documents; · The Club's sporting activities are extensive; · Whilst the Club 's social activities are also extensive, it proposes to use a significant portion of the surplus funds generated from those activities to promote and encourage its sporting activities; · The Club by its plans and commitment to build a sporting facility, provides substantial additional sporting facilities for the benefit of its members; and · The Club's constituent documents ensure through control of the Board of directors that it is controlled by persons with a sporting involvement. We accept that the Club is not carried on for the gain of individual members, is established for the encouragement of a game or sport, and the encouragement of a game or sport is its main purpose. We accept that the Club will be 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. It is exempt from income tax for the relevant period of this Ruling pursuant to section 50-1 of the ITAA 1997.

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