Private ruling: Tax exempt entity
Date of advice: 3 December 2025
Published: 27 January 2026
Ruling period: Year ending 30 June 20XX | T he scheme commenced on: | 1 July 20XX

Ruling: Q1: Will the ordinary & statutory income of the Entity be exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that the Entity is a society, association or club established for the encouragement of sport pursuant to section 50-45 item 9.1(c) of the ITAA 1997? | A1: Yes. | Q2: Will grants made by the Entity to Entity C (a non-resident of Australia) be subject to dividend withholding tax in accordance with section 128B of the Income Tax Assessment Act (ITAA 1936)? | A2: No.

Relevant facts and circumstances: The Entity is a company limited by guarantee that will be established by Entity B and Entity C to conduct an Event. Profits from the Event will be split between Entity B and Entity C. The head office of the Entity will be in Australia. The 'members' of the Entity will be clearly identified individuals as per its Constitution. Entity B and Entity C will not be listed as members of the Entity. Entity B and Entity C are not and will not legally or beneficially be members of the Entity and will not own any interest in the Entity. The main object of the Entity from its Constitution is the promotion and encouragement of the relevant object. The Entity's Constitution states that the assets and income of the Entity must be applied solely towards promoting the Entity's objects and no portion shall be paid or transferred, directly or indirectly, by way of dividend, bonus, fee or otherwise provide a private pecuniary benefit to any member or associate of a member. A company limited by guarantee is a common company structure used for not-for-profit and charitable organisations in Australia that reinvest any surplus (profit) towards the organisation's purposes. Recreational (sports and bowling clubs), cultural and charitable organisations commonly use this type of corporate structure. A company limited by guarantee is a type of public company registered under the Corporations Act 2001 (Corporations Act). Like all other companies, companies limited by guarantee must comply with the applicable provisions of the Corporations Act. They are formed on the principle that the liability of members is limited to the amount they agree to contribute if the company is wound up. This amount is typically nominal and set out in the company's constitution. Companies limited by guarantee cannot pay dividends nor issue shares.

Relevant legislative provisions: Income Tax Assessment Act section 6(1) | Income Tax Assessment Act section 128B | Income Tax Assessment Act 1997 Subdivision 50-A | Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section 50-45 | Income Tax Assessment Act 1997 section 50-70 | Income Tax Assessment Act 1997 section 960-100 | Income Tax Assessment Act 1997 section 960-130 | International Tax Agreements Act 1953

Reasons for decision: Summary: Subdivision 50-A of the ITAA 1997 deals with entities whose ordinary income and statutory income is exempt from income tax. Section 50-1 of the ITAA 1997 states that 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. Table item 9.1(c) in section 50-45 of the ITAA 1997 provides that a society, association or club established for the encouragement of a game or sport is an exempt entity for income tax purposes; subject to the special conditions in section 50-70 of the ITAA 1997. Section 50-70 of the ITAA 1997 specifies that an entity covered by table item 9.1 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 to 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), which provides that the entity 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. The definition of 'entity' in section 960-100 of the ITAA 1997 includes a body corporate. Paragraph 8 of Taxation Ruling TR 2005/22 Income tax: companies controlled by exempt entities (TR 2005/22) states that in working out whether a particular company is exempt from income tax, in circumstances where that company has a relationship or a connection with another entity that is itself exempt, it is that company that must meet the requirements for exemption. Taxation Ruling TR 2022/2 Income tax: the games and sports exemption (TR 2022/2) provides guidance on the application of table item 9.1(c) in section 50-45 of the ITAA 1997. A club qualifies for the games and sports exemption where it: • is established for the main purpose of the encouragement of a game or sport • is not carried on for the purposes of its individual members' profit or gain, and • meets other special conditions under section 50-70. | Detailed Reasoning - Established for the main purpose of the encouragement of a game or sport: In respect to whether a company is exempt, paragraph 17 of TR 2005/22 states that it is the purposes and character of the company itself that will be determinative. The object or objectives in the constituent documents of the company and the activities by which those objects or objectives are achieved are the main factors to be considered Paragraph 82 of TR 2005/22 states that the fact that a non-profit company carries on a business or commercial enterprise is unlikely, on its own, to determine whether it is covered by the tables in Division 50 of the ITAA 1997. Such a fact would be one of the matters to be taken into account in light of the particular item in the tables. Paragraph 30 of TR 2022/2 states that for a club to be established for the encouragement of a game of sport, the main purpose of the club in the relevant income year must be the encouragement of a game of sport. 'Encouragement' is not a defined term and takes its ordinary meaning. The ordinary meaning of encouragement (or the act of encouraging) has been described as stimulating by assistance or approval, including through direct or indirect means. Determining the main purpose of a club requires an objective evaluation of all material facts and circumstances. There is no set formula for weighing up the characteristics of a club to determine its main purpose. Paragraphs 34 and 35 of TR 2022/2 state that a club that has both sporting and non-sporting purposes will not qualify for the games and sports exemption unless the non-sporting purpose is: • merely ancillary and incidental to its sporting purpose (that is, a purpose that is related to carrying out its sporting purpose), or • secondary to its sporting purpose (that is, a purpose that is independent to, but less important or less significant than, the sporting purpose). A club can have both sporting and independent non-sporting purposes and still qualify for the games and sports exemption. For example, a club that provides secondary non-sporting related services or facilities to members will not automatically be disqualified for the games and sports exemption. In this case, in evaluating of all material facts and circumstances, it is considered that the Entity will be established for the main purpose of the encouragement of an object. | Detailed Reasoning - Not carried on for the purposes of its individual members' profit or gain: Paragraphs 11 to 13 of TR 2022/2 provide the following: • To qualify for the games and sports exemption, a club must be not-for-profit. The club must not be carried on for the purposes of individual members' profit or gain, either while the club is operating or on its winding up. • Club members may receive communal membership benefits, such as the use of the facilities, that are incidental to the club's objects. This will not prevent the club meeting the not-for-profit requirement. The club may also pay members reasonable remuneration for services they perform for the club. • Clubs can use various mechanisms to ensure they meet the not-for-profit requirement. 'Not-for-profit' clauses in governing documents are the most common way. These prevent the distribution of profits or assets for the benefit of particular persons while the club is operating and on winding up. In this case, the proposed constitution of the Entity mandates that the assets and income of the Entity must be applied solely towards promoting the Entity's objects and no portion shall be paid or transferred, directly or indirectly, by way of dividend, bonus, fee or otherwise provide a private pecuniary benefit to any member or associate of a member. Therefore, it is considered that the Entity will not be carried on for the purposes of its individual members' profit or gain. | Detailed Reasoning - Entity has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia: In this case, the Entity will have a physical presence in Australia and, to that extent, will incur its expenditure and pursue its objectives principally in Australia. | Detailed Reasoning - Entity satisfies the conditions in subsection (2), which provides that the entity 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. TR 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt (TR 2015/1) explains that the governing rules condition and the income and assets condition are independent special conditions that must be satisfied by an entity (in addition to other special conditions for some entities) in order for its ordinary and statutory income to be exempt from income tax under Division 50 of the ITAA 1997. The substantive requirements in an entity's governing rules are those rules that define the rights and duties of the entity. Examples of governing rules include 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 • relate to the winding-up of the entity. Paragraph 23 of TR 2015/1 specifies that two questions must be considered to determine whether an entity satisfies the income and assets condition: • what is the 'purpose for which the entity is established', and • has the entity applied its income and assets solely for the purpose for which the entity is established? The purpose for which the entity is established can include an incidental or ancillary purpose. A purpose is incidental or ancillary to the purpose for which the entity is established if it tends to assist, or naturally goes with, the achievement of that purpose. It does not mean a purpose that is minor in quantitative terms. The income and assets condition requires an entity to apply its income and assets 'solely' for the purpose for which the entity is established. This means that the entity must exclusively or only apply its income and assets for that purpose. In this case, it is considered that the Entity will satisfy the above conditions. | Detailed Reasoning - Conclusion: The ordinary & statutory income of the Entity will be exempt from income tax under section 50-1 of the ITAA 1997 on the basis that the Entity is a society, association or club established for the encouragement of sport pursuant to section 50-45 item 9.1(c) of the ITAA 1997. | Detailed Reasoning - Question 2: Unfranked dividend income derived by a foreign resident from an Australian resident company is subject to withholding tax under section 128B of the ITAA 1936. Article 10 of the double tax agreement between Australia and Country X applies so that dividends paid by an Australian resident company, being dividends beneficially owned by a resident of Country X, may be taxed in Australia. Section 6(1) of the ITAA 1936 defines 'dividend' to include: a) any distribution made by a company to any of its shareholders, whether in money or other property; and b) any amount credited by a company to its shareholders as shareholders..... Section 6(1) of the ITAA 1936 defines 'shareholder' as including a 'member or stockholder'. Section 960-130 of the ITAA1997 states that a 'member' of a company is a 'member of the company or a stockholder in the company'. Section 231 of the Corporations Act provides that a person is a member of a company if they: a) Are a member of a company on its registration; or b) Agree to become a member of the company after its registration and their name is entered on the register of members; or c) Become a member of the company under section 167 (membership arising from conversion of a company from one limited by guarantee to one limited by shares)." Subsection 120(1) of the Corporations Act provides that a person becomes a member, director or company secretary of a company on registration if the person is specified in the application with their consent as a proposed member, director or company secretary of the company. | Detailed Reasoning - Conclusion: In this case, it is noted that: • the members of the Entity will be clearly identified individuals as per its Constitution • Entity B and Entity C are not and will not legally or beneficially be members of the Entity • Neither Entity B nor Entity C will own any interest in the Entity. Consequently, it is considered that Entity B and Entity C will not be shareholders, stockholders or members of the Entity. Consequently, any grants to be made by the Entity to Entity C will not satisfy the definition of a 'dividend' under section 6(1) of the ITAA 1936 and therefore will not be subject to withholding tax pursuant to section 128B of the ITAA36.