Private ruling: Income Tax Exemption
Date of advice: 24 June 2015
Published: June 2015
Ruling period: Year ended 31 October 2013 | Year ended 31 October 2014 | Year ended 31 October 2015 | Year ended 31 October 2016 | Year ended 31 October 2017
Date scheme commenced: 1 November 20XX

Ruling: Q1: Is the Club exempt from taxation under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is an exempt entity under Item 9.1(c) in the table in section 50-45 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: A considerable majority of the Club's members have a link to the Club's sporting clubs. All of the sporting clubs utilise the Club's non-sporting facilities for meetings, presentations, registrations and fundraising. The Club is governed by a Constitution. The Constitution contains a non-profit clause that states the income and property of the Club must be applied solely towards the promotion of the Club's objects. The Constitution contains a dissolution clause that upon winding up or dissolution any remaining property must be transferred to a non-profit sporting institution and not distributed among the members of the Club. In addition to its other activities, the Club's charter is to support sport in the region. The Club provides assistance to sporting clubs and is a significant supporter of junior sport with scholarships and funding. Sporting memorabilia displayed in the Club The Club has a large trophy cabinet that has trophies/memorabilia for sport. In addition there is also a sporting memorabilia in the sports bar. The Club has a trophy cabinet for perpetual trophies. In addition, there is Honour Boards for the annual club championships. Advertisements and publicity The Club advertises in the local newspaper as the major sponsor of sport and sponsor the weekly sporting results. The applicant has provided a copy of the logo advertised. Policy for the application of its surplus or profits The Club's current profits policy is to pay for the new sporting facilities. The Club also aims to maintain some expenditure on gaming machines, and equipment associated with the non-sporting arm of the operation so that this support of sport can be guaranteed. Membership The Club has a high proportion of its members participating in sport; however it is not possible for the Club to identify between those members who participate in sport and social members. It is a requirement of sporting clubs that all of their members must be members of the Club. Number of staff The Club has paid staff and voluntary staff. Non sporting activities The Club does spend income of assets on non-sporting activities. Without the improvement of these facilities, the Club will not earn the profits to appropriate towards the sports activities. Teams participating in sport competitions The Club has a sports membership made up of male and female adults and junior players. The Club has male, female and junior players and they participate in the competitions held at the Club. In addition, State-wide competitions and Interdistrict competitions are also held at the club and are available for members to participate in. Card tournaments run by the Club Card games are offered at the club. Sport coaches employed by the Club All Coaching staff are certified accordingly with State and National Bodies and keep up to date with their professional development through their respective Associations Coaching provided to the participants in golf and tennis Flyers provided by the applicant outline the coaching offered. A sport clinic for girls is provided during school holidays. Sporting participation of the current directors of the Club It is not a requirement that directors be involved or participate; however, being a sports club, all have a sporting background. The Club's directors also sit on the sports council, which liaise with the various sporting bodies that the club supports. Annual Report The Club's annual report is distributed to all members and is a matter of public record.

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

Reasons for decision: Summary: The Club 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 Income Tax Assessment Act 1997 (ITAA 1997) and it is exempt from income tax pursuant to section 50-1 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: 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 is exempt from income tax pursuant to item 9.1(c) of the table in section 50-45 of the ITAA 1997, subject to the special conditions under section 50-70 of the ITAA 1997 which states: 50-70(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). 50-70(2) 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 As the Club has a physical presence in Australia, incurs its expenditure in Australia, and pursues its objects in Australia, it satisfies subsection 50-70(1) of the ITAA 1997. Based on the facts provided, we accept that the requirements in subsection 50-70(2) of the ITAA 1997 have also been met. Paragraph 7 of Taxation Ruling TR 97/22 Income tax: exempt sporting clubs (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 three tests: • It cannot be carried on for the purpose of profit or gain to its individual members; • It must be for the encouragement of a game or sport, and • That encouragement must be the club's main purpose. | Detailed Reasoning - Test 1 - Not carried on for the purpose of profit or gain to its individual members: Paragraphs 9 and 10 of TR 97/22 provide: 9. A club must not be carried on for the purpose of profit or gain to its individual members. 10. A club's memorandum and or Articles of Association or other constituent documents should contain a prohibition against a distribution of profits and assets among members while the club is functional and on its winding up… Paragraph 23 of the TR 97/22 provides: 23. Where the law or constituent documents do not prohibit distributions, it a is a question of fact in case as to whether the club is not carried on for purposes of profit or gain to the individual members…Where it is clear from the objects, policy statements, history, activities and proposed future directions of the club that there will be no distributions to members, we accept that the non profit test has been satisfied. | Detailed Reasoning - Findings: The Constitution contains a suitable non-profit clause. The Constitution contains a suitable dissolution clause. 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 - Test 2 - It must be for the encouragement of a game or sport: Paragraph 11 of TR 97/22 provides: 11. 'Encouragement' means 'stimulation by assistance' according to the Macquarie Dictionary . It is essential that the encouragement of a game or sport is the main or dominant purpose of a club. Encouragement can occur directly by: • forming, preparing and entering teams and competitions in the game of sport; • co-ordinating activities; • organising and conducting tournaments and the like; • improving the ability of participants; • improving the standard 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, increasing and wider participation and improved performance And can occur indirectly: • through marketing; or • by initiating or facilitating research and development. | Detailed Reasoning - Findings: 1) Forming, preparing and entering teams and competitions in the game or sport The Club has provided information about the teams and competitions in relation to the sporting clubs. The teams and competitions are for both senior and junior members to participate in. 2) Co-ordinating activities The Club co-ordinates a range of tournaments and competitions in relation to the sporting clubs as listed in the facts above. The competitions and tournaments co-ordinated by the club are very extensive. 3) Organising and conducting tournaments and the like The Club has provided information in relation to the tournaments and competitions held at the sporting clubs. The tournaments include state wide competitions. 4) Improving the ability of participants The Club provides training and coaching for participants in sports. The sporting clubs offer school holiday programs. Classes and lessons are available at the junior and senior level. Classes and lessons are available for beginners and experienced players. 5) Improving the standard of trainers and coaches All coaching staff are certified accordingly with State and National bodies and keep up to date with their professional development through their respective associations. 6) Providing purchased or leased facilities for the activities of the game or sport for the use of club members and visitors The Club operates sporting clubs. 7) Marketing The Club's website promotes the sporting clubs. The applicant has also provided flyers with information about training and coaching with the sporting clubs. | Detailed Reasoning - Summary of findings: It is accepted that the Club encourages sport as discussed above and additionally encourages the game of poker, for which tournaments are conducted most days of the week. | Detailed Reasoning - Test 3 - That encouragement must be the club's main purpose: Paragraph 13 of TR 97/22 provides: 13. To be exempt, the main purpose of the club must be the encouragement of a game or sport. Paragraph 15 of TR 97/22 lists the following features as being highly persuasive in supporting a conclusion that the main purpose of the 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 portion of its surplus funds in encouraging the game or sport; and • The club's constituent documents emphasise 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 features 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 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 Paragraph 14 of TR 97/22 also states: 14. 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. 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 of game or sport. 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 [the club] 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. In Terranora Lakes Country Club Limited v. FC of T 93 ATC 4078; (1993) 25 ATR 294 ( Terranora ), the country club provided and promoted an extensive range of sporting activities including golf, lawn bowls, cricket, and football. The Club also had extensive social facilities that were used by the members and a large number of visitors. 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 ends in themselves, these activities were pursued as a means of financing the extensive sporting activities conducted by the Club. 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 that in that case that only 20% of the funds earned by the social club were spent on football. Hill J stated 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 centred around the support of local football, and that the Club rules required a certain proportion of its funds support local football. | Detailed Reasoning - Findings: HIGHLY PERSUASIVE FEATURES a) The club conducts activities in the relevant year that are directly related to the game or sport It has been established that the Club conducts extensive activities directly related to sport. We accept that the Club conducts sporting activities in relation to the periods that the private ruling applies. b) The sporting activities encouraged by the club are extensive The clubs conduct a range of tournaments and competitions. The clubs both offer training and coaching services by nationally accredited coaches. The Club is the major sponsor of many sporting clubs and also provides meeting rooms, presentation venues and administration support to these clubs. The Club also conducts card tournaments on most days of the week. Accordingly, it is accepted that the sporting activities and games encouraged by the Club are extensive. The Club's non sporting activities are also extensive. It is concluded that while the sporting activities of the Club are extensive the Club's social activities are also extensive. c) The club uses a significant proportion of its funds in encouraging the game of sports. Paragraph 54 of TR 97/22 provides: 54. The club should use a significant proportion of its surplus funds in encouraging its game or sport. As noted in Lockhart J in Cronulla Sutherland as ATC 4226; ATR 313, 'the potential of [a club] to apply its surplus funds for purposes having nothing to do with the encouragement or promotion of [a sport or game] is a significant matter'. What is important is the way such funds are used and the activities that are financed by the club. The Club is spending a significant amount of its funds on updating the sporting facilities therefore encouraging the sports. In addition to capital expenditure in updating its facilities, the Club also incurs expenditure in relation to operating its sporting activities, and the games it conducts. In addition, the Club provides funding to various clubs involved in sporting activities. For these further reasons, it is considered the Club uses a significant portion of its funds to encourage sport. d) The club's constituent documents emphasise that the Club's main purpose is to encourage a game or sport. In St Mary's at 97 ATC 4534 Hill J observed: The Memorandum of Association records the significance of rugby league as the major object of the Club. The Articles of Association both in the membership categories and in the conferring of control upon Football Members (or Life Members) point to the significance of the football activities over the social activities. Several objects are directly related to conducting, promoting and participating in sport. The remaining objects relate primarily to the administration of the Club. To this extent we are satisfied the Club's constitution lends itself to the conclusion that the Club is primarily established for the purpose of conducting sports. RELEVANT BUT LESS PERSUASIVE FEATURES a) High level of participation in sport by the club members. Based on the information provided the exact level of participation is unknown however the Club states there is a high level of participation. 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). The Board is comprised of directors. The Board directors are required to be certain members of the Club. The directors all have a sporting background. Four directors are currently active players. It is therefore accepted that the committee of management of the Club are 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 sets out the types of members eligible to vote and attend general meetings. The voting rights do not vest only in members encouraging the game or sport whether by personal participation or by encouraging the participation by others. 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's website promotes the sporting clubs. The Club's website also lists the social activities available. The Club advertises as the major sponsor of sport and sponsor the weekly sporting results. The Club has also provided flyers on the sport coaching programs. In addition, the Club displays sporting trophies and memorabilia in its premises. It is accepted that 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. | Detailed Reasoning - Summary of findings: Taking into account the above highly persuasive and less persuasive features, it is accepted that the Club's main purpose is to encourage a sport or game. | Detailed Reasoning - Conclusion: Based on the information provided, we accept that the main purpose of Club is the encouragement of a game or sport as required by 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 tournaments and by coaching and entering teams and competitors in different levels of competition; • the Club organises and promotes games, in the form of card tournaments; • 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 significant, it uses and proposes to use, a significant portion of the surplus funds generated from those activities to promote and encourage its sporting activities; • the Club provides substantial sporting facilities for the benefit of its members; and • the directors of the Club all have a sporting involvement. Further we accept that the Club is not carried on for the gain of individual members, and it satisfies the special conditions. We accept that the Club, in the years subject to this ruling, 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 and that it is exempt from income tax pursuant to section 50-1 of the ITAA 1997.