Private ruling: Not for profit - exemption from tax
Date of advice: 4 December 2023
Published: 22 January 2024
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

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

Relevant facts and circumstances: Background 1. The Club has applied for an extension to a previous private ruling which confirmed that it was exempt from income tax under section 50-1 of the ITAA 1997 as a 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. 2. The Club is an Australian public company limited by guarantee not having a share capital. 3. The Club was established on DDMMYYYY to assist in the promotion, conduct and propagation of sport and assist in the provision of training and teaching facilities for sport. 4. The Club confirms that: • there have been no material changes to the amended Constitution as adopted by the Club on DDMMYYYY; • the Club constitution was amended following the passing of a special resolutions at an Extraordinary General Meeting of the Club held on DDMMYYYY and the Annual General Meeting of the Club held on DDMMYYYY; • the objectives of the Club have not changed as a result of the amendments to the constitution, and that there has been no material change in the way in which the Club conducts business with the view to achieving the objectives as outlined in its constitution. 5. The Club's Constitution provides the following key clauses: Main objects 6. The main objects of the Club as set out in Clause X of the constitution are as follows: The main object for which the Club is established is for the encouragement of sport, and without limiting the generality of the main object, includes: (i) to operate and maintain sporting facilities in accordance with good business and environmental practices; (ii) to promote, encourage and foster the playing of sport and in particular to promote, encourage and foster the Club, including provision of training, development and teaching facilities for the sport; (iii) to promote, encourage and foster the playing of any other indoor or outdoor sporting activities as determined by the Board from time to time and to provide all things incidental to the attainment of these objects; and (iv) to promote and advance sporting activities, subject to any other provision of this constitution. Ancillary objects 7. The Club has the following ancillary and incidental objects in the constitution at Clause X: (i) to conduct a club, a clubhouse and associated facilities for the use of members and visitors; (ii) to establish and carry on a club for the use and benefit of its members and to afford to its members the usual privileges, advantages, conveniences and accommodation of a club; (iii) to carry on the business of a registered club and to hold such licenses for (either by itself or its employees, agents or nominees), and provide all such things, as are commonly or conveniently consumed in a club; (iv) to promote and advance social, cultural, educational, charitable and community activities, subject to any other provision of this constitution; (v) to promote maintain and encourage education in relation to language, culture, heritage and traditions; and (vi) to acquire by purchase, lease or otherwise property and buildings for the improvement, betterment and growth of the Club and use of members and visitors. Not for profit 8. The Club has a valid not for profit clause in its constitution. Dissolution Clause 9. The Club a valid dissolution clause in its constitution. Membership 10. The constitution sets out the categories of membership of the Club. 11. Ordinary membership of the Club consists of the following: • Financial Life Members; and • Club member. 12. A breakdown of the membership classes at the Club for each year as at 30 June was provided. 13. The Club is a member organisation. As such it offers restaurant, bar and entertainment facilities to its members and guests of members. The surplus generated from non-sporting operations (ie. Club operations) are reinvested into long term capital assets such as sporting fields and infrastructure in accordance with its constitution and long term goals. Board of Directors 14. The Club is governed by a board of X directors. The majority of directors have a direct focus within the club on sports, sports development and sports strategy. Annual Report 15. In the 20XX annual report the directors report confirmed the objectives of the Club as: Short term • The Clubs short term objective is to deliver a profitable business to the membership that builds towards delivering friendly world-recognised sporting, social and recreational facility. Long term • The Clubs longer term objectives are to deliver a friendly, world recognised sporting and social recreational facility, focusing on the strengths of the local community, aiming their facilities and service to support these goals and to foster and nurture sporting activities for youth and adults. • To acquire by purchase, lease or otherwise property and buildings for the improvement, betterment and growth of the Club and use of members and visitors. Activities 16. The Club provided the following information in support of the extension to the previous ruling: Sporting facilities 17. The Club has developed and maintains a large number of facilities and sporting grounds. A list of the facilities and sporting grounds was provided. 18. The costs incurred by the Club for the maintenance and upkeep of these sporting facilities was provided. 19. The Club has use of approximately X m2 of land across its sites of which XX% is applied to its sporting activities directly. 20. At all times during the year these sporting facilities were used for sport. 21. Temporary users of the facilities such as local schools and visiting teams occupied the facilities at different periods during the year. The costs were borne by the Club. Sporting involvement 22. The Club is involved in a number of sporting activities at both a junior and senior level including playing, coaching and facilities, as well as providing donations and financial assistance to other non-sporting bodies in the immediate area. 23. Details of the number of participants representing the Club in various sports was provided. The numbers have remained consistent over time. 24. Other sporting activities are also provided with facilities and financial assistance. 25. The Club has been successful in the development of both national and international sporting talent in addition to the continual development of local sporting talent across several sports. A list of these sports was provided. 26. Each year the Club holds an event allowing all of the sporting clubs to showcase their given sports to the wider community. The event is used to promote sport within the wider community and encourage people to join the various sports teams within the Club. 27. The Club also provides financial and in-kind support to less fortunate sporting organisations. Sporting achievements 28. The Club has been successful in the development of both national and international sporting talent and continues to develop sporting talent. 29. A list of the sporting achievements was provided. Funds 30. The promotion of sport at the Club is run at a deficit each year. Financial details were provided indicating the deficit. 31. The Club subsidies its sporting losses from other surplus (non-sporting) operations and leasing activities. Non-sporting operations 32. The non-sporting operations include: 33. The Club is a member organisation. As such it offers restaurant, bar and entertainment facilities to its members and guests of members. Leasing activities 34. The Club also generates rental income from existing property, plant and equipment, including rental income from: 35. The surplus generated from non-sporting operations are re-invested into long term capital assets such as sporting fields and infrastructure in accordance with its constitution and long term goals. Other Transactions and developments Amalgamation Club X Amalgamation Club Y Option Physical presence

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 50-47 | Income Tax Assessment Act 1997 section 50-70

Reasons for decision: Summary: The Club is exempt from income tax under section 50-1 of the ITAA 1997 as 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 ITAA1997. | Detailed Reasoning - Detailed reasoning: A society, association or club which has been established for the encouragement of a game or sport under section 50-45 item 9.1(c) is exempt from income tax under section 50-1. Section 50-1 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 are contained in sections 50-5 to 50-45. Additionally, section 50-47 provides a special condition for all entities covered by section 50-1, it states: An entity that: a) is covered by any item; and b) 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. An entity is 'an ACNC type of entity' if it has a charitable purpose. An entity that does not have a charitable purpose, per the ATO Commissioner's view in Taxation Ruling TR 2011/4 Income tax and fringe benefits tax: charities , is not required to be registered with the Australian Charities and Not-for-profits Commission (ACNC) to be exempt from income tax. Item 9.1(c) of the table in section 50-45 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. An entity is therefore exempt from income tax as 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 if: • is not carried on for the purposes of its individual members' profit or gain, and • is established for the main purpose of the encouragement of a game or sport, • satisfies the special conditions in sections 50-47 and 50-70 of the ITAA 1997. | 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. Based on the definitions provided in the Macquarie Dictionary a 'society, association or club' refers to a voluntary organisation of people associated together for a common or shared purpose. A society, association or club may be constituted as an unincorporated association or be formally recognised by incorporation. The Club was established as a public company limited by guarantee. The constitution outlines its purpose as follows: The main object for which the Club is established is for the encouragement of sport, and without limiting the generality of the main object, includes: (i) to operate and maintain sporting facilities in accordance with good business and environmental practices; (ii) to promote, encourage and foster the playing of sport and in particular to promote, encourage and foster the Club, including provision of training, development and teaching facilities for the sport; (iii) to promote, encourage and foster the playing of any other indoor or outdoor sporting activities as determined by the Board from time to time and to provide all things incidental to the attainment of these objects; and (iv) to promote and advance sporting activities, subject to any other provision of this constitution. The Club has a board of directors and a class of members who are governed by the constitution. It is accepted that the Club is a society, association or club for the purposes of section 50-45. | Detailed Reasoning - Not-for-profit requirement: Taxation Ruling 2022/2 Income tax: the games and sports exemption (TR 2022/2) discusses in more detail the provisions around the games and sports tax exemption. Paragraphs 11 - 16 of TR 2022/2 discuss the not-for-profit requirement. A society, club or association established for the encouragement of a game or sport is not-for-profit if it is not carried on for the profit or gain of its individual members, either while it is operating or on its winding up. Organisations satisfy the not-for-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 constituent documents of the Club prevent the distribution to members both while it is operating and upon winding up. The not-for-profit requirement is satisfied. | Detailed Reasoning - Established for the encouragement of game or sport: TR 2022/2 describes the circumstances under which a society, association or club is considered to be established for the encouragement of a game or sport. | Detailed Reasoning - Game or sport: 'Game' and 'sport' are not defined in the ITAA 1997 and are therefore given their ordinary meaning. Paragraph 27 of TR 2022/2 provides a non-exhaustive list of activities that are considered a 'sport' for the purposes of section 50-45. The Club's main sport forms part of this list. The Club is directly involved in multiple sporting activities which are all listed at paragraph 27 of TR 2022/2 as a game or sport. In addition, other Club activities are considered a game in the circumstances where they are undertaken in a competitive, organised and game like way. As such the Club satisfies the requirement for the activity to be a game or sport for the purposes of item 9.1(c) of the table in section 50-45. | Detailed Reasoning - The encouragement of sport must be the main purpose: 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. Paragraph 30 of TR 2022/2 provides guidance on the term 'encouragement'. '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. Direct or indirect activities relevant in determining whether the main purpose of the entity is the encouragement of a game or sport are listed at paragraph 43 of TR 2022/2. These include: • forming, preparing and entering teams and competitors in competitions in the game or sport • coordinating activities • organising and conducting tournaments • improving the abilities 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 • encouraging increased and wider participation and improved performance • marketing • initiating or facilitating research and development, and • facilitating the activities above by making a financial or in-kind contribution to an organisation that performs them. | Detailed Reasoning - Main purpose: For the club to be established for the encouragement of a game or sport, the main purpose of the club in the relevant income year must be the encouragement of a game or sport. Paragraph 31 of TR 2022/2 states that determining the main purpose of an entity requires an objective evaluation of all material facts and circumstances. There is no set formula for weighing up the characteristics of an entity to determine its main purpose. It is the main purpose of the club in the year under examination rather than at the time of formation. A club with both a sporting and non-sporting purposes will not qualify for the games and sports exemption unless the non-sporting purpose is merely ancillary and incidental or secondary to its sporting purpose. Paragraph 37 of TR 2022/2 lists factors that have been identified by courts and tribunals as relevant when considering purpose. These include: • emphasis in the club's constituent documents that the main purpose is to encourage a game or sport • extent of sporting activities • the conduct of activities directly related to the game or sport • a high level of member participation in the game or sport • promotion of the organisation to patrons and the public as one that encourages a game or sport • involvement of the committee of management in the promotion of sport • the use of surplus funds for encouraging the game or sport • the provision of financial and in-kind support for encouraging the game or sport. This is further explained in paragraphs 38 to 42 of TR 2022/2: 38. The activities undertaken by a club are an important consideration in determining whether it qualifies for the games and sports exemption. However, activities considered in isolation do not demonstrate the purpose of a club. 39. Activities are commonly a means to an end. Activities can serve the purpose of encouraging a game or sport and other independent non-sporting purposes. All of the club's activities must be objectively weighed against the objects, history and control of the club to determine the main purpose for which it is established in a particular year. 40. An activity like the organisation of, or participation in, sporting competitions can be readily understood as advancing a purpose of encouraging a game or sport. 41. Where a club derives its revenue from commercial operations, the club needs to objectively determine the extent to which commercial operations are a means to the end of advancing the sporting purpose, or are advancing some other purpose. 42. A club can demonstrate a purpose of encouraging a game or sport where it provides financial and in-kind contributions to other organisations that directly conduct those activities. To demonstrate a main purpose of encouraging a game or sport, a club that does not directly conduct any games or sports will need to objectively show that the activities it carries out are a means to that end. The fact that a club undertakes 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, where an association conducts other activities, which are merely ancillary or incidental or secondary to the encouragement of the game or sport, we accept that the main purpose may be that of encouragement. In contrast, where an association's main purpose is the undertaking of these other activities, the exemption does not apply. This is expressed in TR 2022/2 that states at paragraph 34 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). In order for an entity to be exempt as a club established for the encouragement of a game of sport, revenue raising purposes must remain only a means to a sporting end. If they become an end in themselves, it will be difficult for a club to demonstrate that it is predominantly for the encouragement of a game or sport. The Club's main objective as stated in the constitution is as follows: (i) to operate and maintain sporting facilities in accordance with good business and environmental practices; (ii) to promote, encourage and foster the playing of sport and in particular to promote, encourage and foster the Club, including provision of training, development and teaching facilities for the sport; (iii) to promote, encourage and foster the playing of any other indoor or outdoor sporting activities as determined by the Board from time to time and to provide all things incidental to the attainment of these objects; and (iv) to promote and advance sporting activities, subject to any other provision of this constitution. This is supported by the following ancillary and incidental objects in the constitution: (i) to conduct a club, a clubhouse and associated facilities for the use of members and visitors; (ii) to establish and carry on a club for the use and benefit of its members and to afford to its members the usual privileges, advantages, conveniences and accommodation of a club; (iii) to carry on the business of a registered club and to hold such licenses for (either by itself or its employees, agents or nominees), and provide all such things, as are commonly or conveniently consumed in a club; (iv) to promote and advance social, cultural, educational, charitable and community activities, subject to any other provision of this constitution; (v) to promote maintain and encourage education in relation to the language, culture, heritage and traditions; and (vi) to acquire by purchase, lease or otherwise property and buildings for the improvement, betterment and growth of the Club and use of members and visitors. The 20XX annual report also confirms the objectives of the Club as: These objects and their emphasis on sport support a characterisation of the Club as an association established for the encouragement of a game or sport. The main activities undertaken are directly related to sport. The Club has use of approximately XX m2 of land across its sites of which XX% is applied to its sporting activities directly. In furtherance of the Club's principal object, the Club also undertakes activities with a non-sporting purpose. The Club has run its sporting activities at a deficit. The non-sporting operations of the Club fund the sporting activities with surplus being applied in a manner consistent with its long-term objectives, in the constitution. The money, property and other benefits generated from these activities are used to encourage, grow and develop sport. The Club uses all its funds for its key activities and projects. After consideration of the features discussed above, it is considered that the Club's main purpose is the encouragement of a game or sport. | Detailed Reasoning - Special conditions: The Club's main purpose is the encouragement of participation in a game or sport, as such this is not an ACNC type of entity as defined in section 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012 and therefore section 50-47 does not apply. The Club is physically present in Australia, it pursues its objectives in Australia and incurs expenditure principally in Australia. The Club will comply with any substantive requirements in the constitution and will apply its income and assets solely for the purposes for which it is established. | Detailed Reasoning - Conclusion: The Club's ordinary and statutory income is exempt from income tax under item 9.1(c) of section 50-45, as it is an association established for the main purpose or encouragement of a game or sport. The Club is not for the profit or gain of its individual members and operates principally in Australia.

Entertainment operations (gambling and poker machines); | Bar and restaurant facilities; and | Operators of existing sporting facilities, including tennis, squash and gymnasium facilities | Restaurant and private function facilities; and | In April 20XX, the Club amalgamated with Club X with the view of expanding their sporting operations throughout the State. | The Club has ownership of Club X's clubhouse and sporting field. | It was refurbished and operated for a short period but sustained damage due to flooding and operations have ceased for the foreseeable future. | Early 20XX the Club amalgamated with Club Y resulting in the Club gaining access to more sporting facilities. Details of the sporting facilities were provided. | In 20XX the Club entered into an option to acquire land. | In 20XX the Club exercised the option to acquire the land and develop a sporting club, however the development risks have been viewed as too high, so they have granted an option for a grantee to acquire the property and the Club has been granted a lease option to lease the property from the grantee. | As at the date of signing the annual report for 30 June 20XX the directors have not exercised the lease option or signed a lease agreement, but have the intention to negotiate new terms that may include a XX year agreement at a later date. | The Club is established and operated in Australia. | Reasons for decision: All legislative references are to the Income Tax Assessment Act 1997 ('ITAA 1997') unless otherwise stated.