Private ruling: Income tax- exempt sporting clubs
Published: August 2014
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the X Organisation (the 'Association') entitled to income tax exemption under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society, association or 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? | A1: Yes.

Relevant facts and circumstances: 1. The X Organisation (the "Association") will facilitate and encourage participation of sporting games, consistent with those undertaken at a sporting event throughout the year, by any means possible. 2. The Association will be recognisable by X Incorporated, and the Y ("Y") on matters relating to the sporting event. 3. Fundraising events will be held throughout the year in X. 4. All funds generated from fundraising events, after payment of expenses, will be applied in furtherance of the objects of the Association. 5. Financial grants will be provided to the participants of the sporting event. 6. The Association's registered address and physical presence will be in X. 7. Clause 3 of the Association's Constitution and Rules (a copy was provided with the application) sets out the objectives. 8. Clause 37 of the Constitution relates to the income and property of the Association. 9. Clauses 39 to 41 of the Constitution deals with the winding-up of the Association.

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

Reasons for decision: Detailed Reasoning - Detailed reasoning: Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides exemption from income tax to entities that are covered by item 9.1(c) of the table in section 50-45 of the ITAA 1997. Item 9.1 (c) of the ITAA 1997 refers to a society, association or club that is established for the encouragement of a game of sport, which meets the special conditions contained in section 50-70 of the ITAA 1997. Section 50-70 of the ITAA 1997 states: An entity covered by 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 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 a resident. Taxation Ruling TR 97/22 Income tax: exempt sporting clubs (TR 97/22) applies to sporting organisations seeking to determine whether they are exempt from income tax. It describes the circumstances under which a society, association or club is regarded as being established for the encouragement of a game or sport. Paragraph 7 of TR 97/22 sets out the relevant tests in determining an entity's tax exempt status under item 9.1(c) of section 50-45 of the ITAA 1997, as detailed below: For a club to be exempt from income tax under section 50-45, it needs to satisfy three tests. It cannot be carried on for the purposes of profit or gain to its individual members. It must be for the encouragement of a game or sport. That encouragement must be the club's main purpose. In consideration of the above, an entity that passes the above tests, and satisfies one of the conditions in section 50-70(a), (b) or (c) of the ITAA 1997, will be exempt from income tax. | Detailed Reasoning - Non-profit requirement: Section 50-45 of the ITAA 1997 requires that a club is not carried on for the purposes of profit or gain of its individual members. Where members, in their individual capacity, are to receive benefits from the club, the club fails the non-profit test. However, benefits that are received by the members 'communally as members' (e.g. by using the club's facilities) and are incidental to the pursuit of a club's objects, do not prevent the club from passing the non-profit test, nor does the payment of reasonable remuneration to members for services they provide to the club. We accept a club as being non-profit where, by operation of law (for example, a statute governing the club's activities) or by its constituent documents, the club is prevented from distributing its profits or assets among members while the club is functional, and on winding-up. Clauses 37 to 41 of your Constitution satisfy the non-profit requirement, as described above. Therefore, it is accepted that the Association is not being carried on for the purposes of profit or gain to its individual members. | Detailed Reasoning - Game of sport: There is no specific definition for what constitutes a 'game' or 'sport' for the purposes of section 50-45 of the ITAA 1997. Therefore, the words should be given their ordinary meanings. Paragraph 38 of TR 97/22 provides a non-exhaustive list of activities that would be considered a 'sport' in accordance with section 50-45 of the ITAA 1997, provided they satisfy the features outlined in TR 97/22. The Association's main focus is encouraging participation in, and training for, the sporting event. The sporting event would be considered a 'contest involving combinations of activities', as detailed in paragraph 38 of TR 97/22. Therefore, it is considered a 'game of sport' for the purposes of section 50-45 of the ITAA 1997. | Detailed Reasoning - Encouragement of a game or sport: Encouragement In accordance with paragraph 11 of TR 97/22, 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 competitors in competitions in the game or sport; • co-ordinating activities; • organising and conducting tournaments and the like; • 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; or • encouraging increased and wider participation and improved performance. And can occur indirectly: • through marketing; or • by initiating or facilitating research and development. An observation of the Association's objects and purposes at clause 3 of the constitution indicates that the purpose of the Association is the encouragement of a game or sport, as described in TR 97/22. | Detailed Reasoning - Main purpose: As discussed at paragraph 3 of TR 97/22, a club's main purpose can only be ascertained after objectively weighing-up all of its features. However, it should be noted that the presence or absence of a specific feature may not conclusively determine that the club's main purpose is, or is not, the encouragement of a game or sport. Highly persuasive features As discussed at paragraph 15 of TR 97/22, features that are highly persuasive in supporting a conclusion that the main purpose of a club is to encourage a game or sport include: • the club conducts activities in the relevant year that are directly related to a game or sport; • the sporting activities encouraged by the club are extensive; • the club uses a significant proportion of its surplus funds in encouraging a 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. Based on the information you have provided, it is evident that the Association's main purpose is the encouragement of a game or sport. For example, at clause 3 of your constituent documents, the objects state that the purpose of the Association is to 'promote, encourage, assist and develop attendance and participation' at the sporting event. The remaining objectives are also in line with the conclusion that the main objective of the Association is the encouragement of a game or sport. | Detailed Reasoning - Conclusion: Based on the information provided, we accept that the main purpose of the Association 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 leading to this conclusion are summarised as follows: • The Association conducts, or will conduct, activities in the relevant year that are directly related to a game or sport • The Association uses a significant portion of its surplus funds in encouraging sport • The sporting activities conducted by the Association are extensive; and • The Association's constituent documents emphasise the main purpose as being the encouragement of sport. Additionally, we consider that the Association is non-profit, as it pursues its objects and incurs its expenditure principally in Australia. Therefore, in consideration of the above, the Association 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.