Private ruling: Not-for-profit - tax exempt game or sport
Date of advice: 17 December 2021
Published: March 2022
Ruling period: For a number of income years commencing in the year ended 30 June 20XX
Date scheme commenced: In the year ended 30 June 20XX

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

Relevant facts and circumstances: Background The Club is a not-for-profit company limited by guarantee incorporated under the Corporation Act 2001. The Club was originally established in 19XX for the purpose of facilitating and encouraging sport. Since inception The Club has facilitated and encouraged various games and sporting activities. The Club owns a property it plans to refurbish - the Facility. The Club's Constitution The Club proposes to make amendments to its Constitution to take into account the primary focus on the Facility. The proposed amendments will be implemented at the Club's upcoming General Annual Meeting. The proposed amendments, include the new clause X of the Constitution which states: The main object for which the Club is established is to provide sporting and complementary community and social facilities ...primarily to encourage participation by the ...Community in games or sport... To achieve the main object of the new clause XX of the Constitution it states that the Club may: a) provide leased or licenced (or otherwise make available) facilities for the activities of the game or sport primarily... b) coordinate and encourage sporting activities with other sporting organisations; c) improve the fitness and sporting abilities of participants of the facilities; d) encourage, foster, promote and sponsor the games and sports as well as any other game, sport or activity which in the opinion of the Board of Directors is appropriate or desirable in the interests of the club; e) encourage, foster and promote all forms of sporting... f) use funds generated through leasing, licencing or otherwise making available facilities primarily to support not-for-profit...sports and community service organisations; g) foster sport and assist community service by engaging with appropriate sporting and community service organisations... h) provide financial assistance, support and other club facilities primarily to sporting...associations. i) provide for members and for member's guests sporting facilities and a social club with all the usual facilities of a club including liquid and other refreshments... do all such other things as are incidental or conducive to the attainment of the objects and aims of the Club. The Constitution contains a not-for-profit clause. The Constitution contains a winding up clause. Current operations of the Club (pre completion of the Facility) The current operations of the Club include: a) Leasing or licensing the land and existing buildings at the Site to a range of sports and fitness clubs. b) Undertaking the redevelopment of the Facility to deliver a range of sporting facilities and ancillary community facilities. The Facility is currently the Club's primary objective and will continue to be so until the Facility is refurbished and is open to its members and the community at large. Club Memberships The Club and the anticipation of a redeveloped Site the Club has now commenced actively marketing various classes of membership to the public which include: a) Class 1, which entitle members to: i. voting rights; ii. access to the club facilities iii. discounts on food and refreshments, b) Class 2, which are longer term memberships which entitle Members to: i. voting rights; ii. access to the club iii. discounts on food and refreshments c) Class 3 membership where members from the original Site will automatically retain their Class 3 membership. There are also a range of concessional memberships for students, pensioners and others dependent on social security which give these members access to the members only facilities. It is anticipated that: a) a substantial number of members will use the Facility to participate in various sports and games hosted at the Facility; b) a substantial number of members (namely, parents and grandparents of children and grandchildren who are physically participating in various sports and games hosted at the Facility) will use the Facility to actively encourage the physical participation in various sports and games hosted at the Facility; and c) a minority of the members, will use the Facility to solely participate in secondary non-sporting activities. The Board of Directors The Club's Board of Directors (the Board), being the persons who control all aspects of the Club, are intimately involved in ensuring that the Facility delivers high quality sporting facilities. The Majority of the Board members have been involved or affiliated with the Club to varying degrees for decades and have demonstrated a strong interest in both the participation and sponsorship of the diverse range of sports which are supported and encouraged by the Club. The Board have also been interested and involved in the promotion of various games and sports within the community at large. Specifically, the majority of the members of the Board have extensive experience managing, participating in and governing sports clubs and institutions in Australia and abroad. Alliances with sporting organisations Relationship with Club X Club X is a not-for-profit umbrella organisation that promotes a wide range of sports through its affiliated sports clubs. Club XX is a not-for-profit organisation and is an affiliated club of Club X. In 20XX, the Club signed a Memorandum of Understanding with Club X. The fundamental purpose of the Club X MOU is to solidify the relationship between the Club and Club X as it relates to the Facility. It is expected that this relationship will promote the Facility to the sporting community and fundamentally encourage sport within the community more broadly. Relevantly, under the Club X MOU: a) It is understood that Club X members are likely to be significant users of facilities and therefore the Club is seeking Club X support to proactively market and encourage its members to support the Facility. b) The Club will make space available to Club X for Club X head office, creating a permanent physical home for Club X once the Facility is complete. c) It is understood that the Club will host regular competitive sport and training at the Facility and that Club X will manage scheduling of Club X sports activities at the Facility. d) For each member of the Club that is also a member of Club X, the Club will subsidise the member's Club X membership fees. This is to encourage members of Club X to join the Club and ensure that as many people have access to the sporting facilities. e) The Club will endeavour to operate the Facility at a profit in order to reinvest such profits back into the Facility and the not-for-profit organisations that are using the Facility. Since the Facility is mainly designed to host games, sports and associated activities, it is expected that all net profits (after appropriate contributions are made to the Club's sinking fund) will mainly go towards organisations that conduct or participate in these types of sporting activities. Relationship with Club Y The Club has, and will continue to maintain, a strong affiliation with Club Y. The Site will serve as the host venue for the Club Y and the Club will coordinate with the Club Y to ensure that the sporting facilities are fully utilised for competition and training. A Memorandum of Understanding will be prepared between the Club and the Club Y which will provide for the Club Y's use of the Facility as well as encourage the Club Y's members to become members of the Club. Relationship with the Club Z Club Z will own and operate a section of the sporting facilities which will be retained and renewed under the approved scheme. Reciprocal arrangements which will give the Club members access to the section of the sporting facilities in priority to the general public. Relationship with schools The Club will also be making the Facility available to local schools, particularly where such facilities are not otherwise available to them. It is expected that several other schools, in particular, the female schools, will make use of the Facility to promote and grow their various sporting programs. Sporting needs in the local area The Facility will substantially increase participation in sports and wellness activities. The Facility will address critical areas of social need, including in the area of women's sport and fitness. Lease agreement Once the Club refurbishment begins the Club intends to sell the land to another entity and lease it back. The funds raised from the sale of land will be applied to the costs of the Facility. The lease agreement is yet to be finalised. It is a long-term lease. It is proposed that the lease will be for the unimproved land at or below market rent. Floor Plan The majority of the land and building area will be used for the encouragement of a game or sport. The balance of the available area will be for community and social organisations, or for servicing the needs of the Club's members. Future operations of the Club once the Facility is complete Once the Facility is complete, the Club expects to host a wide range of sports and games with some of the facilities being available for other community non-sporting uses (albeit the activities are expected to be predominantly in the nature of a game or sport). Sporting activities It is proposed that the Club will carry out the following sporting activities once the Facility is complete: a) Making available sporting facilities to individuals and other sporting organisations. b) Management, facilitation and sponsorship of a number of sporting and game related activities. c) Community consultation, including publication of events/games on the Club's website, advertising within the Club and decorating the Club using sporting memorabilia. Secondary non-sporting activities The Club proposes to carry out the following secondary non-sporting activities once the Facility is refurbished: a) making available a multi-use community space, including a restaurant and function / events venue; and b) making available a range of spaces for not-or-profit organisations. It is proposed that community services will be undertaken at the Facility, these will generally be conducted by independent organisations that will pay usage charges for the rooms or areas that they utilise. The Club will employ a designated community liaison officer to prioritise community use within the appropriate spaces. The areas available exclusively for uses other than sports or games is limited within the Facility. The non-sporting activities that will be carried on by the Club will only be a lesser part of their overall operations. Funds & Management Donations and grants received by the Club to carry out the Facility Funding for the refurbishment of the Facility, has been sourced, and expects to continue to be sourced from donations and grants from various entities. Deployment of Funds received by the Club Funds received for the purposes of the Facility a) Development and refurbishment of the facilities relating to sports and games will account for approximately 70-80% of the total development budget. b) The balance of the budgeted funds will be spent on the development and refurbishment of facilities related to social and community related matters. Funds received once the Facility is complete a) Any funds derived by the Club in carrying out its commercial operations (e.g., running the restaurant and renting spaces) will be applied for the purpose of ultimately promoting their objects. This will be achieved by applying funds to cover ongoing expenditure and applying all net funds (after appropriate application to the Club's sinking fund) to support not-for-profit sports and community service organisations which use the facility. b) Predominantly all the net funds received by the Club, other than amounts retained in a sinking fund to fund future capital maintenance and refurbishment, will be reinvested in not-for-profit sports and community service organisations.

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 will be exempt from income tax as it is an association established for the main purpose of encouragement of games and sport. The Club is not for the profit or gain of its individual members and operates principally in Australia. | Detailed Reasoning - DETAILED REASONING: Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) 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 of the ITAA 1997 are contained in sections 50-5 to 50-45 of the ITAA 1997. Additionally, section 50-47 of the ITAA 1997 provides a special condition for all entities covered by section 50-1 of the ITAA 1997, 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 of the ITAA 1997 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 of the ITAA 1997. 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 of the ITAA 1997 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. | Detailed Reasoning - Non-profit requirement: Draft Taxation Ruling 2021/D6 Income tax: the games and sports exemption (TR2021/D6) discusses in more detail the provisions around the games and sports tax exemption. Paragraphs 10 - 15 of TR 2021/D6 discuss the non-profit requirement. A society, club or association established for the encouragement of a game or sport is non-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 non-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. | Detailed Reasoning - Established for the encouragement of a game or sport: TR 2021/D6 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 26 of TR 2021/D6 provides a non-exhaustive list of activities that are considered a 'sport' for the purposes of section 50-45 of the ITAA 1997. Football (all codes) forms part of this list. Elements that constitute whether an activity can be classified as a game or sport include the intention, the presence of rules and conventions and competition. Card games like bridge can be considered a game, rather than a leisure activity, provided it includes these elements. Paragraph 26 of TR 2021/D6 lists activities that are considered sports. These include football, basketball, netball and tennis. | Detailed Reasoning - Encouragement: 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 29 of TR 2021/D6 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 Club is the encouragement of a game or sport are listed at paragraph 42 of TR 2021/D6. These include: | Detailed Reasoning - Main purpose: Paragraph 30 of TR 2021/D6 states that 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. Paragraph 36 of TR 2021/D6 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 37 to 41 of TR 2021/D6; 37. 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. 38. 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. 39. 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. 40. 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. 41. 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 2021/D6 that states at paragraph 33 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: TR 2021/D6 discusses 'Other Purposes' at paragraphs 33 and 34. In example 8 - multi-factorial - main purpose of encouraging a game or sport, the ruling describes a Multi - Club that promotes football and sport generally, has bar, and bistro and passive investments in residential and commercial properties. The Multi-club has a history of fielding sporting teams in competitions, but not in recent years, instead providing support financially and in-kind to football and cricket clubs. The example concludes that an objective evaluation of all the factors including no direct involvement in fielding sport or entering competitions and provision of social facilities, its main purpose is the encouragement of a game or sport and other activities are incidental and ancillary or secondary to its main purpose. In order for an entity to be exempt as a club established for the encouragement of a game or 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. | Detailed Reasoning - Special conditions: Subsection 50-70(1) of the ITAA 1997 states: 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). Subsection 50-70(2) of the ITAA 1997 states: The entity must: a) comply with all the substantive requirements in its governing rules; b) apply its income and assets solely for the purpose for which the entity is established. | Detailed Reasoning - Society association or club: The Club is registered under the Corporations Act 2001 as a public company limited by guarantee. The constitution outlines its purpose at new clause X as follows: The main object for which the Club is established is to provide sporting and complementary community and social facilities ...primarily to encourage participation by the ...Community in games or sport... The Club will be managed by the Board. The members pursue a common purpose and are governed by the rules outlined in the constitution. The Club is a society, association or club for the purposes of section 50-45 of then ITAA 1997. | Detailed Reasoning - Non-profit requirement: The Constituent documents of the Club prevent distribution to members both while it is operating and upon winding up and dissolution. The non-profit requirement is satisfied. | Detailed Reasoning - Game or sport: It is proposed that the Club will be indirectly involved in sporting activities once the Facility is complete. These activities are games or sport for the purposes of item 9.1(c) of the table in section 50-45 of the ITAA 1997. | Detailed Reasoning - Encouragement: The club's main objective as stated above in the Constitution includes the following: a) provide leased or licenced (or otherwise make available) facilities for the activities of the game or sport primarily... b) coordinate and encourage sporting activities with other sporting organisations; c) improve the fitness and sporting abilities of participants of the facilities; d) encourage, foster, promote and sponsor the games and sports; e) encourage, foster and promote all forms of sporting as well as social and cultural activities and promote sporting and community organisations that utilise the facilities, which in the opinion of the Board of Directors are appropriate or desirable in the interests of a significant section of the club's membership... f) use funds generated through leasing, licencing or otherwise making available facilities primarily to support not-for-profit...sports and community service organisations; g) foster sport and assist community service by engaging with appropriate sporting and community service organisations... h) provide financial assistance, support and other club facilities primarily to sporting, social, cultural, educational or charitable organisations and associations ... provide such assistance or support to similar organisations operating in the local area club in the local community will be enhanced and in all cases the organisations are deserving of financial or moral support; i) provide for members and for member's guests sporting facilities and a social club with all the usual facilities of a club including liquid and other refreshments... do all such other things as are incidental or conducive to the attainment of the objects and aims of the Club. The Club is carrying out and proposes to continue to carry out the following activities to encourage sport: ­ The Club currently leases and will continue to lease where possible during the Relevant Period, the land to various entities for the use of the site for games or sports. ­ During the Relevant Period, the primary activity being undertaken by the Club will be the construction and development of the Facility. The main purpose of the Facility is to provide world class sporting facilities for the use of the Club members and the wider community. The sporting facilities will represent the vast majority of the area of the redevelopment. These sporting facilities will be leased, licenced or otherwise made available to members of the Club, as well as non-members and other organisations at competitive rates once the Facility has been completed. ­ The Club has, and will continue to maintain, strong affiliations with other sporting organisations that will organise and coordinate events once the Facility is complete. During the Relevant Period, the Club will work together with these other sporting organisations to ensure that the sporting facilities will be used for a variety of different sporting tournaments and other sporting activities. For example: ­ The Club will enter into an MOU with the intention that the Club and Club Y will make the Facility their home ground. Under the MOU, it is expected that the Clubs will work together to ensure that usage includes programs for the very young, matches and tournaments and small-format games. ­ The primary activity being of the development and provision of the Facility. This Facility encourages wider participation and improved performance as a world class sporting facility for members and non-members to participate in a wide range of sports. ­ Under the MOU's with other Clubs it is expected that the Club will increase the profile of sport by providing a state-of-the-art new home ground and training facilities. This, in turn, is expected to increase wider participation within the sport. ­ The increased participation levels in the sports catered for at the Facility is recognised in the funding agreement. ­ During the Relevant Period, the Club will undertake marketing activities related to the sports and games that will be carried out at the Facility by publicising events and games on the Club's website and various other marketing avenues. ­ The Club will apply net profits (after appropriate provision for capital maintenance, refurbishment and other contingencies) to support not-for-profit sports and community service organisations which use the facilities. The type of financial support proposed will primarily provide will be in the form of subsidised rents to the not for profit sporting organisations that use the facilities. The Clubs activities will indirectly encourage sport and satisfy the requirement to have a purpose of encouraging a game or sport. | Detailed Reasoning - Main purpose: In this case, the factors mentioned at paragraph 36 of TR 2021/D6 are considered below to determine purpose for the Club. Clause X of the constitution provides: The main object for which the Club is established is to provide sporting and complementary community and social facilities ...primarily to encourage participation by the ...Community in games or sport... This same purpose remains consistent on winding up, as provided in the winding up clause in the Constitution. The activities of the Club are indirectly related to a wide range of sport by After consideration of the features discussed above, it is considered that the Club's main purpose is for the encouragement of a game or sport. | Detailed Reasoning - Secondary non-sporting activities: The Club intends to make available a multi-use community space, including a restaurant and function/events venue; and a range of spaces for not-for profit organisations. While these activities are non-sporting in nature they are considered secondary to its main purpose to promote games and sport. While the Club does generate revenue from its non-sporting activities, the Club will retain a sinking fund to fund all future capital works and maintenance of the Facility. The detailed plans of the Facility indicate that the vast majority of the floor plan will be dedicated to sporting facilities. To this end, it is expected that the vast majority of future capital works and maintenance of the Facility will be directly related to the Clubs sporting facilities. Predominantly all other net surplus funds will be used to support not-for-profit sports and community service organisations which use the facilities. The type of financial support that the Club envisages it will primarily provide will be in the form of subsidised rents to the sporting organisations that use the facilities. It is concluded that the non-sporting activities of the Club provide a means for the Club to finance its sporting activities which is the main purpose of the Club. | Detailed Reasoning - Special Condition: 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. | Detailed Reasoning - CONCLUSION: The Club's ordinary and statutory income is exempt from income tax under item 9.1(c) of section 50-45 of the ITAA 1997, as it is an association established for the main purpose of encouragement of a game or sport. The Club is not for the profit or gain of its individual members and operates principally in Australia.

forming, preparing and entering teams and competitors in competitions in the game or sport | 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 | 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. | 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). | Providing a purpose built leased/licenced facilities for the activities of the game or sport for the use of club members and visitors. Specifically: | Coordinating sporting activities, including organising and conducting tournaments with other sporting organisations. Specifically: | The Club has entered into the MOU with the intention that Club X will make the Facility its new home and coordinate regular sporting tournaments with the Club once the Facility is complete. | Encouraging increased and wider participation and improved performance. Specifically: | Making a financial or in-kind contribution to an organisation that performs direct and/or indirect sporting activities. Specifically, post completion of the Facility: | the provision of leased/licenced facilities for the activities of the game or sport for the use of club members and visitors | coordination of sporting activities, including organising and conducting tournaments with other sporting organisations | the use of the facilities for the promotion of sport within the community through advertising within the Club and decorating the Club using sporting memorabilia. | making financial or in-kind contribution to an organisation that performs direct and/or indirect sporting activities | control of the Club by members that have an interest in the development of sport, and | control of the Club by Board of Directors who have are concerned with encouraging sport.