Private ruling: Income tax - exempt income - other
Date of advice: 20 June 2019
Published: August 2019
Ruling period: 1 July 20XX until 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Club continue to hold its tax exempt status under item 9.1(c) of the table in section 50-45 of the Income Tax Assessment Act 1997 as a society, association or club established for the encouragement of a game or sport after it enters into a lease over its land? | A1: Yes

Relevant facts and circumstances: 1. The Club is a public company limited by guarantee. 2. The Club owns land on which it has constructed a golf course, Clubhouse and associated infrastructure. 3. The Club's land was severely flooded and its golf course was badly damaged. The subsequent repairs conducted to rebuild the golf course significantly depleted the Club's finances. 4. The Club intends to lease out some of its land to a third party for the construction of accommodation facilities which the third party intends to rent out ( the Proposal ). 5. At a special general meeting, a majority of the Club's voting members approved the Proposal and amendments to the Constitution of the Club ( Constitution ) outlining the use for which funds received from the Proposal would be used by the Club. 6. A Development Application has been lodged by the third party with the local Council for approving the Proposal ( Development Application ). A final decision on the Development Application has not yet been made. 7. On May 20XX, the Club applied for a private binding ruling to confirm whether the Club will continue to hold its tax exempt status under item 9.1(c) of the table in 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 if the Proposal goes ahead. Club's objects as set out in the Constitution 8. Clause x of the Constitution relevantly sets out the Club's objects as follows: (a) To purchase, take on lease or in exchange or otherwise acquire any lands, buildings, easements, rights of common, or property, real or personal, which may be requisite for the purposes of or conveniently used in connection with any of the objects of the Club, and to sell, demise, mortgage, give in exchange, or dispose of all lands, buildings, easements, rights of common, or property, real or personal, the property of the Club. (b) To effect improvements on any such property of the purpose of rendering it suitable and efficient for the purposes of the Club, particularly in respect of the game of golf, and to enter into all necessary contracts with other persons for the carrying out of such improvements and the maintaining of one or more golf courses and any athletic sports or recreation grounds for use by the members of the Club. (c) To borrow or raise money in such manner as the Club thinks fit and, in particular, by the issue of debentures or debenture stocks, perpetual or otherwise, and to secure the repayment of any money borrowed, raised or owing by mortgage, charge or lien upon all or any of the Club's property or assets (whether present or future), and also by a similar mortgage, charge or lien to secure and guarantee the performance by the Club of any obligation, guarantee or liability it may undertake. (d) To promote the game of golf and athletic sports and pastimes and to encourage social life between the members of the Club. (e) To establish, maintain and carry on a golf club for the accommodation of members of the Club and permitted guests, and generally to afford them all the usual privileges, advantages, conveniences and accommodation of such a Club. (f) To provide for members of the Club all articles used in connection with the game of golf and other athletic sports and pastimes played on the Club's premises, and as a Club to supply all kinds of liquor and other refreshments and provisions required or used by the members of the Club or their permitted guests. (g) To promote and hold either alone or jointly with any other association, club or persons, meetings, competitions and matches for the playing of golf or other athletic sports or pastimes and to offer, give or contribute towards prizes, medals and awards for such competitions and matches. (h) To establish, promote (or assist in establishing or promoting) and to subscribe to or become a member of or associated or amalgamated with any other association or Club, whose objects are similar or in part similar to the objects of the Club or the establishment or promotion of which may be beneficial to the Club, and to join and become a member of any authority controlling golf in city A, state A or Australia for the time being. (i) To give pensions, gratuities or charitable aid to any employee who may have served the Club or to the wife, widow, children or other relative of such persons, to make payments towards insurances and to form and contribute to superannuation, provident and benefit funds for the benefit of any persons employed by the Club. (j) To make regulations and by-laws and to do all such lawful acts and things as are incidental or conducive to the attainment of the objects in clauses x 9. Clause X of the Constitution provides how the Club's income and assets must be expended: The income and property of the Club, however derived, must be applied solely towards the promotion of the objects of the Club as set forth in this Constitution and no part may be used, paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise, by way of profit to any of the persons claiming through them, but nothing in this Constitution prevents the payment in good faith of remuneration to any officers, employees or members of the Club, or to any other person, in return for any services actually rendered to the Club. 10. Clause x of the Constitution provides for how the Club's income and property must be dealt with in the event of the Club's dissolution: If after the dissolution of the Club there remains, after the satisfaction of all its debts and liabilities, any property, that property will not be paid to or distributed amongst the members of the Club, but be given or transferred to some other institution or institutions having objects similar to the objects of the Club, as may be determined by the members of the Club at or before the time of dissolution, and in default of such a determination as may be determined by a judge of the Supreme Court of State A having jurisdiction in the matter. Club's golfing activities 11. The golfing activities of the Club include: · maintaining and developing the golf course; · organising competitive golfing teams, including Pennants Golf (which are formal competitions against other golf clubs based in the same locality); · organising and hosting various golf competitions and championships, which includes planning and approving a yearly full fixture book of events and competitions and daily member competitions; · junior golfer encouragement and golf coaching; · reciprocal and competitive relationships with other golf clubs (domestic and international), including arranging interclub matches; · golfing peak body participation (such the Club's membership of the area's District Golf Association; and · other golfing activities (including pro golf lessons, charity golf days, buggy and equipment hire). 12. The Club's membership of the area's District Golf Association is provided for by representation through the Club's volunteers. The Club promotes evenings to gain rules accreditation through the state's golfing body. 13. Several Club members also volunteer for other activities at the Club such as member induction days, the planning and provision of golf days at the Club and as umpires for key golf matches throughout the year. Club's non-golfing activities 14. The Club manages other non-golfing events for the benefit of their members and guests, including: · Masters breakfasts, new member welcome evenings, sport specific presentations; · managing a full calendar of corporate golf events for predominantly locally-based entities; · a yearly fundraising day to support local x charities. 15. The Club also operates a licenced Clubhouse (which includes a restaurant, bar and golf shop) for the enjoyment of the Club's members and their invited guests. The Clubhouse includes function rooms, which are rented to the general public predominantly for the purpose of hosting weddings, conferences and other private functions. Club's golf membership 16. The Club has playing and non-playing membership categories, each of which has various subcategories, as follows: · a playing member is a member with playing rights; · life members have playing rights equal to full playing members but are not required to pay subscriptions, calls or levies. 17. Only life members and members in a playing category are entitled to vote in general meetings and in elections (pursuant to clause x of the Constitution). Non-playing members cannot vote in a general meeting or an election of the Club. Club's Board of Directors 18. Clause x of the Constitution states that members will cease to be a member of the Board of Directors ( Board ) if they cease to be a life or playing member of the Club. Clause x of the Constitution states that office bearers cease to hold office upon ceasing to be a voting member of the Club. 19. The Club's Board are all either playing or life members of the Club (that is, they all play golf). Club's public profile 20. The Club promotes itself through its website as being involved in the sport of golf. The website contains a calendar of events, pictures and Club history. The Club's premises contain memorabilia, trophies and honour boards. The Club's advertisements and publicity emphasise its sporting facilities and the Club has trophies, honour boards and memorabilia displayed within the Clubhouse. The Proposal 21. The Club's primary objective in approving the Proposal was to improve the future viability and financial stability of the Club, particularly by restoring an adequate maintenance fund in the Club's accounts. 22. The Proposal has the following key features: · it is subject to the local Council approving the Development Application. To this end, a condition precedent in the lease with the third party is the approval of the Development Application; · the third party will pay to Club an upfront fee (Lease Premium) on satisfaction of the condition precedent, plus an annual payment based on the rent it receives from the accommodation facilities (rent); · the Club will use approximately 25% of the upfront Lease Premium to restore its golf course as result of the impact of the Proposal; · the Club will hold the remainder of the Lease Premium in a reserve account on the Club's balance sheet, to be applied against future expenditure arising in furtherance of the Club's objectives. 23. According to the information available, it does not appear that the Club will be involved with the Proposal. Funds derived from the Proposal 24. At the special general meeting where amendments to the Constitution were approved (about how the funds from the Proposal were to be utilised), the following relevant provisions were included: · all income from the Proposal (Relevant Funds) must be added to the Club's reserve account and will be managed on the advice of the Investment Advisory Committee; · the Relevant Funds, or income derived from the Relevant Funds, can be used: · on the 'ordinary operational costs of the Club, and such capital expenditures, [as] the Board approves from time to time' (Clause x of the Constitution), or · 'otherwise...only with the prior approval of a resolution passed by not less than 60% of the members of the Club entitled to vote and voting, personally or by proxy, on such a motion' (Clause x) of the Constitution). 25. The Club will use the Relevant Funds tomaintain the golf course and ancillary facilities for the enjoyment of members and their guests. 26. The Club needs immediate funds to attend to work in the Clubhouse. Further, according to information provided to Club members, the Club will also use some funds to build an irrigation facility for the golf course.

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 | Australian Charities and Not-for profits Commission Act 2012 Division 25 | Charities Act 2013 section 12

Reasons for decision: Summary: The Club is a society, club or association established for the encouragement of a game or sport in accordance with section 50-45 of the ITAA 1997 and meets the special conditions in section 50-47 and section 50-70 of the ITAA 1997. Therefore, the Club will continue to maintain its tax exempt status under section 50-1 of the ITAA 1997. | Detailed Reasoning - Overview: Relevant legislative provisions 1. 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. Note 1 : Ordinary and statutory income that is exempt from income tax is called exempt income: see section 6-20 [of the ITAA 1997]. The note to subsection 6-15(2) [of the ITAA 1997] describes some of the other consequences of it being exempt income. Note 2 : Even if you are an exempt entity, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936 . Note 3 : In all cases the exemption is subject to the special condition in section 50-47 [of ITAA 1997] (about an entity that is an ACNC type of entity). 2. According to item 9.1 in the table at section 50-45 of the ITAA 1997, an exempt entity is: a society, association or club established for the encouragement of: (a) animal racing; or (b) art; or (c) a game or sport; or (d) literature; or (e) music... 3. However, exempt entities in item 9.1 of the table in section 50-45 of ITAA 1997 are subject to the special conditions outlined at section 50-47 and section 50-70 of the ITAA 1997. 4. Section 50-47 of the ITAA 1997 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 . 5. Section 50-70 of the ITAA 1997 provides that: 50-70(1) 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... and the entity satisfies the conditions in subsection (2). Note : Certain distributions may be disregarded: see section 50-75 of ITAA 1997. 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. Society, association or club 6. 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. 7. The Macquarie Dictionary 2001 , 5th edition (The Macquarie Library Pty Ltd, Macquarie University) defines 'club' as a group of persons organised for a social, literary, sporting, political, or other purpose, regulated by rules agreed by its members. 8. In Pro-campo Ltd. v. Commr of Land Tax (NSW) 81 ATC 4270; (1981) 12 ATR 26 the court considered the meaning of 'society, club or association' and stated at 4279: In Theosophical Foundation Pty Ltd v. Commr of Land Tax (NSW) [1966] 67 SR (NSW)...Sugerman JA stated at 82: A society, in the relevant sense, is a number of persons associated together by some common interest or purpose, united by a common vow, holding the same belief or opinion, following the same trade or profession, etc; an association'... The meaning of "society" as the Oxford English Dictionary definition shows can be the equivalent of "association" and I do not think that any relevant distinction in nature exists between the two. It merely seems to have happened that some organizations are called "associations", others are called "societies" but no meaningful difference can be detected between the two...Although clubs can in some respects and in some instances be seen to be distinguishable by reason of their purposes from societies or associations, they nevertheless fall squarely within the dictionary definition of "society" set out above. In short the three words are describing bodies made up of groups of persons who have come together to implement common purposes and objects... 9. Paragraph 2 of Taxation Determination TD 95/56 Fringe benefits tax: can a body which is formed by government, is controlled by government and performs functions on behalf of government, be an 'association' for the purposes of section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? ( TD 95/56 ) considered the definition of 'association' as follows: ...The Shorter Oxford English Dictionary defines the term 'association' to be 'a body of persons associated for a common purpose; the organisation formed to effect their purpose'. The Macquarie Dictionary defines 'association' as being 'an organisation of people with a common purpose and having a formal structure'. Olsson J, in Quinton v. South Australian Psychological Board (1985) 38 SASR 523, also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose. 10. The meaning of society, association or club as described above, emphasise a 'body of persons' and 'an organisation of people' with a 'common purpose'. 11. Further, in Douglas v. Federal Commissioner of Taxation (1997) 77 FCR 112 reference was made by the court to the definitions contained in the Concise Oxford Dictionary for each of these terms. Society, association or club was accepted by the court as referring to a voluntary organisation having members associated together for a common or shared purpose. | Detailed Reasoning - Game or sport: 12. The terms 'game' or 'sport' for the purposes of section 50-45 of the ITAA 1997 are not defined in the ITAA 1997 and therefore have their ordinary meanings. 13. Taxation Ruling TR 97/22 Income tax: exempt sporting clubs (TR 97/22) provides the Commissioner's view on what constitutes an exempt sporting club. 14. Paragraph 38 of TR 97/22 provides a non-exhaustive list of activities that are considered to be a 'sport' for the purposes of section 50-45 of the ITAA 1997, and includes: played with ball or projectile: badminton; baseball; basketball; bocce; bowling (ten-pin); bowls; cricket; croquet; football (all codes); golf; handball; hockey; ice-hockey; lacrosse; marbles; netball; softball; squash; table tennis; tennis; underwater hockey; volleyball... For the encouragement of a game or sport 15. Paragraph 11 of TR 97/22 states that encouragement (according to the Macquarie Dictionary ) means 'stimulation by assistance.' 16. Paragraph 11 of TR 97/22 also provides that 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. 17. Paragraph 11 of TR 97/22 also provides that encouragement can occur indirectly: · through marketing; or · by initiating or facilitating research and development. | Detailed Reasoning - Encouragement must be the main purpose: 18. Paragraph 11 of TR 97/22 states that that '[i]t is essential that the encouragement of a game or sport is the main or dominant purpose of a club.' 19. Paragraph 42 of TR 97/22 refers to Justice Lockhart in Cronulla Sutherland Leagues Club Limited v. FC of T 90 ATC 4215 at 4225; (1990) 21 ATR 300 at 312: 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.' 20. Further, paragraph 44 of TR 97/22 provides that: ...the fact that a sporting club also encourages social and other activities does not, of 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. By contrast, where the club's main purpose is providing social amenities and licensed club facilities to its members, the exemption does not apply. Highly persuasive features 21. Paragraph 15 of TR 97/22 lists the following highly persuasive features which support 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 (see paragraph 51); · the sporting activities encouraged by the club are extensive (see paragraph 53); · the club uses a significant proportion of its surplus funds in encouraging the game or sport (see paragraph 54); 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 (see paragraph 56). 22. Paragraph 53 of TR 97/22, quotes the authority from Terranora Lakes Country Club Limited v. FC of T (1993) 25 ATR 294 that 'where the sporting activities encouraged by the sporting club are very extensive, it is highly persuasive that the club's main purpose is the encouragement of a game or sport.' 23. Paragraph 54 of TR 97/22 provides that a 'club should use a significant proportion of its surplus funds in encouraging its game or sport.' 24. Paragraph 56 of TR 97/22 states that: ...the constitution and founding documents of an exempt organisation should be consistent with the aim of encouraging a game or sport. The club's history should also characterise it as one that was established, originally or after its foundation, by people with an interest in the game or sport and one that has in fact continued to encourage a game or sport: St Marys case ATC 4534, ATR 288; Case G53 (1956) 7 TBRD 301 at 309; Case T52 (1968) 18 TBRD 271 at 276... Relevant but less persuasive features 25. Paragraph 16 of TR 97/22 lists the relevant, but less persuasive, features which support a conclusion that the main purpose of the club is to encourage a game or sport: · a high level of participation by members in the game or sport (see paragraph 57); · 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 day to day management of the club) (see paragraph 58); · 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 (see paragraph 59); 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 (see paragraph 60). 26. Paragraph 59 of TR 97/22 states that: A situation in which only members participating in the game or sport have voting rights, and only participants in the game or sport have a direct say in the running and direction of the club, would be indicative but not conclusive of a club's main purpose being encouraging a sport... Special condition in section 50-70 of ITAA 1997 27. To satisfy subsection 50-70(1) of the ITAA 1997, an entity must not be carried on for the profit or gain of its individual members, must have a physical presence in Australia and incur its expenditure and pursue its objectives principally in Australia. 28. To satisfy subsection 50-70(2) of the ITAA 1997, an entity must comply with the 'governing rules condition' and the 'income and assets condition'. | Detailed Reasoning - Non-profit requirement: 29. Paragraph 22 of TR 97/22 allows for a club to be viewed as being non-profit where: ...by operation of law (for example, a statute governing a 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 its winding-up. The club's actions must, of course, be consistent with the prohibition. | Detailed Reasoning - Governing rules condition: 30. According to paragraph 9 of Taxation Ruling TR 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt ( TR 2015/1 ), the 'governing rules' of an entity are those rules that authorise the policy, actions and affairs of the entity and consist of the rules that direct: · what the entity is required and permitted to do, and · what those, who control the entity, are required and permitted to do in respect of the entity. 31. According to paragraph 17 of TR 2015/1, an entity's governing rules include substantive requirements (those rules that define the rights and duties of the entity) and procedural requirements (those rules which prescribe the method or manner in which the rights and duties of the entity are carried into effect, and where applicable, enforced). 32. Paragraph 10 of TR 2015/1 provides that an entity may have governing rules from more than one source. To determine what constitutes the governing rules of an entity, you need to consider all the various sources in which governing rules may be found. 33. Paragraph 14 of TR 2015/1 also states that the mere fact that an entity enters into an agreement such as a contract, lease, or licence does not mean that such an agreement forms part of the entity's governing rules. 34. According to paragraph 21 of TR 2015/1, the governing rules condition must be satisfied by an entity at all times during an income year in which the entity wants to be able to claim the income tax exemption under section 50-45 of ITAA 1997. | Detailed Reasoning - Income and assets condition: 35. According to paragraph 23 of TR 2015/1, to satisfy the income and assets condition, you need to give consideration to: · the purpose for which the entity was established, and · whether the entity has applied its income and assets solely for the purpose for which it was established. 36. Paragraph 26 of TR 2015/1 states that 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. Further, paragraph 28 of TR 2015/1 provides that the income and assets condition will not be breached merely due to an entity having an incidental or ancillary purpose. 37. Paragraph 31 of TR 2015/1 provides that the income of an entity may still be 'applied' for the purpose for which the entity is established if some of the entity's income is accumulated, provided the accumulation is consistent with the purpose for which the entity is established. An entity may use some of its income to acquire assets which, in future, will produce income for its purpose or purposes, and may accumulate some of its income for later distribution. 38. Further, paragraph 32 of TR 2015/1 states that to satisfy the income and assets condition, an entity that accumulates most of its income over a number of years will need to show on a year by year basis that the accumulation is consistent with the purpose for which the entity is established. Interaction of requirements in subsection 50-70(2) of ITAA 1997 39. The governing rules condition and the income and assets condition are independent special conditions that must be satisfied for the income tax exemption under section 50-45 of the ITAA 1997 to apply. 40. In accordance with paragraph 38 of TR 2015/1, a breach of either or both of the governing rules condition or income or assets condition mean that an entity's ordinary and statutory income will not be exempt from income tax. | Detailed Reasoning - Applying the law to your circumstances: 41. To be an exempt entity described in item 9.1(c) of the table in section 50-45 of the ITAA 1997, an entity must: (a) be a society, association or club; (b) be established for the encouragement of a game or sport; and (c) meet the special conditions specified in section 50-70 of the ITAA 1997. Society, association or club 42. The Club is an Australian public company limited by guarantee and has a number of members, all of whom are governed by the rules outlined in the Constitution. The Club is managed by a Board of Directors and has a Management Team (who are responsible for the day-to-day operations of the Club). 43. Clause x of the Constitution describes the Club's objectives, amongst other things, as: (b) To effect improvements on any such property of the purpose of rendering it suitable and efficient for the purposes of the Club, particularly in respect of the game of golf... (d) To promote the game of golf and athletic sports and pastimes and to encourage social life between the members of the Club. (e) To establish, maintain and carry on a golf club for the accommodation of members of the Club and permitted guests, and generally to afford them all the usual privileges, advantages, conveniences and accommodation of such a Club. (f) To provide for members of the Club all articles used in connection with the game of golf and other athletic sports and pastimes played on the Club's premises... (g) To promote and hold either alone or jointly with any other association, club or persons, meetings, competitions and matches for the playing of golf... (h) To establish, promote (or assist in establishing or promoting) and to subscribe to or become a member of or associated or amalgamated with any other association or Club, whose objects are similar or in part similar to the objects of the Club or the establishment or promotion of which may be beneficial to the Club, and to join and become a member of any authority controlling golf in city A, state A or Australia for the time being. 44. According to the above, the members associate together and pursue the common purpose of playing or encouraging golf. Therefore, the Club is considered to be a society, association or club for the purposes of section 50-45 of the ITAA 1997. For the encouragement of a game or sport | Detailed Reasoning - Game or sport: 45. The non-exhaustive list of activities in paragraph 38 of TR 97/22 includes golf. 46. As golf also meets the features outlined at paragraphs 31 - 37 of TR 97/22 (concerning sporting or game like activity, competition, rules and conventions), golf is considered a 'sport' for the purposes of item 9.1(c) of the table in section 50-45 of the ITAA 1997. | Detailed Reasoning - Encouragement: 47. It is considered that the Club encourages golf to be played through the following: · provision of a golf course; · conducting member competitions; · conducting golf programs and competitions (including for junior players); · supporting Club teams in various Pennants competitions and between other golf clubs; · provision of facilities for members and social players. 48. The objects in the Constitution, outlined above in paragraph 43, shows the Club encouraging and promoting golf through direct and indirect means. 49. The Club has the following highly persuasive features which support the conclusion that the main purpose of the Club is the encouragement of golf: · the Club regularly hosts various golf competitions and championships throughout the year; · the Club organises regular annual activities (both among Club members and with other golf clubs) such as Pennants Golf and inter-Club competitions; · Club members volunteer as umpires for key golf matches throughout the year; · the Club provides golf coaching and encourages young golfers; · the Club encourages its member to be spectators and to support golf by initiatives such as membership of the state's District Golf Association (which is provided for by representation through the Club's volunteers), promotion of evenings to gain rules accreditation through state-based golf bodies; · the Constitution, by which the Club is governed, states that (one of) its main objectives include the promotion of golf and working with other clubs to promote golf; · the purpose of entering into the Proposal was to secure the viability and long term financial future of the Club by ensuring that it had adequate funding to conduct its golfing operations o to this end, Clause x of the Constitution also provides that the Relevant Funds (or the income derived from the Relevant Funds) can only be used on the ordinary operational costs of the Club and capital expenditures (approved by the Club's Board); · further, the Club will use approximately 25% of the Lease Premium to restore its golf course as result of the impact of the Proposal. The remainder of the Relevant Funds will be held in reserve to be used to further the Club's objectives (as outlined in the Constitution); · the Club's history also characterises it as one that was originally established, and continues to remain, with people having an interest in the game golf and one that has in fact continued to encourage golf. 50. The Club has the following relevant, but less persuasive, features which support the conclusion that the main purpose of the Club is the encouragement of golf: · only life members and members in a playing category are entitled to vote in general meetings and in elections. Non-playing members cannot vote in a general meeting or an election of the Club; · the Club's Board are all either playing or life members of the Club and therefore all play golf; · many of the Club's members volunteer for activities organised by the Club (including acting as umpires in competitions and other golfing events); · the Club promotes and advertises itself to the public as an entity that encourages golf; · the Clubhouse is within close proximity to the Club's golf course; · the Club is fitted out such that it displays trophies, honour boards and other sporting equipment alongside its golf facilities; · the Club's Annual Report also places a strong emphasis on its golfing activities and reports extensively on its golfing achievements. 51. Even though one of the Club's purposes include to 'encourage social life between the members of the Club' (clause x of the Constitution), this may be considered secondary or ancillary to its main purpose of encouraging golf. This is because, on balance, the conduct of its social facilities (such as the operation of the Clubhouse and hiring out of function rooms) does not appear to be the main purpose of the Club. Although the Club advertises its function rooms for private hire, this appears separate and secondary to its golfing operations. The Club promotes itself primarily as a golf Club rather than as a function centre or restaurant. Further, the activities related to the bar and dining areas in the Clubhouse can be considered to cater predominantly to golfers, before and after playing a round of golf and encourage use of the Club's golfing facilities. 52. Therefore, it is considered that the Club encourages the game of golf and demonstrates features persuasive of the Club being mainly for the encouragement of a game or sport. | Detailed Reasoning - Special condition in section 50-47 of the ITAA 1997: 53. Due to the operation of section 50-47 of the ITAA 1997, an entity will not be exempt from income tax under section 50-45 of the ITAA 1997 if it is an 'ACNC type of entity'. 54. According to Division 25 of the Australian Charities and Not-for profits Commission Act 2012 , an 'ACNC type of entity' is a not-for-profit entity with a charitable purpose that can be registered with the Australian Charities and Not-for-profit Commission (ACNC). Section 12 of the Charities Act 2013 determines what is a 'charitable purpose'. The promotion of sport amongst members of a sporting club is not a charitable purpose. 55. The Club therefore does not have a charitable purpose. As such, the Club is not an 'ACNC type of entity. 56. Therefore, section 50-47 of the ITAA 1997 does not prevent the Club from being exempt from income tax as an entity covered by section 50-45 of the ITAA 1997. | Detailed Reasoning - Special condition in section 50-70 of ITAA 1997: Not for profit 57. Clause x of the Constitution provides that: The income and property of the Club, however derived, must be applied solely towards the promotion of the objects of the Club as set forth in this Constitution and no part may be used, paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise, by way of profit to any of the persons claiming through them, but nothing in this Constitution prevents the payment in good faith of remuneration to any officers, employees or members of the Club, or to any other person, in return for any services actually rendered to the Club. 58. Clause x of the Constitution also relevantly provides that: If after the dissolution of the Club there remains, after the satisfaction of all its debts and liabilities, any property, that property will not be paid to or distributed amongst the members of the Club... 59. Therefore, the Constitution prevents the distribution of Club profits or assets among members while the Club is functional (except as remuneration for services provided to the Club) or upon its winding up. Located in Australia 60. From the information provided, the Club has a physical presence in Australia. It is located in State A and incurs its expenditure and pursues its purposes principally in Australia. 61. Therefore, the Club has satisfied the requirements of subsection 50-70(1) in the ITAA 1997. Governing rules condition 62. The governing rules of the Club (including both the substantive and procedural requirements) are found in the Constitution. Clause x of the Constitution also allows the Club to: ...make regulations and by-laws and to do all such lawful acts and things as are incidental or conducive to the attainment of the objects in clauses xx and it is declared that the intention is that the Club will have power to do any of the things mentioned in this Constitution... 63. In accordance with paragraph 14 of TR 2015/1, the Lease does not form part of the Club's governing rules. 64. According to information provided by the Club, it appears that the Club is currently abiding by the substantive requirements of its governing rules. 65. However, given the ongoing nature of the Proposal, the Club needs to ensure that it continues to comply with all of the substantive requirements in its governing rules at all times during the Proposal to enable it to maintain the income tax exemption under section 50-45 of ITAA 1997. 66. Where the conduct or actions of the Club are such as to bring doubt about compliance with paragraph 50-70(2)(a) of the ITAA 1997, the Club must re-engage with the ATO to consider its tax exempt status. Income and assets condition 67. According to the Constitution, the Club was established for the object (purpose) of promoting golf and for encouraging social life between Club members. The Club has several ancillary or incidental purposes which assists with achieving this purpose including entering into transactions (such as the Proposal) in connection with the Club's objects, organising golf competitions and maintaining a Clubhouse and golf shop. 68. The Club has stated that it will be accumulating (in a separate reserve account) the income it receives from the Proposal (such as the Lease premium and rent) for future expenditure arising in furtherance of the Club's purposes. 69. In accordance with paragraph 32 of TR 2015/1, as it appears that the Club will be accumulating most of the income from the Proposal over a number of years, the Club will need to show on a year by year basis that the accumulation is consistent with the purpose for which the Club was established to maintain the income tax exemption under section 50-45 of ITAA 1997. 70. Therefore, the Club has satisfied the requirements in subsection 50-70(2) of the ITAA 1997. Conclusion 71. The Club is an exempt entity pursuant to section 50-1 of the ITAA 1997 as: · it is a Club established for the encouragement of a game or sport according to item 9.1(c) of the table in section 50-45 of the ITAA 1997; · it satisfies section 50-47 of the ITAA 1997; · it satisfies subsection 50-70(1) of the ITAA 1997; and · it satisfies subsection 50-70(2) of the ITAA 1997. 72. As the Club will accumulate a significant amount of income from the Proposal over a number of years, the Club will need to ensure that it satisfies: · paragraph 50-70(2)(a) of the ITAA 1997 on a year by year basis; · paragraph 50-70(2)(b) of the ITAA 1997 at all times during an income year; in order to be eligible under section 50-45 of ITAA 1997 for the income tax exemption.