Private ruling: Income Tax - Exempt entities - sporting clubs
Published: January 2014
Ruling period: Other/Substituted Accounting Period 1 January 2014 to 31 December 2014 | Other/Substituted Accounting Period 1 January 2015 to 31 December 2015 | Other/Substituted Accounting Period 1 January 2016 to 31 December 2016 | Other/Substituted Accounting Period 1 January 2017 to 31 December 2017 | Other/Substituted Accounting Period 1 January 2018 to 31 December 2018
Date scheme commenced: 1 January 2014.

Ruling: Q1: Is the taxpayer 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 pursuant to paragraph (c) of item 9.1 of the table in section 50-45 of the ITAA 1997? | A1: Yes.

Relevant facts and circumstances: The taxpayer, the Club, is a club that incurs its expenditure and pursues its objectives in Australia. The Club is governed by its Constitution. The main objects of the Club can be summarised as follows: · to take over the assets and assume the liabilities of an club; · promote and conduct various sports, games, amusements and entertainments, pastimes and recreations (indoor and outdoor); · construct, establish, provide, maintain and conduct playing areas and grounds and construct, provide, establish, furnish and maintain clubhouses, accommodation and amenities for members and guests; · promote and hold sporting competitions, matches and sports and to promote, give or support dinners, balls, concerts and other entertainments and · deal in all kinds of sporting equipment used in connection with the Club's sporting activities or entertainments and in all kinds of provisions and refreshments for all who use the playing areas, grounds, clubhouse or premises of the club. Further objects of the Club deal mainly with the financial management of the Club. The constitution contains non-profit and dissolution clauses. The Club conducts various sporting activities through sub-committees. The Club conducts competitions and tournaments in various sports and fields teams in those sports. The Club also hosts regional events and various other events in those sports. The Club provides an extensive coaching program, elite programs and funds for the development of junior players. The Club's sporting facilities include golf courses; practice golf range; practice putting green; tennis courts with clubrooms; croquet lawns with clubrooms; outdoor bowling greens with clubrooms and indoor bowls facilities. The Club has clubhouses which include dining facilities; bars; a conference and function centre; gaming rooms and changing room facilities. The Club also has a motel. The Club provides extensive support through in-kind and cash donations to a number of sporting organisations within the local and surrounding district. The Club has a large number of members including sporting and social members. The Club undertook a property development recently with subdivision of vacant land for the purpose of a residential development adjacent to its golf course. This development is intended for private sale with proceeds to be injected into further development of the Club's sporting and recreation facilities.

Relevant legislative provisions: Income Tax Assessment Act 1997 s ection 50-1. | Income Tax Assessment Act 1997 section 50-45. | Income Tax Assessment Act 1997 section 50-70.

Reasons for decision: Summary: It is considered from a weighing of all the above factors that the Club, on balance, operates principally for the encouragement of sport. Accordingly, on the assumption that the objects and activities are not different from that in the past, it is concluded that in the years to which this ruling applies, the Club will be exempt from income tax under section 50-1 of the ITAA 1997 as a club established for the encouragement of a game or sport pursuant to paragraph (c) of item 9.1 of the table in section 50-45 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Pursuant to section 50-1 and paragraph (c) of item 9.1 of the table in section 50-45 of the ITAA 1997, a club established for the encouragement of a game or sport will be exempt from income tax provided it meets the special conditions set out in section 50-70 of the ITAA 1997. The special conditions require that the club must not be carried on for the profit or gain of its individual members; is physically present in Australia and carries out its activities in Australia; must comply with the requirements in its governing rules and must apply its income and assets solely for the furtherance of its objects. There is no special definition of what constitutes a 'game' or 'sport' for the purposes of section 50-45 of the ITAA 1997 and those words should be given their ordinary meanings. Taxation Ruling TR 97/22, which describes the circumstances under which a club is regarded as being established for the encouragement of a game or sport, provides a non-exhaustive list of activities that would be considered as 'sport'. In accordance with TR 97/22, encouragement may occur directly (including providing purchased or leased facilities for game or sports activities; preparing and entering teams and competitors in competitions; organising and conducting tournaments and improving the abilities of participants and the standard of trainers and coaches) or indirectly (through marketing or by initiating or facilitating research and development). To qualify for the exemption a club must have as its main object or purpose the encouragement of a game or sport ( Cronulla Sutherland Leagues Club Ltd v. Federal Commissioner of Taxation (1990) 23 FCR 82; 90 ATC 4215; (1990) 21 ATR 300) ( Cronulla case ). A club may have other objects which are merely incidental or ancillary or which are secondary and even unrelated without being disqualified from exemption. The fact that a sporting club also encourages social and other activities does not, in itself, preclude the club from being exempt from income tax. A club will still be exempt provided the encouragement of a game or sport is the club's main purpose. A club's main purpose can only be ascertained after objectively considering all a club's features. Paragraph 15 of TR 97/22 lists the following features that are be highly persuasive in supporting a conclusion that the main purpose of a club is to encourage a game or sport: · the club conducts activities in the relevant year that are directly related to the game or sport · the sporting activities encouraged by the club are extensive · the club uses a significant proportion of its surplus funds in encouraging the 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 The expression 'established for the encouragement of a game or sport' refers to both the purpose for which the club was incorporated and the current activities of the club ( Cronulla case ). Accordingly, both the purpose for which a club was originally set up and the club's activities in the relevant year of income must be considered. As noted in paragraph 48 of TR 97/22, section 50-45 of the ITAA 1997 looks to the year of income to determine whether each of its elements is satisfied. Evidence of the purpose for which the club was originally or later set up is helpful but the club must demonstrate by reference to its activities in the year of income that it has as its main purpose the encouragement of the game or sport. | Detailed Reasoning - Special Conditions: The Club satisfies the special conditions set out in section 50-70 of the ITAA 1997. | Detailed Reasoning - Whether encouragement of a game or sport is the main purpose: The Club is principally involved in activities which are listed in TR 97/22 as activities that would be considered as sport. The Club conducts extensive sporting activities through its subcommittees. It conducts competitions and also fields teams in each sport in external competitions. It also conducts tournaments (including junior tournaments) and hosts regional and various other events. The Club also organises, on request, competition days for charity and non-profit groups. The Club actively promotes sport through a Liaison officer, by holding 'come and try' days and by conducting programs through schools and holding fun days. It encourages and develops junior talent through its coaching clinics and junior development program. The Club has an extensive coaching program, supervised by professionals that are employees of the Club, and offers training and coaching lessons and training for referees. The Club encourages players to become rules officials within the Club. The Club provides sporting facilities. It also provides free use of the changing room facilities to various sporting groups and supplies power to run the lighting for the football fields, velodrome, irrigation pumps and various amenity buildings. As highlighted in Annual reports a significant portion of the Club's revenue was spent on sport. The Club also provides extensive support through in-kind and cash donations to a number of sporting organisations within the local and surrounding district. In addition to the sporting activities conducted, the Club also provides entertainment of a social nature through its poker machines, dining facilities, bars, conference and function centre. These activities generate large revenues. The objects clause of the Constitution indicates that on balance the Club was mainly set up for the purpose of encouraging sport. It is considered from a weighing of all the above factors that the Club, on balance, operates principally for the encouragement of sport. Although non-sporting activities are included within some of the objects of the Club and are substantial and generate large revenues, it is considered that they are subordinate to the Club's main purpose. The Club's dominant activity remains the provision of sporting facilities and the encouragement of sport. It is considered that the social activities have been pursued mainly as a means of financing the Club's extensive sporting activities. Additionally, it is considered that as the proceeds from the development the Club has undertaken are to be injected into further development of the Club's sporting and recreation facilities, the property development will not alter this. | Detailed Reasoning - Conclusion: On the assumption that the objects and activities are not different from that in the past, it is concluded that in the years to which this ruling applies, the Club will be exempt from income tax under section 50-1 of the ITAA 1997 as a club established for the encouragement of a game or sport pursuant to paragraph (c) of item 9.1 of the table in section 50-45 of the ITAA 1997.