Private ruling: Not for profit - exemption from tax
Date of advice: 4 December 2023
Published: 22 January 2024
Ruling period: 1 March 20XX to 28 February 20XX
Date scheme commenced: 1 March 20XX

Ruling: Q1: Is the Club exempt from income tax 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 under item 9.1(c) in section 50-45 of the ITAA 1997? | A1: Yes.

Relevant facts and circumstances: Background 1. The Club is an Australian Public Company Limited by Guarantee. 2. The principal activity of the Club is to provide and promote sporting activities Purpose 3. The Constitution of the Club contains the following clauses: Objects. The objects for which the company is established are: • To promote and foster prudent and safe sporting activities. • To provide facilities that promotes the sport, sociability and good fellowship for Members, their families, guests and bona-fide visitors. • To provide and maintain building and sporting facilities. Aims • To promote sporting safety and provide training and safe practices that will serve Club Members and others. • To promote the training of youth in all aspects of the sport. • To maintain and protect the natural environment through sustainable practices. • To build, maintain and operate, a licensed clubhouse and associated infrastructure in any location as may be determined by an Annual General Meeting or Extraordinary General Meeting. • To build, maintain and operate secure facilities. • To maintain and improve all Club property, buildings, leases and facilities. • In furtherance of the objects of the Club to amalgamate with any company, institution, society or association having objects altogether or in part similar to those of the Club and which shall prohibit the distribution of its or their income and property among its or their members. • In furtherance of the objects of the Club to purchase or otherwise acquire and undertake all or any part of the property, assets, liabilities and engagements of any one or more of the companies, institutions, societies or associations with which the Club is authorised to amalgamate. • In furtherance of the objects of the Club to transfer all or any part of the property, assets, liabilities and engagements of the Club to any one or more of the companies, institutions, societies or associations with which the Club is authorised to amalgamate. Non-Distribution of Surplus 4. The Club has a not-for-profit clause in its Constitution. Dissolution clause 5. The Club has a dissolution clause in the Constitution. Membership 6. Clause X of the Constitution set out the categories of membership of the Club. 7. Only Full, Life and Life Subscriber Members are eligible to attend and vote at annual general meetings. 8. 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. Social members do not participate in the management of the Club and cannot attend or vote at any Club General Meeting or hold office on the Board of the Club. 9. Current membership of the Club is XXX full voting members (out of XXXX social members) and XXX associate members. A large number of social members participate in sports on a competitive basis. Board of Directors 10. The Board of Directors is elected from the Club membership, all of whom shall be financial Full Members, Life Subscribers or Life Members of the Club. 11. The matters of administration and general policy of the Club shall be determined from time to time by the Board. Activities 12. The Club facilities include a large storage area, restaurant and bar, gaming area and function area. There is accommodation with X huts available to all members. 13. The restaurant and bar heavily subsidise meals and drinks for events which are held for sporting sections of the club. 14. The Club maintains control over all the sporting sections, some sections may have advisory committees to handle some day-to-day operations but all of these report to management. The expenses and income are maintained by the Club and only paid on approval by the manager and the board, with all funds being transacted through the general account. 15. The Club provides sponsorship in the way of prizes, meal beverages, and alike, throughout the year for various tournaments and events. 16. The Club promotes itself through its website as being involved in sport. The website contains a calendar of events, pictures and Club history. The premises contain memorabilia, trophies and honour boards displayed in the clubhouse. The Clubs advertisements and publicity emphasise its sporting facilities. 17. The Calendar of Events includes weekly events, bi-monthly events, and weekend sporting events. 18. The Club's website describes their activities. 19. The Club conducts extensive activities directly related to sport by organising, hosting and participating in events at various levels and providing officials at these events including: • weekly competitions and all participants must be members of the Club, and • weekly program for children, with an attendance of between 16 to 30 participants per week. Funds 20. The Club provided financial information from its 20XX and 20XX Financial Statements - Income & Expenditure Statements. 21. The Club provided their 20XX Financial Position. 22. The Statement of Profit or Loss and other Comprehensive Income for the year ended 28 February 20XX shows a net profit. Physical presence 23. The Club is established and operated in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 50-1 | Income Tax Assessment Act 1997 Section 50-45 | Income Tax Assessment Act 1997 Section 50-47 | Income Tax Assessment Act 1997 Section 50-70

Reasons for decision: Summary: The Club is exempt from income tax under section 50-1 of the ITAA 1997 as a society, association or club established for the encouragement of a game or sport under item 9.1(c) of the table in section 50-45 of the ITAA1997. | Detailed Reasoning - Detailed reasoning: A society, association or club which has been established for the encouragement of a game or sport under section 50-45 item 9.1(c) is exempt from income tax under section 50-1. Section 50-1 states: The total *ordinary income and *statutory income of the entities covered by the following tables is exempt from income tax. In some cases, the exemption is subject to special conditions. (* as defined in section 995-1 of the ITAA 1997) The tables referred to in section 50-1 are contained in sections 50-5 to 50-45. Additionally, section 50-47 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 provides that a society, association or club established for the encouragement of a game or sport shall be an exempt entity, subject to special conditions in section 50-70. An entity is therefore exempt from income tax as a society, association or club established for the encouragement of a game or sport under item 9.1(c) of the table in section 50-45 if: • is not carried on for the purposes of its individual members' profit or gain, and • is established for the main purpose of the encouragement of a game or sport, • satisfies the special conditions in sections 50-47 and 50-70. | Detailed Reasoning - Society, association or club: The term 'society, association or club' is not defined in the ITAA 1997. The term is therefore construed according to the ordinary meaning of the words. Based on the definitions provided in the Macquarie Dictionary a 'society, association or club' refers to a voluntary organisation of people associated together for a common or shared purpose. A society, association or club may be constituted as an unincorporated association or be formally recognised by incorporation. The Club is registered under the Corporations Act 2001 as a company limited by guarantee. The constitution outlines its purpose at clause X as follows: • To promote and foster prudent and safe sport in all forms of sporting activities. • To provide facilities that promotes the sport, sociability and good fellowship for Members, their families, guests and bona-fide visitors. • To provide and maintain facilities. The Club has a board of directors and a class of members who are governed by the constitution. It is accepted that the Club is a society, association or club for the purposes of section 50-45. | Detailed Reasoning - Not-for-profit requirement: Taxation Ruling 2022/2 Income tax: the games and sports exemption (TR 2022/2) discusses in more detail the provisions around the games and sports tax exemption. Paragraphs 11 - 16 of TR 2022/2 discuss the not-for-profit requirement. A society, club or association established for the encouragement of a game or sport is not-for-profit if it is not carried on for the profit or gain of its individual members, either while it is operating or on its winding up. Organisations satisfy the not-for-profit requirement if their constituent documents prevent them from distributing profits or assets among members while the organisation is functional and on winding up. The organisation's actions must be consistent with this requirement. The constituent documents of the Club prevent the distribution to members both while it is operating (clause X) and upon winding up (clause X). The not-for-profit requirement is satisfied. | Detailed Reasoning - Established for the encouragement of game or sport: TR 2022/2 describes the circumstances under which a society, association or club is considered to be established for the encouragement of a game or sport. | Detailed Reasoning - Game or sport: 'Game' and 'sport' are not defined in the ITAA 1997 and are therefore given their ordinary meaning. Paragraph 17 explains that characterisation of some activities as a game or sport is obvious and for others it can be demonstrated by evidence of a competitive element and by participants compliance with the conventions and rules of the activity. The participants must intend that the activities they perform are the activities of a particular game or sport and that the intention and activities must be shared by the other participants. TR 2022/2 at paragraph 19 also provides that: A common feature of a game or sport is a set of conventions, expectations and rules. This contributes to the element of organisation that is commonly indicative of game or sport. While written or defined rules are not essential, the imposition of such rules and conventions in an organised group of participants can convert an otherwise ordinary leisure activity into a game or sport (for example, hunting, fishing and walking). Paragraph 27 of TR 2022/2 provides a non-exhaustive list of activities that are considered 'sport' for the purposes of section 50-45. The Club's sport forms part of this list. Paragraph 24 of TR 2022/2 explains that activities that could appear to be a game or sport may be merely a means to other ends. Where the activities are not organised in a sport or game-like way and some other purpose is predominant, the activity will not be a game or sport. For example., dancing can be organised in a game or sport-like way but it is often a means of promoting sociability, participation and relaxation. In such cases, it does not constitute a game or sport. Further in paragraph 25 of TR 2022/2 provides: 25. The fact that a game or sport is undertaken by club members or within a club does not mean that the club is established for the encouragement of that game or sport. The activity must be considered in the context of determining the club's main purpose. For example, a fishing competition can be a sport. However, a fishing competition conducted by a club may be a minor activity incidental to its main purpose, such as promoting sociability, communal activities or some other purpose. This is illustrated in Example 2 at paragraph 26 of TR 2022/2 as follows: 26. The One That Got Away Club provides services and amenities for people who like to fish in the bay near the clubhouse and in surrounding watercourses. The services provided include weather and boating information, guest speakers and a bar and canteen which open daily. Members-only competitions are held once a month. While a fishing competition might of itself be a sport, it is conducted as a part of The One That Got Away Club's wider activities. As The One That Got Away Club was not formed for the main purpose of encouraging a game or sport, the fishing competition held is not a game or sport. It is only those activities that have the features of a game or sport that can be considered for the purposes of item 9.1(c) of the table in section 50-45. The Club is involved in a sporting activity which is listed at paragraph 27 of TR 2022/2 as a game or sport. In addition, another activity is also considered a sport in the circumstances where it is undertaken in a competitive, organised and sport like way. As such the Club satisfies the requirement for the activity to be a game or sport for the purposes of item 9.1(c) of the table in section 50-45. | Detailed Reasoning - The encouragement of sport must be the main purpose: A society, association or club will only be exempt from income tax if it has as a main purpose the encouragement of a game or sport. Paragraph 30 of TR 2022/2 provides guidance on the term 'encouragement'. 'Encouragement' is not a defined term and takes its ordinary meaning. The ordinary meaning of encouragement (or the act of encouraging) has been described as stimulating by assistance or approval, including through direct or indirect means. Direct or indirect activities relevant in determining whether the main purpose of the entity is the encouragement of a game or sport are listed at paragraph 43 of TR 2022/2. These include: • forming, preparing and entering teams and competitors in competitions in the game or sport • coordinating activities • organising and conducting tournaments • improving the abilities of participants • improving the standard of trainers and coaches • providing purchased or leased facilities for the activities of the game or sport for the use of club members and visitors • encouraging increased and wider participation and improved performance • marketing • initiating or facilitating research and development, and • facilitating the activities above by making a financial or in-kind contribution to an organisation that performs them. | Detailed Reasoning - Main purpose: For the club to be established for the encouragement of a game or sport, the main purpose of the club in the relevant income year must be the encouragement of a game or sport. Paragraph 31 of TR 2022/2 states that determining the main purpose of an entity requires an objective evaluation of all material facts and circumstances. There is no set formula for weighing up the characteristics of an entity to determine its main purpose. It is the main purpose of the club in the year under examination rather than at the time of formation. A club with both a sporting and non-sporting purposes will not qualify for the games and sports exemption unless the non-sporting purpose is merely ancillary and incidental or secondary to its sporting purpose. Paragraph 37 of TR 2022/2 lists factors that have been identified by courts and tribunals as relevant when considering purpose. These include: • emphasis in the club's constituent documents that the main purpose is to encourage a game or sport • extent of sporting activities • the conduct of activities directly related to the game or sport • a high level of member participation in the game or sport • promotion of the organisation to patrons and the public as one that encourages a game or sport • involvement of the committee of management in the promotion of sport • the use of surplus funds for encouraging the game or sport • the provision of financial and in-kind support for encouraging the game or sport. This is further explained in paragraphs 38 to 42 of TR 2022/2; 38. The activities undertaken by a club are an important consideration in determining whether it qualifies for the games and sports exemption. However, activities considered in isolation do not demonstrate the purpose of a club. 39. Activities are commonly a means to an end. Activities can serve the purpose of encouraging a game or sport and other independent non-sporting purposes. All of the club's activities must be objectively weighed against the objects, history and control of the club to determine the main purpose for which it is established in a particular year. 40. An activity like the organisation of, or participation in, sporting competitions can be readily understood as advancing a purpose of encouraging a game or sport. 41. Where a club derives its revenue from commercial operations, the club needs to objectively determine the extent to which commercial operations are a means to the end of advancing the sporting purpose, or are advancing some other purpose. 42. A club can demonstrate a purpose of encouraging a game or sport where it provides financial and in-kind contributions to other organisations that directly conduct those activities. To demonstrate a main purpose of encouraging a game or sport, a club that does not directly conduct any games or sports will need to objectively show that the activities it carries out are a means to that end. The fact that a club undertakes other activities does not, of itself, preclude a club from being exempt. As noted by Lockhart J in Cronulla Sutherland Leagues Club Limited v FC of T 90 ATC 4215 at 4225, where an association conducts other activities, which are merely ancillary or incidental or secondary to the encouragement of the game or sport, we accept that the main purpose may be that of encouragement. In contrast, where an association's main purpose is the undertaking of these other activities, the exemption does not apply. This is expressed in TR 2022/2 that states at paragraph 34 that a club that has both sporting and non-sporting purposes will not qualify for the games and sports exemption unless the non-sporting purpose is: • merely ancillary and incidental to its sporting purpose (that is, a purpose that is related to carrying out its sporting purpose), or • secondary to its sporting purpose (that is, a purpose that is independent to, but less important or less significant than the sporting purpose). In order for an entity to be exempt as a club established for the encouragement of a game of sport, revenue raising purposes must remain only a means to a sporting end. If they become an end in themselves, it will be difficult for a club to demonstrate that it is predominantly for the encouragement of a game or sport. The Club's main objectives as stated above at clause X of the constitution is supported by the aims set out at clause X which include: • To promote safety in the sport and provide training and safe practices that will serve Club Members and others. • To promote the training of youth in all aspects of the sport. • To maintain and protect the natural environment through sustainable practices. • To build, maintain and operate, a licensed clubhouse and associated infrastructure in any location as may be determined by an Annual General Meeting or Extraordinary General Meeting. • To build, maintain and operate secure sporting facilities. • To maintain and improve all property, buildings, leases and facilities. • In furtherance of the objects of the Club to amalgamate with any company, institution, society or association having objects altogether or in part similar to those of the Club and which shall prohibit the distribution of its or their income and property among its or their members. • In furtherance of the objects of the Club to purchase or otherwise acquire and undertake all or any part of the property, assets, liabilities and engagements of any one or more of the companies, institutions, societies or associations with which the Club is authorised to amalgamate. • In furtherance of the objects of the Club to transfer all or any part of the property, assets, liabilities and engagements of the Club to any one or more of the companies, institutions, societies or associations with which the Club is authorised to amalgamate. The Club conducts activities directly related to all forms of the sport by organising, hosting and participating in the sporting events. It conducts sporting competitions and teaches the sport. The Club maintains control over all the sporting sections, some sections may have advisory committees to handle some day-to-day operations but all of these report to management. Sporting activities are promoted through a customer database, local schools, councils, and community groups in order to encourage population and growth of the sport. The Club conducts activities which include hosting, participating and providing officials for the various events. The activities of the Club that indirectly relate to sport include: 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 has a restaurant and bar, gaming area, function area and holiday accommodation available to all members. While these activities are non-sporting in nature, they are considered secondary to the Clubs main purpose to promote games and sport. The Club's profit for 20XX is $X after the expenses of maintaining the facilities, administrative expenses to support sporting sections and direct sports expenditure. The Club uses a significant portion of its funds to encourage sport. It is concluded that the non-sporting activities of the Club provides a means for the Club to finance its sporting activities which is the main purpose of the Club. | Detailed Reasoning - Special conditions: Subsection 50-70(1) 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) 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. The Club's main purpose is the encouragement of participation in a game or sport, and 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. As the Club will comply with any substantive requirements in the governing rules and will apply its income and assets solely for the purposes for which it is established, the special conditions are satisfied. | Detailed Reasoning - Conclusion: The Club's ordinary and statutory income is exempt from income tax under item 9.1(c) of section 50-45 as it is an association established for the main purpose 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.

Reasons for decision: All legislative references are to the Income Tax Assessment Act 1997 ('ITAA 1997') unless otherwise stated. | providing a large storage area for the sport and the equipment required for the sport so it can be safely and securely stored | the provision of licenced facilities for the activities of the sport for the use of club members and visitors | use of the facilities for the promotion of sport within the community, including advertising within the Club.