Private ruling: Income tax exemption - sporting club
Date of advice: 16 August 2017
Published: January 2018
Ruling period: 1 July 2016 to 30 June 2021
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Club be exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) by virtue of being an association for the encouragement of a game or sport under section 50-45 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: The Club is an incorporated association. The Statement of Purposes and Rules of the Clubs purposes and objects for which the club was established as including the following: (a) To promote the game of golf, bowls and other athletic sports and pastimes … (m) The income and property of the Club whencesoever derived shall be applied solely towards the promotion of the purposes of the Club as set forth in the said Statement of Purposes and no part thereof shall be paid or transferred directly or indirectly by way of dividend, bonus, gratuity or otherwise howsoever by way of profit to the members of the Club. Non Profit and Winding up Clause the income and property of the Club whencesoever derived shall be applied solely towards the promotion of the objects of the Club as set forth in this Statement and no portion thereof shall be paid or transferred directly or indirectly by way of profit to any persons who at anytime are or have been members of the Club. Exceptions under this clause include: (a) Payments an good faith of remuneration to any officers or servants of the Club; or (b) To any other person in return for any services actually rendered to the Club; or (c) Payments of interest and repayments of principal on money advanced by a member to or for the purposes of the Club. Winding up or Cancellation 4.1.1 The Members at a General Meeting may, by simple majority of the Members present, pass a resolution for the dissolution of the Club. 4.1.2 Such resolution shall have no effect unless: 41.2.1. the resolution is confirmed by a special resolution at a Special General Meeting held not less than one month after the meeting referred to in the previous rule 41.1; 41.2.2 not less than one-half of the Members of the Club are present and voting at a special General Meeting; and 41.2.3 not less than three-quarters of those present and voting at the special General Meeting vote in favour of the resolution. 41.3 if the conditions set out in the previous rule 41.2 are met the Club shall be wound up in accordance with the relevant legislation, and after realisation of the property of the Club and the discharge of all liabilities all moneys shall be allocated to local charitable organisation or organisations with similar purposes to those of the Club as specified by a special resolution of Members at the Special General Meeting referred to the rule 41.2.1, and after completion of distribution the Club shall be dissolved. Activities undertaken by the Club Golf Bowls Squash Tennis Social Activities Functions rooms Restaurant Members lounge Sports bar Gaming machines Voting and Controlling Members Gaming members do not have voting rights and are unable to determine the overall administration and operation of the Club. Relevant legislative provisions Section 50-45 Income Tax Assessment Act 1997 Reasons for decision 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. A society, association or club established for the encouragement of a game or sport is listed at item 9.1 (c) in the table in section 50-45 of the ITAA 1997. The society, association or club must meet the special condition detailed 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 if it: ● is a society, association or club, ● is established for the encouragement of a game or sport, and ● satisfies the special conditions. 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. In Douglas v Federal Commissioner of Taxation 36 ATR 532; (1997) 77 FCR 112; 97 ATC 4722 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. 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'. The court 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… The members of the Club voluntarily associate together for a common purpose and common interest. The Club has directors and a constitution. The Club is an 'association, society or club'. Established for the encouragement of a game or sport Taxation Ruling TR 97/22 Income tax: exempt sporting clubs describes the circumstances under which a society, association or club is considered to be established for the encouragement of a game or sport. Game or sport 'Game' and 'sport' are not defined in the ITAA 1997 and are therefore given their ordinary meaning. Paragraph 38 of TR 97/22 provides a non-exhaustive list of activities that are considered a 'sport' for the purposes of section 50-45 of the ITAA 1997. The constituent documents of the Club reference its association with sports namely, to promote the game of golf, bowls and other athletic sports and pastimes. Golf is co-ordinated through a match committee, for the promotion of men’s and ladies golf at the Club. The Club is affiliated with a state Golf Association. The Club has dedicated golf professionals who provide regular training clinics and personal training for members. There are a significant number of tournament and competitions in which members (and other non-members) of the Club can compete that are organised and operated by the Club. Bowls “is co-ordinated by an extensive committee dedicated only to promoting this sporting activity”. Training is conducted by dedicated club coaches. A significant number of tournaments and competitions are entered into by the bowling teams. Squash is provided all year round, and is administered by a committee. Players compete in leagues and competitions. The Club has two accredited referees, and a dedicated squash coach. The Club has tennis courts within its premises which are provided for the use and benefit of its members. It is accepted that the Club is an organisation associated with a game or sport. The encouragement of sport must be the Club’s 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. Encouragement can occur directly or indirectly. Paragraph 15 of TR 97/22 describes highly persuasive features which are present when a club is for the encouragement 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. TR 97/22 also lists other features considered relevant but less persuasive features at paragraph 16: ● a high level of participation by members in the game or sport; ● 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); ● 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; 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. Social Activities Taxation Ruling 97/22 states at paragraphs 41 and 42 that: 41. To be eligible for the exemption, the club's main purpose must be to encourage a game or sport. Difficulties can arise where the club conducts other activities, particularly social or commercial activities. 42. Where the other activities are merely ancillary or incidental, or secondary, to the encouragement of the game or sport we accept that the main purpose may be that encouragement. Lockhart J in Cronulla Sutherland Leagues Club Limited v. FC of T 90 ATC 4215 at 4225; (1990) 21 ATR 300 at 312 said: “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.” Application to the Club The Club conducts activities directly related to the sports of golf, bowls, squash, and tennis. It does this by participating in competitions, hosting competitions, providing registered coaches and accredited umpires. It devotes a significant portion of its resources to promoting its sporting activities. While the Club does generates most of its revenue from its social activities the surplus is used to finance its sporting activities. Control of the Club rests in the hands of sporting members. The social activities of the Club while significant provide a means for the Club to finance its sporting activities which is the main purpose of the Club. Special conditions Section 50-70 of the ITAA 1997 states that an entity covered by item 9.1 is not exempt from income tax unless the entity is not carried on for the profit or gain of its members and: ● it has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia; or ● it is a deductible gift recipient; or ● it is prescribed by law in the income tax regulations and it is located outside Australia and is exempt from income tax in its country of residence. The Club has a physical presence in Australia and it pursues its objectives and incurs its expenditure principally in Australia. Non-profit requirement Paragraphs 9 and 21 – 23 of Taxation Ruling TR 97/22 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. 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. The non-profit requirement is satisfied. Conclusion Based on the information provided, we accept that the main purpose of The Club is the encouragement of a game or sport pursuant to item 9.1(c) of the table in section 50-45 of the ITAA 1997. The features of The Club leading to this conclusion are summarised as follows: n The Club conducts activities in the relevant years that are directly related to a game or sport. n The Sporting activities conducted by The Club are extensive. n The Club uses a significant portion of its surplus funds in encouraging sport. n The Club’s constituent documents state that The Club’s main purpose is to encourage sport. n A majority of The Members of The Club participate in the sports promoted by The Club. n The Members of the Committee, who control The Club, are participants in the sports promoted by The Club. n Voting rights in The Club vest only in members who are involved in the sports promoted by The Club. n The social activities of The Club provide facilities for members and an income stream to support the sporting activities of The Club. We consider that The Club is non-profit and pursues its objects in principally Australia and incurs its expenditure in principally Australia. As such 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.