Private ruling: Income tax exemption
Published: December 2013
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: The scheme commenced on 1 July 2013.

Ruling: Q1: Is the ordinary and statutory income of the Foundation exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (the ITAA 1997) on the basis that the Foundation was established for the encouragement of a game or sport pursuant to item 9.1(c) in section 50-45 of the ITAA 1997? | A1: Yes. The ordinary and statutory income of the Foundation is exempt from income tax under section 50-1 of the ITAA 1997 on the basis that the Foundation was established for the encouragement of a game or sport pursuant to item 9.1(c) in section 50-45 of the ITAA 1997?

Relevant facts and circumstances: A member of the Association left a legacy to the Association. A trust fund was formed, namely, the Foundation. The trust deed contains the following recital: The purpose of the Foundation shall be the encouragement, preservation, advancement, development and benefit of [a particular sport]. The trust deed deals with the winding up of the Foundation: The trustees shall upon completion of the realisation of the Fund,...distribute the net proceeds thereof...to one or more Eligible Recipients as the Trustee selects (other than any person who is or has been a member of the association). The trust deed provides the following definition: Eligible recipient means an institution or trust which qualifies as a charity for taxation purposes and the primary purpose of which is either the promotion of [a particular sport] or for the relief of poverty. The trust deed provides: The Trustees are not entitled to receive any fee, remuneration or benefit for acting as trustees of the Foundation and no monies or assets of the Fund will be distributed to or for the benefit of the Trustees. In accordance with the trust deed, the trustees of the Foundation are the current officeholders of the Association and certain other members appointed by a committee of the Association. The trustees who are appointed by the committee are appointed annually. The trusteeship of a person appointed as an officeholder of the Association begins immediately upon such appointment and ceases immediately they cease to hold that particular office.

Relevant legislative provisions: Income Tax Assessment Act 1997 , Section 50-1. | Income Tax Assessment Act 1997 , Section 50-45. | Income Tax Assessment Act 1997 , Paragraph 50-70(a). | Income Tax Assessment Act 1936 , Section 6.

Reasons for decision: Summary: A society, association or club established for the encouragement of a game or sport under item 9.1(c) of section 50-45 of the ITAA 1997 is exempt from income tax pursuant to section 50-1 of the ITAA 1997 subject to meeting the special condition of paragraph 50-70(a) of the ITAA 1997 of having a physical presence in Australia and incurring its expenditure and pursuing its objectives principally in Australia. Further, an exempt entity must comply with all the substantive requirements in its governing rules and apply its income and assets solely for the purpose for which it is established (refer subsection 50-70(2) of the ITAA 1997) Taxation Ruling TR 97/22: Exempt sporting clubs explains that 'encouragement' of a sport can occur by: · the teams in competitions · coordinating activities · organising and conducting tournaments · improving the abilities of participants · improving the standard of trainers and coaches. In order for the Foundation to be exempt under section 50-1 of the ITAA 1997 it must be a society, association or club established for the encouragement of sport. The predominant objects of the Foundation are to promote a particular sport. The objects and current activities of the Foundation are clearly predominantly directed to the encouragement of that sport. The Foundation clearly has a physical presence in Australia and incurs its expenditure and pursues its objectives principally in Australia. The Foundation is clearly not run for the purpose of the profit of its 'members' or trustees. The Foundation pursues its sports-related objects in its own right. It does not merely passively hold assets for the benefit of another entity. For instance, the Foundation does not merely derive income and make distributions to the Association with the aim of providing funds to the Association for the Association to carry out the Association's own sporting activities. For the Foundation to qualify as a 'society, club or association', the trustees must be brought together as an association established for the purpose of the encouragement of sport and not merely connected by having a common undertaking through an obligation to administer property as fund managers. The trustees of the Foundation are officers of the Association (automatic appointments) and other persons appointed by a committee of the Association. In Manor Foundation Ltd v Commr of Land Tax (NSW) (1983) 14 ATR 676, it was accepted that trustees can come together to carry out trust obligations as an association or society if the trustees are more than merely administering property in terms of the trust and are actively involved in the operation of an entity. In this case, the trustees of the Foundation are executive officers and other members of another organised body of persons brought together for the common purpose of carrying out the objects of the Foundation as an association. The trustees are required to do more than merely manage property of the trust. Accordingly, it is accepted that the Foundation meets the requirements of being an 'association'. Although the trustees are appointed by the Association, the trustees are required to act as a body to carry out the objects of the Foundation. The Foundation is an association which predominantly carries on activities for the encouragement of sport in its own right. Further, given the nature of its activities, it is accepted that the Foundation meets the special conditions in section 50-70 of the ITAA 1997 about it operating and pursuing its purposes principally in Australia and applying its income to those purposes. For these reasons it is accepted that the Foundation is an association that is established for the encouragement of sport in terms of item 9.1(c) of section 50-45 of the ITAA 1997 and is exempt from income tax pursuant to section 50-1 of the ITAA 1997.