Private ruling: Not for profit sporting organisation
Date of advice: 13 November 2018
Published: February 2019
Ruling period: Year ending 30 June 20xx | Year ending 30 June 20xx | Year ending 30 June 20xx | Year ending 30 June 20xx | Year ending 30 June 20xx | Year ending 30 June 20xx | Year ending 30 June 20xx | Year ending 30 June 20xx | Year ending 30 June 20xx | Year ending 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Is the Club 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 Income Tax Assessment Act 1997 (ITAA 1997) and therefore exempt from income tax under section 50-1 of the ITAA 1997 ? | A1: 

Relevant facts and circumstances: 1. The sporting organisation is over XXX years old. 2. Income Tax Exemption has previously been granted. 3. You are requesting a continuation of your income tax exemption pursuant to section 50-45 of the ITAA 1997 because: ● The club was established for the encouragement and promotion of athletic games or sports in which human beings are the sole participants, and ● The club was not carried on for the purpose of the profit or gain of its individual members. 4. Clause 2 of the Memorandum of Association of the Club relevantly states its objects as: 2. The objects for which the Club is established are: a) To take over the funds and other assets and liabilities and to effectuate and carry into execution the rights and obligations of the unincorporated Association known as "A". b) To carry on as Club under the control and management of the relevant sporting bodies or anybody having the control of the playing of the game in the relevant State. The Club is to be primarily devoted to the athletic pastime of the playing of the game. c) Encourage foster and promote the sport in the City of A or elsewhere and to provide or assist in the provision of training conditioning and teaching facilities for the sport. d) To promote all or any of the games of A, B, C, D, E and other sports recreations and pastimes and to acquire prepare and maintain grounds, tennis and squash courts or facilities necessary or desirable for any sport or pastime. e) To provide for members and members’ guests and associate members a social and sporting club with all the usual facilities of a club including liquid and other refreshment libraries and provision for sporting musical and educational activities and other social amenities. …. 5. The objects of the club have not changed since its last private ruling. 6. The Articles of Association of ERLFC specify various classes of membership: ● Ordinary members - players or past players, or who hold or have held an official position in any organisation or club controlling the playing of the sport, or who are supporters of the teams fielded by the club. ● Sporting members - players or supporters of any sporting activity other than A which is organised or sponsored through the Club, or a supporter of such sporting activity. ● Associate members - persons over the age of 18. ● Life members – life membership may be conferred on an ordinary member. ● Honorary Members – patrons of the club, or prominent citizens or local dignitaries visiting the club. ● Temporary Members – visitors and members of other clubs 7. Ordinary and Life members are eligible to vote at all meetings, and are the only members who are eligible to vote to amend the constitution or to propose and second any person for membership as an Ordinary, Associate or Sporting member. Associate and Sporting members may only vote to appoint or remove a director and on any resolution concerning an honorarium for a director. 8. The club is managed by a Board of Directors. Only Ordinary members and Life members who have been such members for a period of 5 or more continuous years are eligible to be directors. 9. The Club is situated directly opposite grounds which are used for sporting activities. The Club has provided upgrades to sporting facilities on behalf of the members. 10. The Club is involved in a number of sporting activities at both junior and senior level including playing, coaching, management and facilities, as well as providing donations and financial assistance to other non-profit sporting bodies in the immediate area. Other sporting activities are also provided with facilities and financial assistance. 11. The club is involved in fostering sporting teams in the region which is under the control and management of the State governing body. 12. The club teams fall into the category of senior and junior teams. 13. Other Club activities include regular coaching clinics and education sessions at surrounding schools and provision of bursary to senior and junior players in the Club. 14. Although Sport A is the main sport the club promotes widely, the club also supports and encourages other types of sports. 15. The club provided sponsorships to various other sporting clubs and individuals. 16. In addition to direct financial assistance, the Club provides encouragement through the use of the Club’s facilities — club rooms, BBQ, food and beverage, awards, administrative support, and promotional materials. 17. Functions held in the Club premises are for fundraising activities of the clubs associated with the Club, and reunions and presentations of those clubs. Any other functions and activities undertaken by the Club are to attract new sporting membership and to provide income in order to achieve the Club’s objectives. The majority of visitors to the Club are attending these functions or having attended the athletic sport then meet in the club to discuss the games just completed. 18. In addition to its sporting activities the Club undertakes other social or commercial activities, from which it derives revenue and incurs expenditure, including: restaurant, sports lounge, café, bars and provision of entertainment. 19. The activities of the Club have not changed since its last private ruling. 20. Any surplus made by the Club is applied in improving and maintaining sporting facilities. 21. No distributions of profit are ever made to members and no employee who is also a member of the Club receives excessive remuneration. 22. Clauses 3 and 6 of the Memorandum of Association of the Club state: 3. 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 Memorandum of Association and no portion thereof shall be paid or transferred directly or indirectly by way of dividend bonus or otherwise howsoever by way of profit to or amongst the members of the Club. Provided that nothing herein contained shall prevent the payment in good faith of interest to any such member in respect of moneys advanced by him to the club or otherwise owing by the club to him or of any remuneration to any officers or servants of the Club to any member of the Club or other persons in return for any services actually rendered to the Club… 6. If upon winding up or dissolution of the club there remains, after satisfaction of or its debts and liabilities any property whatsoever the same shall not be paid to or distributed among the members of the Club but shall be given or transferred to some other institution or institutions having objects similar to those of this Club being similarly exempt from income tax and which shall prohibit the distribution of its or their income and property among its or their members to an extent at least as great as is imposed on the Club under or by virtue of Clause 3 hereof such institution or institutions to be determined by the members at or before the time of the dissolution or in default thereof by the Chief Judge in Equity of the Supreme Court of the State or such other Judge of that Court as may have or acquired jurisdiction in the matter and if and so far as effect cannot be given to the aforesaid provision then to some charitable object. 23. The Articles of Association of the Club state: …Any profits or other income of the Club shall be applied only to the promotion of the purposes of the Club and shall not be paid to or distributed among the members of the Club. … 24. Regular promotional literature is prepared with an emphasis on the Club’s support of sporting activities, including game timetables. This includes radio, website and social media platforms for advertising sporting events.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section 50-45 table item 9.1(c) | Income Tax Assessment Act 1997 section 50-70 Summary | The Club is exempt from income tax as a club established for the encouragement of a game or sport as described in item 9.1(c) of section 50-45 of the ITAA 1997 because it is a club whose main purpose is the encouragement of a game or sport and it satisfies the special condition. | Detailed reasoning | Section 50-1 of the ITAA 1997 exempts from income tax a society, association or club established for the encouragement of a game or sport described in item 9.1(c) of the table in section 50-45 of the ITAA 1997. | A sporting club is exempt from income tax if: | ● it is a society, association or club, | ● it is established for the encouragement of a game or sport, | ● that encouragement is the club's main purpose, and | ● it satisfies the special conditions. | Society, association or club | The entity must be a ‘society, association or club’. This term is not defined in the ITAA 1997 and therefore is 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. | The members of the Club are bound by its constitution including its objects which state that the purpose of the Club is to promote and carry on Sport A and other sports. The members of the Club voluntarily associate together for his common purpose and interest. | It is 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 sporting club is regarded as being established for the encouragement of a game or sport. Paragraph 11 of TR 97/22 provides guidance on the meaning of ‘encouragement’. | ‘Encouragement' means 'stimulation by assistance', according to the Macquarie Dictionary . It is essential that the encouragement of a game or sport is the main or dominant purpose of a club. 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 ability 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; and | can occur indirectly: | ● through marketing; or | ● by initiating or facilitating research and development | The Club conducts activities directly related to sport by organising, hosting and participating in sporting events at the local and state level, providing referees and other officials at these events and coaching and entering teams and competitors in competitions. | The Club provides sponsorships for various other sports such as. The Club is also involved in the encouragement of sports through the coaching of clinics at schools and encourages increased participation through its marketing of the sport. | The Club is carried on for the encouragement of a game or sport. | That encouragement must be the club's main purpose | Paragraph 13 of TR 97/22 provides: to be exempt, the main purpose of the club must be the encouragement of a game or sport. | Paragraph 15 of TR 97/22 lists the following features as being highly persuasive in supporting 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; | ● The sporting activities encouraged by the club are extensive; | ● The club uses a significant portion of its surplus funds in encouraging the game or sport; and | ● The club's constituent documents emphasise the club's main purpose is to encourage a game or sport and the club operates in accordance with those documents. | Paragraph 16 of TR 97/22 specifies other factors that are relevant but less persuasive to determining purpose, including whether the persons controlling the direction of the club and whether voting rights vest in those persons concerned with participating in or encouraging sport. | Paragraph 41 of TR 97/22 explains that difficulties can arise in determining the club’s main purpose where the club conducts other activities, particularly social or commercial activities. TR 97/22 elaborates at paragraph 42 stating that where the club conducts other activities, particularly social or commercial activities, which are merely ancillary or incidental or secondary to the encouragement of the game or sport, we accept that the main purpose may still be that of encouragement. Lockhart J in Cronulla Sutherland Leagues Club Limited v. FC of T 90 ATC 4215 at 4225; (1990) 21 ATR 300 at 312 ( Cronulla Sutherland case ) 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.' | This view was also elaborated on in Terranora Lakes Country Limited v. FC of T 93 ATC 4078; (1993) 25 ATR 294: | ‘Hill J concluded that: ….while social activities ….were very extensive and could clearly be seen as an end or perhaps as ends in themselves, those activities were…pursued as a means of financing the extensive sporting activities conducted by the club.’ (at ATC 4086-4087;ATR 304). | The Club displays all of the features listed in paragraph 15 of TR 97/22 as being highly persuasive of supporting its contention that the encouragement of sports is the club’s main or dominant purpose. It also displays features mentioned in paragraph 16 of TR 97/22 in relation to its controlling Board and member’s voting rights. | The Club does however undertake other social and commercial activities. ERLFC has significant revenue from bar trading, poker machines, catering, Keno, TAB, functions and social/ promotions. The sports revenue is relatively marginal and from 2014 – 2016 the sport trading account shows a net deficit/loss. | Paragraph 54 of TR 97/22 explains one indicator of purpose is when the club uses a significant proportion of its surplus funds in encouraging its game or sport. ‘As noted by Lockhart J in Cronulla Sutherland at ATC 4226; ATR 313,’…the potential of [a club] to apply its surplus funds for purposes having nothing to do with the encouragement or promotion of [a sport or game] is a significant matter’. What is important is the way such funds are used and the activities that are financed by the club.’ | We are satisfied that the Clubs’ social and commercial activities are pursued as a means of financing the extensive sporting activities conducted by the Club and that its main purpose is the encouragement of a game or sport. | Special conditions | Section 50-47 of the ITAA 1997 | 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 . | Broadly, an entity that can be registered as a charity with the Australian Charities and Not-for profits Commission (ACNC) is an ‘ACNC type of entity’. The Charities Act 2013 (CA) sets out the requirements to be a charity. Section 12 of the CA provides purposes that are ‘charitable purpose’, and includes purposes such as advancing education and advancing health. The promotion of sport is not a charitable purpose. The Club has sporting and social purposes which are non-charitable purposes. As such, the Club is not capable of being a registered charity, and is not an ACNC type of entity. | Section 50-47 of the ITAA 1997 does not apply to the Club. | Section 50-70 pf the ITAA 1997 | A club will satisfy the special condition in section 50-70 of the ITAA 1997 if it: | ● is not carried on for the profit or gain of its individual members, | ● has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia, | ● complies with all the substantive requirements in its governing rules, and | ● applies its income and assets solely for the purpose for which it is established. | The Club satisfies the special condition as explained below. | Not carried on for the profit or gain of its individual members | Paragraphs 9 and 10 of TR 97/22 explain the non-profit requirement. | ● 9. A club must not be carried on for the purposes of profit or gain to its individual members | ● 10. A club's Memorandum and/or Articles of Association or other constituent documents should contain a prohibition against a distribution of profits and assets among members while the club is functional and on its winding up. Alternatively, a club satisfies the test if the law governing its activities prevents the club from making distributions to members. The club’s activities should conform to the prohibition. | Paragraph 22 of TR 97/22 explains that we accept a club as being non-profit where, for example, the Constitution of the club includes a non-profit clause and dissolution clause. | The constituent documents of the Club are its Memorandum of Association and Articles of Association. The Articles of Association provides that any profits or other income of the club shall be applied only to the promotion of the purposes of the club and shall not be paid to or distributed among the members of the club. The Memorandum of Association provides that the income and property of the club must be applied solely to its objects and not distributed to members except as payment in good faith for services rendered, etc. The Memorandum of Association prohibits distribution of the Club’s income and property to its members upon dissolution. The income and property shall be transferred to similar institutions having similar objects to the Club. | The Club has met the non-profit requirement. | Physical presence in Australia | The Club is a resident of and is located in Australia. The Club pursues its objectives and carries on its activities in Australia. The Club has a physical presence in Australia and to that extent pursues its objectives and incurs its expenditure in Australia. | Complies with all the substantive requirements in its governing rules | The supporting evidence provided shows that the Club complies with all the substantive requirements in its governing rules. | Applies its income and assets solely for the purpose for which it is established | The supporting evidence provided shows that the Club applies its income and assets solely for the purpose for which it is established.