Private ruling: Mutuality Principal
Date of advice: 1 April 2026
Published: 9 June 2026
Ruling period: Year ended 31 December 20XX | Year ending 31 December 20XX | Year ending 31 December 20XX | Year ending 31 December 20XX | Year ending 31 December 20XX | Year ending 31 December 20XX
Date scheme commenced: 1 January 20XX

Ruling: Q1: Is the methodology used by the Club for the apportionable revenue and expenses acceptable for the purpose of determining its assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and allowable deductions under section 8-1 of the ITAA 1997? | A1: Yes.

Relevant facts and circumstances: Background The Club is a not for profit (NFP) company limited by guarantee. The Club operates a number of venues. The Club is not a registered charity and is not income tax exempt entity under section 50-1 of the ITAA 1997. Operations The principal activities include the provision of sporting, social and entertainment activities and amenities to the members of the Club from conducting the business of licensed clubs. Members pay an annual membership fee. This fee entitles members to discounted food and beverages, venue hire, access to sporting facilities and equipment, tickets for entertainment and events and various other discounts on offerings across multiple venues. In addition to membership fees, the Clubs sources of revenue are derived from the operation of the venues. The Club derives a small amount of revenue from investments. Attendees at these venues include: (i) Full Members as described in the Constitution. (ii) Partial members, as described in the Constitution. (iii) Guests of Members, as described in the Constitution and other visitors. Guests of Members are able to attend venues and make various purchases when signed in and accompanied by a member. For all practical purposes, the Club does not treat its venues as separate clubs. All venues share common leadership team and back-office support functions such as marketing and finance. Additionally, members are not able to choose to be a member of a specific venue. A membership automatically grants member benefits across all venues. The Clubs key advertising materials focus on the benefits of membership allowing access to benefits across all the venues and it relies on this business practice to distinguish itself in the market and to provide benefits to its members. Attendance The Club tracks receipts from members and visitors as follows: • On entry into a venue, all attenders are required to register at a counter to indicate their membership status by showing their membership pass and swiping in. Visitors are provided a temporary pass for the day. One venue operates a manned counter whilst the other venues operate an electronic machine that relies on attendees independently signing in. Members have access to all venues and receive discounts and other benefits at all venues. • The Club collects this data via the sign-in and collates the data for use in preparing financial statements and tax lodgements. • When purchasing at a venue, all members and guests will swipe their membership card to report membership status on payment at the Point of Sale (POS). • When hiring facilities or equipment at a venue, all attendees will report their membership status on payment at the POS. • Gaming winners are tracked at the machines, which requests a membership card to be inserted prior to use. Non-members are provided a blank card in order to access the machine. • Some benefits and events are only available to members. Attendance History In the relevant years, attendance across the venues have remained constant. There is no expectation that the business will change significantly and attendance is expected to remain constant for the foreseeable future. Constitution The Club is governed by its constitution. The Constitution provides the relevant not-for-profit clauses that states its objects and purposes and relevant governing clauses. The Constitution provides relevant clauses for the committee of management and for membership. Financial Information The Club is not tax exempt and is taxable at the company tax rate under the Principle of Mutuality. The Club historically claimed the member's proportion of its receipts as mutual receipts and non-members proportion as ordinary income. The Club is able to track and determine amounts derived directly from members and reports accordingly Expenses directly incurred in the course of deriving mutual receipts are treated as non-deductible. Due to its nature, all other income and expenses are considered 'apportionable income' and 'apportionable expenses' in line with the ATO guidance. For these amounts, the Club calculates its 'non-member income' percentage based on the 'Waratahs formula' apportionment method. For completeness, the Club observes that in the course of preparing this private ruling request, the Club has identified the percentages calculated using Waratahs formula for some venues may not accurately reflect the attendance split between members and non-members. The Club is currently undergoing an internal review process to confirm. Proposed Treatment The Club proposes to determine its assessable income and allowable deductions as follows: • Where the Club is able to specifically identify the source of its income to be attributed to members (revenue from mutual dealings), it is appropriate to consider these amounts mutual receipts, and thus NANE. • Where the Club is able to specifically identify the source of the income to be attributed to non-members (eg: revenue from trading activities relating to non-members), it is appropriate to consider these amounts assessable income. • All other income i.e. revenue from training activities relating to members and non-members not directly attributed to a particular source of income should be considered 'Apportionable revenue' and the assessable income calculated using Waratahs formula. • The Club proposes to adopt the Waratahs formula for all venues of the Club to calculate the assessable income attributable to apportionable income on the basis it represents reasonable non-member percentage. • Expenses follow the treatment of the income they are attributed to. The Club submits the apportionment methodology used is reasonable and appropriate in its circumstances. Apportionment Methods The Club makes receipts from the sales of goods and services to both members and non-members. Waratahs Formula The Waratahs formula is used from " The Waratahs" Rugby Union Football Club v Federal Commissioner of Taxation (1979) 37 FLR 413 (Waratahs Case). The Club uses Waratahs formula to determine the assessable income attributable to apportionable income and expenses i.e. revenue and expenses of trading activities relating to members and non-members of its venues on a stand-alone basis. The Club calculates the percentage and then is applied to the Club's apportionable revenue and expenses to arrive at the assessable and deductible components. The Club maintains a count of total visitors for the year of income. The Club submits their proposed methodology reflects the four principles from Class Ruling CR 2015/7 Income tax: assessability of income and expenses incurred by clubs and societies co-ordinated by the University of Sydney Union and provides a reasonably accurate reflection of its apportionable income and expense for the following reasons: (i) It is difficult to identify in precise terms income and expenses from members and non-members, in accordance with the reasoning in Waratahs Case. (ii) The Club has one membership, which enable members to access all venues. Applying the Waratahs formula to its smaller venues separately with lower overall attendance results in an allocation percentage that is not reasonable or accurate, due to the higher average number of subscribed members. (iii) The Club represents itself as one club, which is reflected in the shared leadership and management, back-office teams, including marketing and accounting teams and coordinated events across venues. Members cannot elect to only be a member of one venue as the Club's membership automatically provides access to membership at all venues. (iv) There is a high cost of compliance associated with applying different non-member proportions to income from different venues. Given the additional work does not produce a non-member proportion that is more accurate or reasonable in the Club's circumstances. (v) The Club notes the attendance split between Members and Visitors in each of the venues for the relevant year is largely similar. However, there are significant differences in the Waratahs formula result. Based on visitation statistics from the previous three years it can be observed that the proportion of members to non-member for each venue is largely the same or similar across the venues in previous years. However, application of Waratahs formula to each venue separate yields significantly different results. This appears to be a result of the lower attendance rate of the small venues compared to the main Club, despite the average membership figure remaining constant. Accordingly, the Club submits that calculating Waratahs formula separately yields a result that does not reflect reality. Accordingly, the Club contends that the apportionment methodology used previously, being an aggregated Waratahs formula calculated across all venues, reasonably and accurately reflects the club's income and expenses. Future Years Given the stable nature of the Club, its operations and its location, this is unlikely to change. The Club notes there is no significant departure from the apportionment derived from this methodology historically. Given the nature of the Club and its activities, the Club does not anticipate any significant variations in the future. Further, should vastly different numbers be generated for each entity, the Club would elect to use a different method, or reapply for a revised ruling. Information Provided The Taxpayer has provided us with copies of the following: • Private ruling application, • Constitution, including relevant attachments, and • Financial Statements.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 262A | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Summary: Yes, the Club's proposed use of the Waratahs formula is considered acceptable for the purposes of determining its assessable income under section 6-5 of the ITAA 1997 and allowable deductions under deductions under section 8-1 of the ITAA 1997. | Detailed Reasoning - Principle of mutuality: The principle of mutuality is based on the premise that you cannot derive income from yourself. The principle provides that where a number of people contribute to a common fund created and controlled by them for a common purpose, any surplus arising from the use of that fund for the common purpose is not income ( Bohemians Club v. Acting Commissioner of Taxation (1918) 24 CLR 334; [1918] HCA 16). Mutuality is limited in its application. It does not include 'any contributions to the fund derived from sources other than the contributors' payments, such as interest from the investment of part of the fund, or income from a business activity conducted by the members...' ( Revesby Credit Union Co-operative Ltd v. Federal Commissioner of Taxation (1965) 112 CLR 564 at 574). In Carlisle and Silloth Golf Club v. Smith [1912] 2 KB 177 it was held, that to the extent that the club received payment for green fees from non-members for the use of the club's golf course, that these receipts were from trading and were liable to tax in respect of profits attributable to non-members' green fees. There was mutuality between the club and the members however there was no mutuality between the Club and non-members ( RACV v. FCT (1973) 4 ATR 567 at 570). Thus, with clubs, societies and associations in circumstances where it can be established that the mutuality principle applies, mutual receipts from associated entities sharing a common purpose, contributing to a common fund have been found not to constitute ordinary income. Whereas receipts from outsiders who are not members are not contributing to a common fund, these amounts, provided they exhibit the characteristics of income are considered ordinary income and taxable under section 6-5 of the ITAA 1997. Taxation Determination TD 93/194 Income tax: how should a licensed club apportion expenses when calculating its taxable income? (TD 93/194) at paragraph 2 identifies expenses being: a) non allowable (non-deductible): as those that relate specifically to members such as members functions b) wholly allowable expenses (deductible): being specifically related to non-members (for example, non-member only promotions), expenses relating to wholly assessable income (such as investment expenses) and non-apportionable deductions including contributions to staff superannuation, where the Act provides for claims to be deductible in full, and c) partially allowable (apportionable): expenses which cannot be specifically identified as either member or non-member related, relating to both. The Club operates its premises and trading activities for both members and non-members, therefore expenses will be incurred in producing both assessable income and mutual receipts. In other words, there will be partly allowable or apportionable expenditure. Such expenditure must be apportioned on a reasonable basis. In this situation, the Club can choose a practical and suitable method of apportioning the expenses. The method will be acceptable provided: 1. There is a reason for apportioning the expenditure. 2. The method chosen is suitable for that type of expenditure. 3. The method chosen is reasonable and is not arbitrary. 4. It gives a correct reflection of the expenditure incurred. | Detailed Reasoning - Apportionment methods: TD 93/194 provides the apportionment of expenses between mutual and non-mutual activities of a licensed club. Paragraph 2 and 3 of TD 93/194 sets out the acceptable methodologies for allocating expenditure between mutual and non-mutual receipts, including a discussion on the 'reasonable basis method', as discussed below: Clubs may, for the purposes of calculating taxable income, adopt an alternative technique where there is a reasonable basis to do so (e.g. better recording system of member/non-member spending) and provided it reasonably and accurately reflects the club's income for the year in question. Before choosing one or more methods, it is important that you correctly identify whether an individual is a member or non-member as the separation of the apportionable items relies on this accurate identification. Apportionment methods include: a. simple methods b. the Waratahs formula, and c. other methods. The method (or methods) an organisation chooses must reasonably and accurately reflect its revenue and expenses. An organisation may use one or more methods to separate its apportionable items for the year in question. In determining a method of apportionment, consideration of a basis for such will only relate to those expenses which cannot be identified specifically as a member or non-member expense. The Commissioner provides guidance in relation to the appropriate method of apportionment for registered and licensed clubs which states: | Detailed Reasoning - Waratahs Formula: The Waratahs formula is a base formula for isolating member and non-member contributions to income of an organisation, and it simplifies the process for separating expenses that cannot be easily identified as either member or non-member. The formula is accepted as a reasonable basis for apportionment, particularly for registered and licensed clubs that can accommodate objectively obtained attendance-based data. The proposal is for the Club to use data analytics to capture the data required to complete the Waratahs formula as opposed to historical periodic surveys and other sample-based methods previously used by the applicant. The use of data captured from the core digital systems to determine the components of the Waratahs would, based on the facts, provide more reasonable and accurate data for the purposes of apportioning income and expenditure between members and non-members. If the appropriate data has been contemporaneously collected in the subject years enabling the Club to calculate more accurately apportionable assessable income under section 6-5 of the ITAA 1997, or deductible expenses under section 8-1 of the ITAA 1997, the Commissioner may amend prior year returns. This would apply from the start of the financial year in which new data analytics system was implemented. The Commissioner also accepts that it would be reasonable for the Club to apply the data analytics method to determine inputs for the Waratahs formula for future years to determine an accurate apportionment of member and non-member percentages of revenue and expenses. | Detailed Reasoning - Requirement to Apportion: Section 8-1 of the ITAA 1997 allows a deduction only to the extent that a loss or outgoing is incurred in gaining or producing assessable income. Where an outgoing is incurred partly in earning assessable income and partly for another purpose, apportionment is required. In Ronpibon Tin NL v FCT (1949) 78 CLR 47 ( Ronpibon ), the High Court held that: • where an outgoing serves both income-producing and other purposes, apportionment is required, and • the apportionment must be fair and reasonable based on the circumstances of the case. This case defines how section 8-1 of the ITAA 1997 operates where joint expenses arise. The legal test for fair and reasonable comes directly from Ronpibon . | Detailed Reasoning - Record-Keeping Obligations: Section 262A of the Income Tax Assessment Act 1936 (ITAA 1936) requires taxpayers to keep written evidence explaining all transactions relevant to their tax affairs. | Detailed Reasoning - Application to your circumstances: The Club is a not-for-profit company limited by guarantee and is not carried on for the purposes of profit or gain to its individual members. Its constituent documents prohibit the making of any distribution, whether in money, property or otherwise to members. The Club is a taxable entity that is required to lodge an income tax return. It derives apportionable revenue from dealings with both members (mutual) and non-members (non-mutual) income and incurs expenses that relate to the derivation of both assessable (non-mutual) and non-assessable (mutual) income. Accordingly, such revenue and expenses must be apportioned using a practical and suitable method that reasonably and accurately reflect the circumstances of the Club. The Club's financials statements demonstrated that its revenue streams and expenses relate to both mutual and non-mutual activities. Many expenditure items are inherently joint and cannot be directly allocated to either mutual or non-mutual activities. The Club maintains accurate records of non-members, members guests and member attendance, as required by the Waratahs formula. Consistent with ATO guidance, the Club recalculates the non-member percentage annually to ensure the apportionment reflects current usage patterns. In these circumstances, the Waratahs formula provides a structured and evidence-based method of apportionment grounded in objective attendance and visitor data. This approach is consistent with the principle in Ronpibon that expenditure must be apportioned so as to reflect the true relationship between the outgoing and the production of assessable income. The Waratahs formula is recognised as an accepted and reasonable basis for isolating member and non-member contributions where direct attribution is not possible, provided appropriate record keeping practices are maintained. When applied in accordance with its requirements, the formula produces a non-member percentage that can be consistently applied to both apportionable revenue and shared expense. Accordingly, the use of the Waratahs formula represents an acceptable method for allocating revenue and expenses between mutual and non-mutual components when calculating the Club's taxable income.