Private ruling: Income Tax Exempt Status
Date of advice: 3 August 2016
Published: September 2016
Ruling period: 1 July 2016 - 30 June 2017 | 1 July 2017 - 30 June 2018 | 1 July 2018 - 30 June 2019 | 1 July 2019 - 30 June 2020
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the Entity 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 animal racing pursuant to item 9.1 of section 50-45 ITAA 1997? | A1: Yes

Relevant facts and circumstances: This ruling is an application for an extension of a previous Private Binding Ruling which provided that the entity was 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 the sport pursuant to section 50-45 of the ITAA 1997 and meets the special conditions of paragraph 50-70(a) of the ITAA 1997 of having a physical presence in Australia and incurs its expenditure and pursues its objectives principally in Australia. The applicant states that the circumstances have not changed since the original application. The activities of the organisation are not for profit, its object is to promote the sport in Australia, and through an agreement with the controlling body of the sport it has entered into a deed with the individual clubs to have the sole rights to manage the activities stated in the objects clause.

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)

Reasons for decision: Summary: The Entity is entitled to income tax exemption under section 50-45 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society, association or club established for the encouragement of animal racing pursuant to item 9.1(a) in the table in section 50-45 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: An animal racing club which has been established for the encouragement of animal racing and which is not carried on the purposes of profit or gain to its individual members is exempt from income tax in accordance with item 9.1(a) of the table in section 50-45 of the ITAA 1997. Clubs that promote animal racing are not covered by Taxation Ruling TR 97/22 Income tax: exempt sporting clubs . However, the guidelines in the Ruling could apply to animal racing clubs in determining income tax exemption. For an animal racing club to be exempt from income tax under section 50-45 of the ITAA 1997 it needs to satisfy three tests: • it cannot be carried on for the purposes of profit or gain its individual members • it must be for the encouragement of animal racing • that encouragement must be the club's main purpose. | Detailed Reasoning - Non-profit requirement: The club must not be carried on for the purposes of profit or gain its individual members. The club's constituent document must contain clauses that prevent it from distributing its profits or assets among members on a daily operational basis and on its winding up. This provision must also be reflected in its activities. The Entity is a proprietary company limited by shares. However, the company is aware of its non-profit responsibilities. Its constitution states that no share will entitle the holder to dividends or distributions or to participate in distribution of assets upon winding up of the Entity. The company also has a separate non-profit clause. Similarly, the winding up clause requires that any surplus be transferred or applied for the benefit of some other club having objects similar to the objects of the Company and which is established for the encouragement of animal racing, including the participating racing clubs. The Entity meets the non-profit requirement. | Detailed Reasoning - Encouragement of animal racing: Item 9.1(a) of the table in section 50-45 specifically exempts a society, association or club established for the encouragement of animal racing from income tax. On the ATO website information can be found in relation to income tax exempt sporting organisations: | Detailed Reasoning - Animal racing: The income tax exemption includes horse racing, trotting and greyhound racing, and the racing of other animals. Go to ato.gov.au and search for QC 46347. The Entity was established to manage some aspects of animal racing in Australia by acting as a representative body for the racing clubs in that State that wish or intend to participate in the collective negotiation of some arrangements. The precise terms and conditions of the licence entered into between the Entity and the relevant racing clubs will vary. However, each licence deed will define the scope of rights that will be granted to the Entity in relation to: • the subject matter of the licence (including any rights retained by the relevant racing clubs) • scope of permitted sub-licences • the terms of the licence deed and • the consequences for certain events of default occurring. The licence deed also contains the formula by which the Entity calculates the amount of any surplus funds that are required to be paid to the racing clubs. The Master Service Agreement between the Entity and an associated body will ensure that funding will be available to cover the salaries of key personnel of the Entity to enable them to perform their relative functions under the licence deed arrangements with the racing clubs. | Detailed Reasoning - Primary objectives: The primary object of the Entity is for the encouragement and promotion of races through the conduct of activities stated in its constitution. The day to day activities of the Entity include management of the aspects of racing, acting as a representative body for participating racing clubs, coverage of race meetings conducted by racing clubs and provision of information regarding those race meetings. The Entity is established for the encouragement of animal racing. The applicant has stated that none of the circumstances have changed since the original Private Binding Ruling issued and on this basis the main purpose of the entity continues to be established for the encouragement of animal racing. | Detailed Reasoning - Conclusion: Section 50-1 of the ITAA 1997 provides that the incomes of the entities covered by the tables in sections 50-5 to 50-45 of the ITAA 1997 are exempt from income tax. An entity is exempt from income tax as a society, association or club established for the encouragement of animal racing pursuant to item 9.1(a) of the table in section 50-45 of the ITAA 1997 if it: • is a society, association or club, • is established for the encouragement of animal racing, and • satisfies the special condition. The Entity is a society, association or club and is established for the encouragement of animal racing. In addition, it satisfies the special condition and is therefore exempt from income tax for the years ended 30 June 20XX until 30 June 20YY.

Facts as stated in TDMS Private Ruling case: The Entity was registered in 2005 as a proprietary company limited by shares. It is governed by a constitution. | The objects of the Entity are stated at Clause 2 of the Constitution. | The Company has capital of XX ordinary shares of which YY are issued to and held by different entities. | The Constitution stipulates (clause 4.3) that no shares will entitle the holder to: | • Any dividend or other distribution of profits of the Company | • Participate in any distribution of the assets of the Company upon winding up in excess of the paid up value of the shares. | To this end, the constitution also contains a suitable non-profit clause and dissolution clause. | Other Relevant Comments from TDMS Private Ruling case: The Entity has submitted a (draft) Service Agreement with an associated body whereby that body will agree to provide funding to them: | • to cover costs associated with the establishment and incorporation (clause 3.1 of the Service Agreement) | • a non-repayable grant from the an Advancement Fund to conduct the business of the Entity for the sole purpose of carrying out its sole object of encouraging and promoting sport in Australia | • to cover the cost of employing suitably qualified persons as managing director and financial controller (clause 3.3) | • as non-repayable grants or interest free loans as requested by the Entity and agreed between the parties (clause 3.4). | Under the Service Agreement, the associated body will provide the Entity with the administrative facilities and services required by them in order to carry on its business for the advancement of animal racing. | There will be a separate Licence Deed between the Entity and each of the racing clubs that will give the Entity exclusive rights to disseminate, commercially exploit and otherwise use the Rights for the term of the licence. There is an option to extend the term for a further ten years. | The Licence Deed requires that the racing club be a non-profit organisation established for the purposes of promoting animal racing.