Private ruling: Income tax exemption
Published: February 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 31 March 2015

Ruling: Q1: Will the Company be exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a society association or club established for the encouragement of animal racing under item 9.1(a) of the table in section 50-45 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: The Company is a proprietary company limited by shares. The Australian Taxation Office has previously issued private rulings advising that the Company is exempt from income tax under section 50-1 of the ITAA 1997on the basis that it is a society association or club established for the encouragement of animal racing under item 9.1(a) of the table in section 50-45 of the ITAA 1997. The objects of the Company are concerned with the encouragement of animal racing The constitution contains acceptable non-profit and dissolution clauses. The Company provides services to the animal racing industry The Company has/will expand its activities to provide additional services to the animal racing industry The Company will amend its constitution to accommodate the new activities. The Company will also change its company structure, and will change its name

Relevant legislative provisions: Section 50-45 of the Income Tax Assessment Act 1997 | Section 50-70 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: To be an exempt entity under item 9.1(a) of section 50-45 of the Income Tax Assessment Act 1997 (ITAA 1997) an entity must be a society, association or club established for the encouragement of animal racing. | Detailed Reasoning - Society, association or club: The terms 'society', 'association' and 'club' are not defined in the ITAA 1997. In Pro-Campo Ltd v Commr. of Land Tax (NSW) 81 ATC 4270 Lee J said the following on the meaning of society, association and club: The three words "society, club or association" are words in frequent use in our community and societies, clubs and associations are well known entities… In Theosophical Foundation Pty Ltd v Commr. of Land Tax (1966-1967) 67 SR 70 … Sugerman JA stated at p.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.' ( Oxford English Dictionary ,…) A society as thus described, in which the common element pertains to areas concerned with religion, may aptly be described as a religious society." … The meaning of "society" as the Oxford English Dictionary 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 organisations are called "associations", others are called "societies" but no meaningful difference can be detected between the two… Although clubs can 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… (at 4728-4729) The Company is considered to be an association. Following the changes to its company structure and name, the Company will continue to be an association. | Detailed Reasoning - Encouragement of animal racing: The tax legislation does not provide a meaning for the term "encouragement". The Commissioner's view on the meaning of "encouragement" for the purposes of section 50-45 of the ITAA 1997 is provided in Taxation Ruling TR 97/22 Income tax: exempt sporting clubs , which states the following: 11. '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 competition in the game or sport • coordinating activities • organising and conducting tournaments and the like • improving the abilities of participants • improving the standards of trainers and coachers • 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 Features that are persuasive in supporting a conclusion that the main purpose of an association is to encourage animal racing include: • the association conducts activities in the relevant year that are directly related to animal racing • the animal racing activities encouraged are extensive • the association uses a significant proportion of its surplus funds in encouraging animal racing, and • the constituent documents emphasise that the main purpose is to encourage animal racing and the association operates in accordance with those documents The Commissioner of Taxation has previously accepted that the Company is established for the encouragement of animal racing. Following the proposed changes to its company structure and name, the Company will retain its constitution (as amended) and will undertake activities concerned with animal racing. The status of the Company as income tax exempt will not be affected by the proposed changes to its company structure and name. | Detailed Reasoning - Special Conditions: Section 50-70 of the ITAA 1997 provides that an entity covered by item 9.1 of section 50-45 of the ITAA 1997, is not exempt from tax unless: … the entity is a society, association or club that is not carried on for the purpose of profit or gain of its individual members and that: a) has a physical presence in Australia, and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or b) is a society, association or club that meets the description and requirements in item 1 of the table in section 30-15; or c) is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country in which it is resident. | Detailed Reasoning - Society, association or club: As discussed above, the Company is an association. | Detailed Reasoning - Non-profit: Taxation Ruling TR 97/22 states the following on the non-profit requirement: | Detailed Reasoning - 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. The constitution provides satisfactory non-profit and winding up clauses. | Detailed Reasoning - Physical presence in Australia: It is accepted that the Company has a physical presence in Australia and incurs its expenditure and pursues its objectives principally in Australia.