Private ruling: Income Tax Exemption
Date of advice: 31 October 2017
Published: March 2018
Ruling period: Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021 | Year ending 30 June 2022 | Year ending 30 June 2023 | Year ending 30 June 2024 | Year ending 30 June 2025 | Year ending 30 June 2026 | Year ending 30 June 2027
Date scheme commenced: 1 July 2017

Ruling: Q1: Is the Club exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (‘ITAA 1997’) as an association established for the encouragement of a game or sport pursuant to item 9.1(c) of the table in section 50-45 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: The Club is a company limited by guarantee. The intention in establishing the Club was and has remained that of providing and improving Sport X and other sporting facilities for the resident of E and nearby suburbs. The Club was incorporated and it acquired all the assets and liabilities of the unincorporated Club and its objects. The Club’s facilities include: ● Four sporting fields and associated facilities (change rooms, meeting rooms etc.) ● Restaurant ● Bistro ● Bottle shop ● electronic gaming machines The Club uses a great deal of voluntary labour. Many members work long hours to enable the Club to make a surplus which is used to further the Club’s objects via promotion of athletic sports including lawn bowls. The Club conducts many activities to promote Sport X, indoor sports, recreations, games etc. The financial resources of the Club are used to develop and maintain its sporting facilities including four sporting fields and associated facilities (change rooms, meeting rooms etc.). The Club had to spend a considerable sum on not only maintaining but also improving its sporting and associated facilities as well as to maintain and increase membership. Thus any surplus made on the years trading is being reinvested into the Club’s sporting fields and premises and to provide working capital. The Club has provided the following documentation: ● An updated copy of the Club’s Constitution. ● Copies of two Annual Reports and accounts as presented to the Annual General Meeting. Details of activities undertaken to encourage or promote lawn bowls and other sports The Club has a full time sports Co-ordinator solely responsible for the promotion and encouragement of Sport X. He is a level 1 National coach and passes his knowledge on to new and current members by holding coaching days for groups as well as private coaching lesson for those who are looking to improve their game. The Club continues to appoint a current member of the Australian Sport X team to assist the sports Co-ordinator with the day to day running of sports and tournaments for the Club. He also provides valuable coaching advice for members and has a major role in the marketing and promotion of Sport X. To engage the local sporting community and partly the wider community, the Club has engaged a marketing person who has key job prerequisites including to further the sports at local schools. This incorporates the creation of junior coaching clinics at the Club, regular visitations to junior and secondary schools. The Club provides sponsorship to many sport and community organisations. The Club supports many sports and encourages the use of its facilities for meetings, fund-raising, social events, presentations, etc. These facilities are available to other sporting and community groups. The sub and inter Clubs use the Club’s facilities free of charge. The functions held in the Club are for fundraising activities of the clubs associated with the club such as reunions and presentations for those clubs. Any other functions and activities undertaken by the Club are to provide income in order to achieve the Club’s objectives as previously stated. For some of the sporting clubs, the licenced Club underwrites these functions. The majority of the visitors to the Club are attending these functions or having attended an athletic sport (such as Sport X conducted on the four bowling greens located at the Club) then meet in this Club to discuss the games just completed. Promotional Literature A bi-monthly magazine is prepared for members and visitors detailing club news and along with upcoming bowls and social events. Social activities It is stated that all the Club’s activities revolve around the sporting activities and any other social activities are merely incidental to the sport. The functions in the Club are only a minor activity in comparison with sports promotion and in any event they are functions which members expect to be conducted in their Club. The social activities are undertaken to attract new sporting membership and to provide financial support to the sporting activities. Any surplus made by the Club is being applied in improving sporting facilities. Membership The non-Sport X members would be involved with the other inter clubs fostered and promoted by the Mother Club. Persons who are members of these sporting organisations are members of the licenced Club. The annual financial reports have been provided. Constitution Objects The Clubs objectives are set out in clause 2 of the Memorandum of Association. The first six of which are: (a) To promote Sport X and other indoor sports, recreations, games, pastimes and amusements. (b) To construct, conduct and maintain sporting fields and all or any such other grounds, buildings or structures for the purpose of the game of bowls or any or all such other sports, recreations, games, pastimes or amusements as the Company may determine. (c) To construct, established, furnish, conduct and maintain a clubhouse and such other conveniences for the accommodation of members and their friends as the Company may determine. (d) To take over or otherwise acquire all of the assets and liabilities of an unincorporated association or club known as the Club and to assure and carry on the functions and objects of such association or club. (e) To lease the grounds, clubhouse, and premises or any part or parts thereof, or any rights or privileges in connection herewith, to any person or persons, body or bodies of persons, corporate or unincorporated, upon such terms and conditions as the Company may determine subject to any limitation contained in the Registered Clubs Act. (f) In furtherance of the objects of the Company, to promote, establish, conduct and carry out any sports, tournaments, entertainment or amusements, or to cooperate with any person or persons or body or body of persons, corporate or unincorporated in promoting, establishing, conducting or carrying out the same and to provide trophies and prizes in connection therewith. Non Profit Clause A Non-profit clause is set out in clause 7: “The income and property of the Club shall be applied solely towards the promotion of the objects of the Club as set forth in this Memorandum. No portion of the income or property of the Club shall be paid or transferred directly or indirectly by way of dividend bonus or otherwise by way of profit to the members of the Club.” Winding up Clause A winding up clause is set out at clause 5 of constitution of the Memorandum of Association states: If upon winding up or dissolution of the Club there remains after satisfaction of all its debts and liabilities any property whatsoever the same shall not be paid to or distributed amongst the members of the Club, but shall be given or transferred to a Club having similar objects to this Club. Categories of Members Classification of club members is found in Rules 1, 4 and 5 of the Articles as follows: 1. “Full Member” means a person who is an Ordinary member or Life member of the Club 4. The membership of the Club shall be divided into the following categories: (a) Ordinary members (b) Life members (c) Honorary members (d) Temporary members (e) Provisional members. 5. Ordinary membership of the Club will consist of the following classes or classifications: (a) Sport X members (b) Non-Sport X members (c) Junior members (d) Such other class or classes of membership as the Board may from time to time determine.” The requirements for each class of ordinary members are in Rule 6: 6. (a) “ Sport X” shall mean a person who having been elected a Sport X Member shall have paid the entrance fee (if any) and the applicable annual subscription or a person deemed to be a Sport X Member pursuant to paragraph (a) of Article 3. A Sport X Member shall be entitled to all the playing and social privileges and advantages of the Club and shall be entitled to attend and vote at any meeting of the Club. A person deemed to be a Sport X Member pursuant to paragraph (a) of Article 3 shall be deemed to have paid the entrance fee (if any) and the annual subscription for the then current financial year. (c) “Non Sport X Member” shall mean a person who having been elected a Non Sport X Member shall have paid the entrance fee (if any) and the applicable Annual Subscription. A Non Sport X Member shall not have the right to propose or second a member for election to the Board or stand for election to the Board. Non Sport X Members shall not have the right to vote on any Special Resolution to change the Memorandum or Articles of Association of the Club. (d) “Junior Member” shall mean a person under the age of eighteen years who satisfies the Board that he or she has an interest in taking an active part in the sporting activities of the Club on a regular basis and from whose parent or guardian the Board receives written consent to that person becoming a Junior member of the Club and taking part in the sporting activities of the Club and who in the opinion of the Board is suitable to be admitted as a Junior member of the Club. A Junior member shall be entitled to such of the playing privileges of the Club as the Board may determine and shall be entitled to only use such of the facilities of the premises of the Club in respect of which the Club holds an authority pursuant to Section 22 of the Registered Clubs Act specifying those parts of the Club as being a dining area or a non-restricted area. A Junior member shall not be entitled to attend or vote at any meeting of the Club or participate in the management of the Club in any way. The conditions for Life Membership are stated in Rule 7 as follows: (1)…Any Sport X Member or Non Sport X Member, who in either case has completed ten (10) years, or a total of fifteen (15) years in all, in aggregate in one or more capacities serving on the Board of the Club or on a Board sub-committee of any sub-club or section of the Club] may be nominated for Life Membership by two (2) members each of whom is a Sport X Member or a Life Member (a long service nomination). (8) A Life member is, subject to the other provisions of the Club’s Constitution: (i) entitled to all of the rights, privileges and advantages of a Sport X member (ii) subject to the other provisions of this Constitution (iii) a member for life, and (iv) not required to pay any annual subscription. Rules 8 and 9 refer to Honorary members and Temporary members who are not entitled to certain privileges of an Ordinary member or life member. Voting Rights Clauses on voting rights are found in Rules 20 and 21 of the Articles as follows: 20. (a) Only the following members shall be entitled to attend and vote at any meetings of the club: (i) Sport X Members (ii) Non Sport X Members (iii) Life Members (b) Every member when eligible to vote shall be entitled to vote both on a show of hands and on the taking of a poll and shall have one vote. (c) No member of the Club who is also an employee of the club shall be eligible to vote at any meetings of the club. 21. No member shall be entitled to be present or vote at any meeting of the club or to be elected or appointed to any office unless he shall have paid all or any entrance fees and annual subscriptions and all other moneys due to the club at the time of such meeting, election or appointment. Board Membership Eligibility for membership to the Board of Directors is defined in Rule 29: 29. (a) ….only Life members and the following financial members shall be entitled to stand for and be elected to the Board (i) Sport X members (ii) Senior Sport X members (iii) Non-Sport X members.” (b) There shall not be more than two (2) Non-Sport X members on the Board at any time. (c) A Non-Sport X member shall not be entitled to stand for or be elected or appointed as the Chairman, Senior Vice Chairman, Vice Chairman or Finance Director.

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 Reasons for decision | While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | The Club is exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society, association or club established for the encouragement of a game or sport under item 9.1(c) of section 50-45. Detailed reasoning | A society, association or club which has been established for the encouragement of a game or sport under item 9.1(c) of the table in section 50-45 of the ITAA 1997 is exempt from income tax under section 50-1 of the ITAA 1997. | The exemption is subject to the special conditions under section 50-70 of the ITAA 1997 being met. Subsection 50-70(1) states: | “An entity covered by item…9.1…. 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. | In the present case, the Club was incorporated as a company limited by guarantee with over 5,000 members and has been conducting its activities permissible under its objects. It is not disputed that it is a club. | The Club has a physical presence in Australia, incurs its expenditure in Australia and pursues its objects in Australia. Hence, the special condition in paragraph (a) of subsection 50-70(1) is satisfied. | Taxation Ruling TR 97/22 Income tax: exempt sporting clubs covers the circumstances under which a club is regarded as being established for the encouragement of a game or sport. | Paragraph 7 of Taxation Ruling TR 97/22 provides that for a club to be exempt from income tax under section 50-45 of the ITAA 1997, it needs to satisfy three tests: | 1) It cannot be carried on for the purpose of profit or gain to its individual members; | 2) It must be for the encouragement of a game or sport, and | 3) That encouragement must be the club's main purpose. | Test 1 – Not carried on for the purpose of profit or gain to its individual members | Paragraphs 9 and 10 of TR 97/22 provide: | 9. A club must not be carried on for the purpose 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… | Paragraph 23 of the TR 97/22 provides: | 23. Where the law or constituent documents do not prohibit distributions, it a is a question of fact in case as to whether the club is not carried on for purposes of profit or gain to the individual members…Where it is clear from the objects, policy statements, history, activities and proposed future directions of the club that there will be no distributions to members, we accept that the non profit test has been satisfied. | Application to the Club | Clause 7 of the Memorandum of Association of the Club prohibits the distribution of any income or property of the Club by way of dividend, bonus or otherwise to or among members of the Club. | This excludes payments made in good faith to members for services rendered to the club or the payment in good faith of interest to any member or other person in respect of any services rendered or any materials or goods supplied. | Clause 5 of the Memorandum provides that on dissolution of the Club, any property whatsoever remaining after the satisfaction of all debts and liabilities must be transferred to another club having similar objects. | The Club was incorporated as a company limited by guarantee and has been conducting its activities permissible under its objects. It is not disputed that it is a club. | Taking into account the above non profit and dissolution clauses, we are satisfied that the Club is not carried on for the profit or gain of individual members. | Test 2 - It must be for the encouragement of a game or sport | Paragraph 11 of TR 97/22 provides: | 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 competitions in the game of 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, increasing and wider participation and improved performance | And can occur indirectly: | ● Through marketing; or | ● By initiating or facilitating research and development. | Application to the Club | The Club enters teams in many and varied competitions held throughout the year. | Coaching advice is provided to participants by the Bowls Coordinator. | It can be seen from the above that the Club conducts activities directly related to sport by organising hosting and participating in sporting events. | We accept that the club is carried on for the encouragement of a game or sport. | Test 3 - 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 of sport; | ● The sporting activities encouraged by the club are extensive; | ● The club uses a significant portion of its surplus funds in encouraging the game of 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 | Relevant but less persuasive features are listed at paragraph 16 of TR 97/22 and include: | ● A high level of participation by members in the game or sport; | ● The members of the committee, or persons who control the direction of the club are predominantly participants in or concerned with the encouragement of the game or sport (as distinct from the day to day management of the club; | ● Voting rights in the club vest only in members involved in encouraging the game or sport, whether by personal participation or by encouraging participation by others; and | ● The club promotes itself to patrons and the public as one encouraging the game or sport, and its advertisements and publicity emphasise the game or sporting facilities provided | Paragraph 14 of TR 97/22 also states: | A club's main purpose can only be ascertained after objectively weighing all of the club's features described in paragraphs 15 and 16. The presence or absence of a feature may not conclusively determine that the club's main purpose is or is not the encouragement of a game or sport. | Difficulties can arise in determining a club's main purpose where the club conducts other activities, particularly social or commercial activities. | Where a 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 ) 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. | Where the main purpose becomes the carrying out of those other activities, a club is not exempt. Nor is it exempt if it continues to be involved in the game or sport to a substantial degree but is equally involved with another purpose or purposes. As Lockhart J said in Cronulla Sutherland at ATC 4225; ATR 312: | But if it has two co-ordinate objects, one of which is outside the exemption, the exemption cannot apply because it would be impossible to say that one object is the main or predominant object. | Therefore, the fact that a sporting club also encourages social and other activities does not, in itself, preclude the club from being exempt. The club is still exempt provided the encouragement of a game or sport is the club's main purpose however conversely if the club's main purpose is providing social amenities and licensed club facilities to its members, the exemption does not apply even if sport is encouraged. | In Terranora Lakes Country Club Limited v. FC of T 93 ATC 4078; (1993) 25 ATR 294 ( Terranora ), the country club provided and promoted an extensive range of sporting activities including golf, lawn bowls, cricket, and football. The Club also had extensive social facilities that were used by the members and a large number of visitors. In the most recent year reported in the case, 90.3% of the Club’s income came from poker machines, bar trading and catering but only 16.9% was spent on sporting activities. | The Court ruled in favour of the taxpayer and concluded that the main purpose of the Club was the promotion of athletic sport and not one established for the purpose of carrying on a business of gambling, provision of entertainment and food, and the selling of time-share units. Hill J concluded that while the social activities of the club were extensive and could be seen as ends in themselves, these activities were pursued as a means of financing the extensive sporting activities conducted by the Club. | In St Mary's Rugby League Club Limited v. Federal Commissioner of Taxation 97 ATC 4528; 36 ATR 281 ( St Mary's ), Hill J found that the significant social activities of a sporting club were acceptable if the club was formed principally for sport and if the sport was financed by the social activities. It was acceptable that in that case that only 20% of the funds earned by the social club were spent on football. Hill J stated the importance of the Club’s constitution which stated that the principal aim of the club was the support of local football and that a large amount of the Club’s activities were sport related. It was also important that the Club’s history centred around the support of local football, and that the Club rules required a certain proportion of its funds support local football. | Application to the Club | 1. Highly persuasive features: | a) The club conducts activities in the relevant year that are directly related to the game of sport | It has been established that the Club conducts activities directly related to the game of X. It does this by organising, hosting and participating in competitions. | b) The sporting activities encouraged by the club are extensive | The only sporting activity conducted by the Club is the game of Sport X, however the sporting activity is of such a scale that it would be classified as extensive. The Club has four fully maintained sporting fields which are extensively used for the promotion of Sport X and many zone and other competitions are held at the Club. | Further to this, the Club pursues and promotes the game of bowls with a similar intensity to that observed in St Mary's , where Hill J observed (at 97 ATC4534): | …..But although income is derived from the social activities and the football activities constitute an outgoing, there is an intensity of activity directed towards football which tips the balance in favour of the applicant. The history of the Club is one of close association with rugby league from its inception and again points to the correct characterisation as being one for "the encouragement or promotion' of rugby league. | The club enters pennant and other competitions at a significant cost to the club. Furthermore, its historical and current activities indicate a strong and continuing association with the game of X. | c) The club uses a significant proportion of its funds in encouraging the game of sports. | Paragraph 54 of TR 97/22 provides: | The club should use a significant proportion of its surplus funds in encouraging its game or sport. As noted in Lockhart J in Cronulla Sutherland as 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. | In Terranora , Hill J concluded (at ATC 4.86-4087; ATR 304): | ….while the 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. | In this instance, the activities of the Club involve both social and Sport X activities and both of the activities are extensive. An analysis of the Club's financial statements reveal the percentage of income derived from Sport X is small compared to income derived from other activities and a loss from bowls trading for each of those years. These losses are made up for by trading income from other areas such as gaming and bar trading activities. | Although both the social and sporting activities are extensive in this case and the majority of the profits of the Club came from social trading activities, particularly gaming activities, we note that the Club’s social activities are pursued for the purpose of financing the sporting activities. | d) The club's constituent documents emphasise that the Club's main purpose is to encourage a game or sport. | In St Mary's at 97 ATC 4534 Hill J observed: | The Memorandum of Association records the significance of rugby league as the major object of the club. The Articles of Association both in the membership categories and in the conferring of control upon football members (or life members) point to the significance of the football activities over the social activities. | The constituent documents of the Club have a total of 25 objects. The first 6 of these objects are directly related to conducting, promoting and participating in the game of Sport X and other sports. The remaining objects relate primarily to the administration of the club. To this extent we are satisfied the Club's constitution lends itself to the conclusion that the Club is primarily established for the purpose of conducting sports. | This finding is further strengthened by the fact that only Sport X members can fill positions on the board, and only financial members can attend and vote on all matters at general meetings. | 2. Relevant but less persuasive features: | a) High level of participation in sport encouraged by the club. | In the 2017 income year approximately 3% of the Club's members are Sport X members. This contrasts significantly with other cases where the Courts have been favourably persuaded by the number of members participating in sport: | ● In St Mary's case, 2257 of its 6648 members were football members (players and ex-players). The club fielded 32 teams of 450 players plus a reserve grade and a metropolitan cup team. | ● In the Terranora case, 2854 of 4076 members were sporting members | ● In Re Tweed Heads Bowls Club v FC of T 92 ATC 2087; (1992) 24 ATR 1068 (Tweed Heads), 830 of its 920 members were bowling members. | ● In Case W114 (Grand United Port Macquarie Bowling Club v. F.C. of T) 89 ATC 891, 1353 of its 2476 members were bowling members. | Notwithstanding the proportion of Sport X members, the Club has provided evidence that it promotes and encourages the game of Sport X to its non-Sport X members and is able to provide coaching to new players. The Club's extensive involvement in Sport X activities and the extent of its facilities that are devoted to the game of X is noted. | b) The members of the committee, or persons who control the direction of the club are predominantly participants in or concerned with the encouragement of the game or sport (as distinct from the day to day management of the club). | Rule 29 of the Club's governing documents states that Life members, Sport X members and Non-Sport X members will fill the positions on the Board. However, there shall not be more than two Non-Sport X members on the Board at any time. Further, Non-Sport X members are not entitled to stand for or be elected or appointed as the Chairman, Senior Vice Chairman, Vice Chairman or Finance Director. It is therefore accepted that the Board of Directors of the Club are predominantly participants in or concerned with the encouragement of sport. c) Voting rights in the club vest only in members involved in encouraging the game or sport whether by personal participation or by encouraging participation by others. | Only Sport X members of the Club are given full voting rights. While Non-Sport X members are entitled to vote at the election of the Board, their rights are restricted. Non-Sport X members do not have the right to vote on any Special Resolution to change the Memorandum or Articles of Association of the Club. | d) The club promotes itself to patrons and the public as one encouraging the game or sport, and its advertisements and publicity emphasise the game or sporting facilities provided. | The Club bi-monthly, magazine is prepared for members and visitors detailing the club news and along with up and coming bowls and social events. | The Club also provides information on upcoming events through its website. | Special conditions – section 50-70 of the ITAA 1997 | The Club has a physical presence in Australia, incurs its expenditure in Australia and pursues its objects in Australia. Hence, the special condition in paragraph (a) of subsection 50-70(1) is satisfied. | Comply with all substantive requirements in its governing rules | Taxation ruling TR 2015/1 Income tax : special conditions for various entities whose ordinary and statutory income is exempt sets out the Commissioner’s view on the meaning of the special conditions set out in subsection 50-70(2), and provides the following meaning of “substantive requirements”: | 18. The “substantive” requirements in an entity’s governing rules are those that define the rights and duties of the entity. | 19. The substantive requirements in an entity’s governing rules include rules such as those that: | n give effect to the object or purpose of the entity | n relate to the non-profit status of the entity | n set out the criteria for admission as a member of an entity | n require an entity to maintain a register, and | n relate to the winding-up of the entity. | 21. The governing rules condition is applied on a continuous basis throughout an income year. The entity must consider whether at all times throughout the income year, it has complied with all of the substantive requirements in its governing rules. In order for an entity to be exempt from income tax for all of an income year, it must (among other things) satisfy the governing rules condition at all times during an income year. While an entity is in breach of the governing rules condition, its ordinary and statutory income will not be exempt from income tax. (Footnotes removed) | The 2015/2016 annual report of the Club demonstrates that the Club has applied its income and assets solely for its established purpose and complies with all the substantive requirements in its governing in the 2015/2016 year. | While the Club continues to apply its income and assets solely for its established purpose and complies with all the substantive requirements in its governing rules it is accepted that this condition is satisfied. | Relevant Case Law Analysis | In Cronulla Sutherland the Full Federal Court held that a professionally managed leagues club was not entitled to exemption from income tax as a sporting club under section 23(g)(iii) of the Income Tax Assessment Act 1936 (ITAA 1936). The leagues club provided extensive social facilities including bars, restaurants and an auditorium for live shows and discos. It had as one of its objectives: | To establish, equip, furnish and maintain a Club for the benefit of members and to promote social, sporting and educational undertakings for the advancement and benefit of members. | Lockhart and Beaumont JJ held, in separate judgements that the main or predominant object of the leagues Club was to provide the facilities of a licensed club. Lockhart J stated at 90 ATC 4226: | In my opinion the encouragement and promotion of rugby league football and the provision of amenities of a social club for its members are two objects or purposes of the appellant. Neither is correctly described as ancillary or incidental to the other or as necessarily independent of the other. The two objects and purposes overlap to some degree. The main object or purpose is the provision of the social amenities to its members, not the encouragement or promotion of rugby league football. | In St Mary's case the major object of the club was rugby league. Other objects of the club were concerned with liquor trading and refreshments. Hill J observed at 97 ATC 4533 - 34: | The social activities of the Club are significant, both financially and in number. They cannot be ignored. But the evidence persuades me that while the social and gambling activities of the club are significant in their own right, they are nevertheless subordinate to the activities of the Club in encouraging and promoting rugby league football in the St Mary's area, particularly among children. | The present case differs from the Cronulla-Sutherland case in a number of respects. It will be recalled that there were two clubs in the Cronulla-Sutherland area. One devoted to the pursuit of football and the other, the Cronulla-Sutherland Leagues Club which assisted in financing the football club but which, in all the circumstances was found to be a members or social club rather than a club existing primarily to support or encourage football. The appellant in Cronulla-Sutherland had no football team. It organised no competitive football at all. It's only connection to football were the grants which it made to the football club and the provision of facilities to that club. | … | In the present case each of the matters said by Lockhart J in Cronulla-Sutherland to be significant, namely "constitution, activities, history and control" point to the characterisation of the club as one having its main object or purpose "the encouragement or promotion" of rugby league within the meaning of section 23(g)(iii) of the Act. The Memorandum of Association records the significance of rugby league as the major object of the Club. The Articles of Association both in the membership categories and in the conferring of control upon football members or (life members), point to the significance of the football activities over the social activities. The activities of the club involve both social and football activities. Were this not so then, no doubt, the case would not be before the Court. But, although income is derived from the social activities and the football activities constitute an outgoing, there is an intensity of activity directed towards football which tips the balance in favour of the applicant. The history of the club is one of close association with rugby league from its inception and again points to the correct characterisation of as being one for the "encouragement or promotion" of rugby league. In Tweed Heads , the taxpayer was a lawn bowls club which had one indoor and four outdoor bowling greens. The Club participated in and organised a large number of tournaments each year. The Club building was substantial and the catering and entertainment facilities were extensive. The Club's main source of revenue was derived from poker machines which were used predominantly by the 400,000 annual visitors to the club. | In a judgement by Dr P Gerber at 92 ATC 2099 he stated: | …I am satisfied that the club, from its very inception, has been and is dedicated to a very substantial degree to the promotion of lawn bowls and, latterly, to indoor bowls. True it is that some elements of the Club's activities – leaving the poker machines aside for the moment – are social and cannot, as such, be characterised as "promoting the athletic game of bowls", but that is true of virtually all sports clubs. Be that as it may, I am left in no doubt that the Club has, as its main or dominant purpose, the promotion and encouragement of the bowling. | That leaves the issue of the poker machines, which earn substantial revenue, only a relatively small proportion of which was, in the years before me, used for bowling. In the Vernacular, the club has money pouring out of its ears and doesn't know what to do with it all. So what? Provided its main object is the promotion of bowls, the fact it also produces repetitive strain injury (RSI) in some 400,000 non bowling poker machine players while at the same time emptying their pockets seems to me to be utterly irrelevant. | The case Terranora Lakes involved a club (incorporated in 1964) whose objects included the promotion of games and pastimes and the acquisition of land to be used for recreational purposes. The club had approximately 4,000 members and provided extensive social facilities including bars, restaurants, a poker machine area and an auditorium for concerts and dancing. It owned a clubhouse, playing fields, a sports ground and sporting complex, and it held a controlling interest in a time share resort. | The club promoted various sports operated by internal clubs, including cricket, clay target shooting, tennis, golf, touch football, softball, deep sea fishing, and horse riding. However the club also promoted its extensive social activities, attracting approximately 1000 visitors per day. The Club derived 90.3 % of its revenue from its poker machines, bar trading and catering. | It was held that having regard to the activities of the club as conducted in the year of income, it was one established for the purpose of the promotion of athletic sport and not one established for the purpose of carrying on a business of gambling, provision of entertainment and food, and selling of time share units. | In a judgement by Hill J at 93 ATC 4086 – 4087 he stated: | Clearly each case will depend upon its own facts. If the social activities have become and end in themselves, as was the case in Cronulla Sutherland , it will be necessary to see whether that end has become the predominant purpose for which the Club is established in the year of income. However, in the present case, I have reached the conclusion that, while the social activities (by which I include the gambling, entertainment, dining and accommodation activities) were very extensive and could clearly be seen as an end, or perhaps as ends in themselves, those activities were, I am satisfied, pursued as a means of financing the extensive sporting activities of the club. Thus, I am of the view that, having regard to the activities of the Club as conducted in the year of income, the Club was in that year, one established for the promotion of athletic sport and not one for established for the purpose of carrying on a business, or business of gambling, provision of entertainment, selling of time share units or the provision of food. | In the present case, the Club can be distinguished from the Cronulla-Sutherland case because the constitution of the Club clearly distinguishes the sporting activities of the Club as its main purpose. This is unlike the Cronulla Sutherland case where neither of the two objects or purposes was described as ancillary or incidental to the other. | The facts of this case are more in line with the facts of St Mary's, where the constitution, activities, history and control of the Club point to the characterisation of the Club as having its main object or purpose as being the encouragement or promotion of a sport. | As per St Mary's, Tweed Heads and Terranora , the social facilities of the Club are noted as extensive however this does not preclude a conclusion that on a weighing of the features, the main purpose of the Club is the promotion and encouragement of a sport. | Conclusion | Based on the information the Club has presented and having regard to the criteria provided by TR 97/22, we accept that on balance the main purpose of the club is the encouragement of a game or sport pursuant to item 9.1(c) of the table in section 50-45 of the ITAA 1997. | The features of the Club leading to this conclusion are summarised as follows: | ● the Club conducts extensive activities directly related to sport by organising, hosting and participating in Sport X events at various levels, by coaching and entering teams and competitors in different levels of competition; | ● the Club's constituent documents emphasise its main purpose is to promote and encourage sport, and it operates in accordance with those documents; | ● Whilst the Club's social activities are also extensive, it uses a significant portion of the surplus funds generated from those activities to promote and encourage its sporting activities; | ● the Club provides substantial sporting facilities for the benefit of its members; and | ● the Club's constituent documents ensure through control of the Board of directors that it is controlled by persons with a sporting involvement. | We note that the Club's social activities are extensive however an analysis of the facts shows that the surplus from those activities is used to fund sporting activities. It is therefore accepted as in St Mary's , that the social activities are in part undertaken to provide funds for the encouragement of bowling activities. | While there is not a high level of participation by members in the sport of X, this feature is not so dominant so as to disqualify the Club from obtaining an exemption. | Other factors indicate that the club's main purpose is the encouragement of the sport of X include: | ● the spending of the Club’s fund in maintaining and improving its sporting associated facilities | ● the engagement of a full time Sport X Co-ordinator solely responsible for the promotion and encouragement of lawn bowls | ● the appointment of a current member of the Australian Sport X team to assist the Sport X Co-ordinator with the day to day running of bowls and tournaments for the Club. | ● the conducting of coaching clinics for members of the Club and other clubs whether they are new or experienced Sport Xers. | ● the provision of sponsorship to a number of sporting organisations in a considerable sum in the 2014 to 2016 income years. | ● the history of the Club is one of close association with Sport X from its inception. | ● the support of many sports in the region and encouragement of the use of the Club’s facilities for meetings, fundraising, social events, presentation, etc. | Consequently, we accept that the Club is not carried on for the gain of individual members, and is established for the encouragement of a game or sport, and the encouragement of a game or sport is its main purpose pursuant to item 9.1 (c) of the table in section 50-45 of the ITAA°1997. It is therefore exempt from income tax under section 50-1 of the ITAA 1997 in the years to which this ruling applies.


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