Private ruling: Tax exempt entity
Date of advice: 28 July 2020
Published: August 2020
Ruling period: 1 July 2019 to 30 June 2020 | 1 July 2020 to 30 June 2021 | 1 July 2021 to 30 June 2022 | 1 July 2022 to 30 June 2023
Date scheme commenced: Already commenced.

Ruling: Q1: Are you as trustee for your Trust exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an association or club established for the encouragement of a game or sport as described under item 9.1(c) in the table of section 50-45 of the ITAA 1997? | A1: Yes .

Relevant facts and circumstances: The Trust was established by a Trust Deed with you as The Trustee. The Trust Deed has been amended since its inception. The Trust was established to promote the growth and development of sport by providing money, property, benefits or funds for the Beneficiaries. There have been no material changes to the activities or circumstances of the Trust since the last Private Ruling. The Trust Deed and Supplementary Deed Poll of Variation have not changed since the previous Private Ruling. There has been no change in the objectives and activities of the Trust. The promotion and encouragement of sport continues to be the Trust's main purpose. There have been no material changes to the Trust Deed since the previous Private Ruling. The following notes from the Deed are the key clauses for consideration. Aim of the Project The aim of the project is to support the growth and development of sport via financial support. The funds raised will be utilised to provide financial support for the growth and development of the sport through scholarships, apprenticeships, medical, gymnasium and training equipment and player and facilities development. The Trust's activities You receive grants and donations from a variety of sources. The Trust Deed provides that income received can be used to support the sport promote the growth and development of young and identified athletes participate in the sport. The overall objective is to increase the strength and participation numbers of the sport. This includes utilising players and coaches to promote the sport and be actively involved in development programs such as facility rent support, purchase of capital equipment, scholarship and apprenticeship programs for identified young players and specialist medical and psychological programs for participants. Contributions are used by the Trust to promote the sport via an active lifestyle in the local community. The aim of the Trust is to have the ability to make distributions to its beneficiaries as it has done in previous years. You have made a commitment to support various entities. The Trust has not undertaken any other activities other than promote the sport. Non-distribution of surplus to Members In accordance with the Trust Deed, any profits or other income of the Trust shall be applied only to the promotion of the purposes of the Trust and shall not be paid to or distributed among the persons other than a beneficiary of the Trust. Dissolution clause An Article of the Trust Deed requires any surplus property on winding up is to be transferred to another entity with similar interests not carrying on a profit or gain of its members. Fundraising Strategy The day-to-day activities of the Trust are sourcing donations from benefactors together with investing the funds to generate income to distribute to the beneficiaries. Annual report The Trust's latest Report and accounts show that the distributions were made to the Trust's beneficiaries.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section 50-45 | Income Tax Assessment Act 1997 section 50-70 | Income Tax Assessment Act 1936 paragraph 23(h)

Reasons for decision: Summary: A society, association or club which has been established for the encouragement of a game or sport under item 9.1(c) in the table of section 50-45 of the ITAA 1997 is exempt from income tax under section 50-1 of the ITAA 1997. The encouragement of sport is not only the participation in sporting activities but also includes the direct involvement by the club in coaching, player development, player payments, providing team equipment, involvement in sport administration bodies, organising teams and providing referees or umpires and having awards for champion players. For an entity to be exempt from income tax under section 50-45 of the ITAA 1997, it needs to satisfy three tests, and the special conditions of section 50-70 of the ITAA 1997. The three tests are covered in Taxation Ruling TR 97/22 Income tax: exempt sporting clubs (TR 97/22) as follows: · it cannot be carried on for the purposes of profit or gain to its individual members · it must be for the encouragement of a game or sport, and · that encouragement must be the club's main purpose. Paragraph 8 of TR 97/22 states that where an entity does not satisfy all three requirements, it is not exempt from income tax under section 50-45 of the ITAA 1997. | Detailed Reasoning - Non-profit: Page 3 of the ATO guide, Tax basics for non-profit organisations provides the following in relation to non-profit requirements: A non-profit organisation is an organisation that is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up. Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members. We accept an organisation as non-profit where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. These documents should contain acceptable clauses showing the organisation's non-profit character. The Trust Deed contains an acceptable non-profit clause which prohibits distribution of income or property to its members. There is also an acceptable winding up clause which requires that any surplus property on winding up to be transferred to another institution that has similar objects, prohibits distribution of income and property to its members and its income is exempt under Division 50 of ITAA 1997. Therefore, you meet the non-profit requirements test in TR 97/22. | Detailed Reasoning - Encouragement of a game or sport as main purpose: Taxation Ruling TR 97/22 Income tax: exempt sporting clubs (TR 97/22) provides the Commissioner's view on what constitutes an exempt sporting club. Paragraph 11 of TR 97/22 states that it is essential that the encouragement of a game or sport is the main or dominant purpose of a club. Paragraph 11 of TR 97/22 states: 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 abilities 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. Your purpose is to accept donations and other contributions for the purpose of providing money, property or benefits to or funds for the beneficiaries. Your only aim (as stated in the Trust Deed) is to promote the sport by providing financial support. You will achieve this by fundraising strategies such as pledging programmes. The funds raised will be utilised to provide financial support for the growth and development of the sport through scholarships, apprenticeships and funding of equipment and facilities development. You have satisfied these two tests in TR 97/22 by demonstrating its main purpose in encouraging the sport. | Detailed Reasoning - Special Conditions for items 9.1: Subsection 50-70(1) requires that to be exempt from income tax, an entity covered by item 9.1 of the table in section 50-45 must be a society, association or club that is not carried for the purposes of profit or gain of its individual members (the non-profit requirement) 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 a resident. and the entity satisfies the conditions in subsection (2). The Trust Deed prevents the distribution of profits or assets among members while it is functional or upon its winding up. The Trust is not carried on for the profit or gain of its individual members. You are located and carry on your activities in Australia such as incurring expenditure and pursuing your objectives for the benefit of the sport. Therefore, you satisfy the special conditions pursuant to paragraph 50-70(1)(a) of ITAA 97 by having a physical presence in Australia. Pursuant to subsection 50-70(2) of the ITAA 1997 an entity must: (a) comply with all the substantive requirements in its governing rules; and (b) apply its income and assets solely for the purpose for which the entity is established. at all times during that year (refer to paragraphs 14 and 22 of Taxation Ruling TR 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt ). The Trust is involved in the promotion of the sport as well as applying the income and assets solely for the purposes for which it was established and complies with the substantive requirements of its governing rules. A review of your Financial Reports supports the view that you have applied the income and assets solely for the purposes for which it was established and complies with the substantive requirements of its governing rules. Therefore, you satisfy the special conditions under subsection 50-70(2) of the ITAA 1997. | Detailed Reasoning - Conclusion: You are exempt from income tax as you satisfy the requirements to qualify as a society, association or club which has been established for the encouragement of a game or sport as described under item 9.1(c) in the table of section 50-45 of the ITAA 1997. This exemption is subject to you continuing to meet the conditions contained in subsection 50-70(2) of the ITAA 1997.