Private ruling: Income Tax Exemption
Date of advice: 28 August 2018
Published: October 2018
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the Club 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 a game or sport as described under item 9.1(c) of section 50-45 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: 1. The Club is a company limited by guarantee. History 2. The Club fielded a single team in a competition. Later, the Club fielded 3 teams in a competition. 3. The sporting teams fielded by the Club, were run by a committee of the Club. 4. The Club incorporated as a company limited by guarantee. 5. The Club acquired land the Club's headquarters (the Clubhouse) are on this land. 6. The sporting teams fielded by the Club were separated from the Club and incorporated as a single association. That association has since been deregistered and replaced by two entities (‘the entity’ and ‘the other entity’). Purpose 7. The Constitution sets out the Club’s objectives, which are to: i. Promote and assist generally in the promotion conduct and propagation of sport within the area under the control of the Club and to assist in the provision of training and conditioning and teaching facilities for sport. ii. Encourage assist and support sport in the district. iii. Provide for members and for members' guests a sporting and social Club with all the usual facilities of a Club. iv. Promote and conduct sports, games, amusements and entertainments, pastimes and recreations both indoor and outdoor. v. Construct, establish, provide, maintain and conduct playing areas and grounds and to construct, provide, establish, furnish and maintain club houses pavilions and other buildings containing amenities conveniences and accommodation. vi. Construct, maintain and alter any buildings or works for the purposes of the Club. vii. Raise money by entrance fees subscriptions and other member payments. viii. Promote and hold with any other association, club or persons competitions matches and sports and to offer, give or contribute towards prizes, medals and awards and to give or guarantee prize money and expenses and to promote give or support dinners, balls, concerts and other entertainments. ix. Subscribe to become a member of, and co-operate with any other Club, Association or organisation whose objects are similar to the Club. x. Acquire membership of an appropriate association so as to represent the Club for the purpose of promoting the interests of the Club and its social sporting and other activities. xi. Purchase and/or apply for certificates of registration and licences or permits or other authority for the purpose of selling and/or distributing alcohol, liquor, tobacco and cigarettes, and other supplies in addition to the operation of automatic machines. xii. Buy, prepare, make, supply, sell and deal in sporting equipment and provisions and refreshments. xiii. Purchase, take or lease, or acquire land, buildings, easements, rights of common or property real or personal which may be required to meet the objects of the Club. xiv. Make, draw, accept, endorse, discount and execute, and to issue transferable or negotiable instruments of any description. xv. Borrow, or raise, and secure the payment of money and to purchase, redeem, or pay off any securities. xvi. Lend money and to carry on the business of guarantors and to guarantee or become liable for the payment of money. xvii. Indemnify any person or persons who may incur or have incurred personal liability for the benefit of the Club. xviii. Invest and deal with the moneys of the Club and to sell or dispose of any securities. xix. Hire, employ and dismiss employees to pay them salaries, wages, gratuities or pensions. xx. To sell, improve, manage, develop, exchange, lease, mortgage, dispose of or account for property or rights of the Club except for items that are subject to a Certificate of Registration under the Liquor Act without the prior consent of the Authority. xxi. Take, or acquire and hold shares in any other company having objects similar to those of the Club or carrying on a business conducted to directly or indirectly to benefit the Club. xxii. Promote any company or companies for the purpose of acquiring all or any of the property rights and liabilities of the Club or for any other purpose which may seem directly or indirectly calculated to benefit the Club. xxiii. Sell or dispose an undertaking of the Club for a consideration the Club thinks fit, and in particular for shares debentures or securities, of a company having objects similar to those of the Club. xxiv. Insure against damage by fire or otherwise any insurable property of the Club and to insure employees of the Club in the course of their employment and to have insurance indemnifying the Club. xxv. Make donations as the Club thinks are either conducive to its objects or are expedient. 8. The Constitution provides a non-profit clause which states that the profits and income of the Club are to be applied to the promotion of the purposes for which the members of the Club are associated. Further, no payment of any dividends or distribution of profits or income to, or amongst, the members of the Club is to be made. 9. The Constitution provides a winding-up clause which states that if on winding up or dissolution of the Club there remains, after the satisfaction of all its debts and liabilities, any property it will not be paid to or distributed among the members but will be given or transferred to some other institution who have objects similar to the Club and which prohibits the distribution of income and property among its or their members. Membership and control 10. The Constitution list the Club’s membership classes. They are: ● Full Members ● Life Members ● Foundation Ordinary Members ● Perpetual Members ● Provisional Members ● Honorary Members ● Temporary Members. 11. Full Member includes Foundation Ordinary Members, Full Members, Life Members and Perpetual Members. 12. The Constitution provides that a registered player of the Club who has played a set number of Senior competitions is eligible for Life Membership. 13. Full members have voting rights. Each member entitled to vote at any meeting or election of the Club has one vote. 14. The Constitution does not give Provisional Members, Temporary Members, or Honorary Members any voting rights. 15. The Constitution states that the Club’s business and affairs is under the management of the Board. The Board is comprised of eight members all of whom are Directors of the Club. 16. The Constitution provides that the Board is elected annually by a ballot of full Members. 17. The Constitution sets out who is eligible for election to the Board. 18. The Club’s benefits of being a member include discounts and giveaways. 19. The Membership Booklet provided to members includes information on member benefits, entertainment, club grants made throughout the year and the notice of AGM. The Clubhouse 20. The Clubhouse overlooks an oval. Training and matches on the oval can be watched from the Clubhouse. 21. The Clubhouse facilities include a licenced bar and bistro, meeting rooms, a gaming room, a function room, sports betting machines, pool tables and video screens. It is also home to the Club’s administration offices. 22. The facilities are used by the Club to conduct regular fundraising events for the Club such as raffles, poker nights, meals, live music and sporting event telecasts. 23. The Clubhouse facilities are used by the two entities free of charge for meetings, match reviews, presentation nights and indoor training. 24. The Clubhouse meeting rooms are also made available to other sporting and community groups and charities free of charge, when asked. 25. The Clubhouse is also home to trophies, photographs, jerseys and other memorabilia celebrating the teams past and present. Sporting fields 26. The oval and surrounding playing fields are owned by a Council. The Club does not own any sporting fields. 27. The two entities use the oval and the surrounding playing fields to train and compete in competitions. The two entities hire the facilities from the Council with the help of Club funding. 28. The Club has contributed to funding improvements to the oval and surrounds (although the Club has not advised when the funding was given). In recent years the Club has contributed to the funding of a number of structures on the land owned by Council. The Club also provided training equipment housed within the change-rooms on the oval, infrastructure on the main pavilion and carpark sealing. 29. Recently, the Club applied for grants to fund upgrades to the oval’s facilities. 30. The form completed by the Club (for the upgrade to the oval’s facilities) states that the Club will provide funds and in-kind support to the project. 31. A form completed by the Club states that the Club has large loans and that the Club ‘cannot afford to donate any money to upgrade to the oval’s facilities besides the in-kind contribution’. The in-kind contribution will include: ● Wages of the Club’s employees working on the project ● Phone costs of the Club’s employees working on the project ● Water ● Power ● Internet Access ● Signage ● Consulting. 32. The Club will also work with the Council to maintain the facility, including inspection, repair and cleaning. This funding will include a maintenance staff member and a game day ground manager. 33. The form completed by the Club states that the Club will take the lead on the project, including managing the requisition and administration of funds and project governance. 34. In a letter from the Council (concerning the grant for upgrade to the oval’s facilities) the Council states that the Club is working closely with Council and if successful in securing a grant, Council will provide project management and Council will own the asset. Activities 35. The main activities of the Club for the encouragement of sport are the provision of funding and facilities to various sporting teams, in particular the two entities. 36. Contributions made by the Club ‘are always made to the sporting teams in the form of sponsorships/donations and cost disbursements’. 37. The Club has not fielded sporting teams in any competitions for a number of years. 38. The Club has provided the following information about the entity: ● It fields men’s teams as well as a women’s team. ● It is managed by a committee of volunteers headed by its President. ● It employs a coach ● It hires the oval to train and compete ● In addition to funding from the Club, it also receives corporate sponsorships and gate-takings. ● It’s address is the Clubhouse. 39. The Club has provided the following information about the other entity: ● It fields a number of under-age teams comprising approximately 300 children. ● It is governed by a committee of volunteers headed by its President. ● It hires the oval to train and compete in rugby league ● Its funds (other than funding from the Club) come from member subscriptions and profits from the operation of a canteen. 40. The Club also provides funding and in-kind support to a cricket club which shares training and home ground facilities with the two entities. The cricket club takes out Club membership for all its players. 41. The Club is entitled to a gaming machine tax rebate. 42. The Members’ booklet provides information about club grants (assistance and in-kind donations) made by the Club throughout the year. 43. The Club’s Financial Statements show that the Club had poker machine revenue and made donations. 44. A Club report states the Club’s principal activities and nature of operations have remained unchanged and are to provide Club facilities to members and guests and for provision of facilities and financial support to the one entity with the objective to grow business while maintaining the best facilities for members. The Club’s goal is to make the Club the best possible function venue in the area and to promote the venue to achieve more frequent function income. The Club measures its business performance by management’s ability to meet set budgets done by maintaining strategic planning. 45. Sporting teams and other groups must make a request to the Club (by letter) to receive funding and in-kind support. The Club’s Board must approve a request for funding to be released. 46. The Club’s has an annual target amount for cash sponsorship\donation to the entity. The Club aims to increase the target amount each year. 47. The Club has never had a year where a sporting club has not asked for funding. 48. The Clubs ‘In-kind contributions’ include organising fundraising nights such as ‘sportsman’s dinners’ for which guests pay a cover charge, providing catering and facilities for the event and absorbing these costs entirely. 49. In-kind contributions are similarly provided to the other entity and the cricket club. 50. The Club is not obliged to provide funding to the entity or the other entity, or to any other group. 51. Board meeting minutes show that the Club approved sponsorships for two sports groups and five non-sports groups (charities and special needs children). The Club also waived room hire fees for two sports groups and seven non-sport groups (charities and community groups). 52. Later board meetings minutes show that the Club approved sponsorships for four sports groups and two non-sports groups. The Club also refused sponsorships for one sports group and one non-sports group. The Club also waived room hire fees for three sports groups and six non-sport groups. 53. The Club also makes ad hoc contributions to other sporting groups and individuals. 54. The Club employees include three employees who each devotes part of their working time to matters related to the entity and the other entity. In the letter the Club states that two full-time employees devote 50 percent of their time to team administration while one part-time employee is devoted entirely to team administration. 55. One full-time employee’s duties include: ● Administration of the entity ● Procurement, administration and other co-ordination services ● Playing list management and recruitment ● Maintenance of player safety certification ● Timekeeping ● Player welfare ● Player discipline ● Development and implementation of marketing strategies: ● Event organisation and hosting ● Public relations ● Sponsor liaison ● Running water. 56. One full-time employee’s duties include: ● Insurance paperwork ● Player registrations ● Sponsorship invoicing and liaison ● Uniform design both on field and off field ● Timekeeping and various duties required on the day ● Event Hosting ● Player Clearances ● Oversee Functions ● Presentations after the games every week ● All treasurer related duties ● Email correspondences with the local competition administrators ● Game day preparations ● Attend all home games to ensure a smooth running of the day. 57. One part-time employee’s duties include: ● Maintain games played (by player) records ● Organising Functions – Season launches, fundraising dinners, sportsmans lunch, ladies day, presentations ● Website maintenance ● Player milestone celebrations ● In-house advertising ● Download weekly match schedules for display in Club foyer ● Upload team sheets and results ● Player clearances ● Best and fairest tallies ● Social media posts ● Photography at special events ● Compile video highlights of matches. 58. Tax office systems show that the Club has employees. 59. Surpluses (after sponsorships) of the Club are retained for reinvestment in the Club’s facilities, to allow the Club to generate future surpluses. 60. The Club has taken out new bank borrowings to upgrade the Club’s facilities. These improvements are to enhance the Club’s capacity to generate income. 61. The Club’s has secured loans. 62. The Club owns investment residential properties. 63. The purpose of owning the rental properties is to generate long-term rental yields and capital growth. 64. The Club holds a liquor licence. 65. The Club has TAB and Keno facilities as part of its current liquor licence. 66. The Club’s website has a prominent sporting club logo, provides sports information about the Club, including its history, and presentation awards, provides games information, links to the entity and the other entity’s websites, advertises merchandise and advertises the social activities and facilities of the Club, with web pages dedicated to social activities, function rooms and the restaurant

Relevant legislative provisions: Australian Charities and Not-for profits Commission Act 2012 | Charities Act 2013 | Gaming Machine Act 2004 (ACT) | Income Tax Assessment Act 1997, section 50-1 | Income Tax Assessment Act 1997, section 50-5 | Income Tax Assessment Act 1997, section 50-45 | Income Tax Assessment Act 1997, section 50-70 | Income Tax Assessment Act 1997, section 995-1

Reasons for decision: Detailed Reasoning - Detailed reasoning: Section 50-1 of the ITAA 1997 states: The total ordinary income and statutory income of the entities covered by the following tables is exempt from income tax. In some cases, the exemption is subject to special conditions. The tables referred to in section 50-1 of the ITAA 1997 are contained in sections 50-5 to 50-45 of the ITAA 1997. A society, association or club established for the encouragement of a game or sport is listed at item 9.1(c) in the table in section 50-45 of the ITAA 1997. The society, association or club must meet the special conditions detailed in section 50-70 of the ITAA 1997, and the special condition in section 50-47 of the ITAA 1997. An entity is therefore exempt from income tax as a society, association or club established for the encouragement of a game or sport if it: ● is a society, association or club, ● is established for the encouragement of a game or sport, and ● satisfies the special conditions. | Detailed Reasoning - Society, association or club: The term society, association or club is not defined in the ITAA 1997. The term is therefore construed according to the ordinary meaning of the words. In Douglas v. Federal Commissioner of Taxation 36 ATR 532; (1997) 77 FCR 112; 97 ATC 4722 reference was made by the court to the definitions contained in the Concise Oxford Dictionary for each of these terms. Society, association or club was accepted by the court as referring to a voluntary organisation having members associated together for a common or shared purpose. In Pro-campo Ltd. v. Commr of Land Tax (NSW) 81 ATC 4270; (1981) 12 ATR 26 the court considered the meaning of 'society, club or association'. The court stated at 4279: In Theosophical Foundation Pty Ltd v. Commr of Land Tax (NSW) [1966] 67 SR (NSW)…Sugerman JA stated at 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'… The meaning of "society" as the Oxford English Dictionary definition 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 organizations are called "associations", others are called "societies" but no meaningful difference can be detected between the two…Although clubs can in some respects and 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… The meaning of society, association or club as described above, emphasise a 'body of persons' and 'an organisation of people' with a 'common purpose'. The Club is a limited company which has a number of members. Clause 116 of the Constitution describes its objectives, they include: ● To promote and assist generally in the promotion conduct and propagation of the sport ● To encourage assist and support the sport at various levels in the area, and ● To provide for members and for members' guests a sporting and social Club with all the usual facilities of a Club. The Club is managed by a Board, it has a Constitution and the Club members voluntarily associate together for a common purpose and common interest. Therefore, the Club is considered to be a society, association or club. | Detailed Reasoning - Established for the encouragement of a game or sport: Taxation Ruling TR 97/22 Income tax: exempt sporting clubs (TR 97/22) describes the circumstances under which a society, association or club is considered to be established for the encouragement of a game or sport. Game or sport 'Game' and 'sport' are not defined in the ITAA 1997 and are therefore given their ordinary meaning. Paragraph 38 of TR 97/22 provides a non-exhaustive list of activities that are considered a 'sport' for the purposes of section 50-45 of the ITAA 1997. The constituent documents of the Club show that a purpose of the Club is to promote and encourage sport. To this end the Club provides funding and other support to the entity and the other entity. The Club also provides support to other sporting teams. The sport supported by the Club includes a sport for the purposes of item 9.1(c) of the table in section 50-45 of the ITAA 1997. Encouragement Paragraph 11 of TR 97/22 states that ‘encouragement’ means ‘stimulation by assistance’. 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 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 The Club undertakes the following activities to encourage sport: ● It provide funding to the entity and the other entity and other sporting clubs to enable those clubs to undertake sporting and related activities ● It employs people who are involved in the sporting and related activities ● It provides facilities for use by the entity and the other entity and other sporting teams, for example, rooms for indoor training, team meetings, reviews and presentations; and ● It funds and provides in-kind support to upgrades to the adjacent council owned sporting facilities as required by the sporting clubs. It will also contribute to the maintenance of the new facilities when completed. Main or dominant purpose To be exempt pursuant to item 9.1(c) of section 50-45 of the ITAA 1997, the main or dominant purpose of a club must be the encouragement of a game or sport. The test to be applied was stated by Lockhart J in Cronulla Sutherland Leagues Club Ltd v F.C. of T. 90 ATC 4215: For a society, association or club to qualify for the exemption… it must be one that has as its main object or purpose the encouragement or promotion of [a game or sport]. It 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. 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 (at 4225). To determine whether a club is established for a game or sport in a particular year of income, Lockhart J in Cronulla Sutherland Leagues Club Ltd v F.C. of T. (supra) stated: The material facts and circumstances which should be examined to characterise the main purpose of the relevant body include its constitution, its activities, its history and its control. These may alter from time to time and the purpose of establishment may correspondingly change. It is not sufficient to look to the formation of the body and to ascertain what was at that time the purpose of its formation. The statute gives a periodic operation to the words and directs the inquiry to a particular time, namely the year of income… (at 4225). TR 97/22 provides the following commentary regarding the ‘main purpose’ test: 41. To be eligible for the exemption, the club’s main purpose must be to encourage a game or sport. Difficulties can arise where the club conducts other activities, particularly social or commercial activities. 42. Where the other activities are merely ancillary or incidental, or secondary, to the encouragement of the game or sport we accept that the main purpose may be that encouragement. … 43. However, if the main purpose becomes the carrying out of those other activities, the 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… 44. Therefore, the fact that a sporting club also encourages social and other activities does not, of 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. By contrast, where the club’s main purpose is providing social amenities and licensed club facilities to its members, the exemption does not apply. TR 97/22 lists features of a club that the Commissioner considers either highly persuasive or relevant but less persuasive in identifying whether a club is established for the encouragement of a game or sport in an income year. 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. Paragraph 15 of TR 97/22 identifies the following features as highly persuasive features that support the conclusion that a club has the main purpose of encouraging a game or sport: ● the club conducts activities in the relevant year that are directly related to the game or sport ● the sporting activities encouraged by the club are extensive ● the club uses a significant proportion of its surplus funds in encouraging the game or sport, and ● the club’s constituent documents emphasise that the club’s main purpose is to encourage a game or sport and the club operates in accordance with those documents. Paragraph 16 of TR 97/22 identifies the following features as relevant but less persuasive features that support the conclusion that a club has the main purpose of encouraging a game or sport: ● 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 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. The following analysis of Block J in South Sydney Juniors v Federal Commissioner of Taxation 2006 ATC 2150 (South Sydney) is illustrative of the matters that should be considered in determining the ‘main purpose’ of a club. Block J concluded that South Sydney did not have the main purpose of encouraging a game or sport: It is clear that the undertaking of the Club was of very considerable size and magnitude. … The President’s Reports… indicate in clear terms that the Applicant was a very large and profitable undertaking and the Applicant was anxious to ensure that it remained so. As indicated previously the Applicant itself described its principal activity as the operation of a licensed club. Evidence to the effect that the Applicant was seeking to maximise its profits in order to benefit rugby league cannot be accepted in the light of the fact that the benefits were paid to many other recipients, and moreover because profits were retained in order to expand and diversify activities of the Club. I have referred previously to a statement in a report by the Club that the interests of members were paramount. The club even embarked on the provision of loans to members and that activity featured on the Club’s web-site… The only possible conclusion is that the Applicant had developed a life and an importance of its own. Put in other words it cannot be said that the support or encouragement of rugby league was a main object or even an object equal to that of the licensed club itself. To the extent that the Applicant now seeks to contend that the encouragement of rugby league was a principal activity, its own reports indicate otherwise. It must be remembered that the Applicant does not provide a field which it makes available for rugby league at a nominal cost or fee (and see Cronulla-Sutherland which did just that) and it does not field any teams itself (and contrast St Mary’s which did). The applicant did contribute annually to the maintenance of the Marcellan field where the cost involved on an annual basis was only $15000. It cannot be doubted that the seven directors of each of the Applicant and the Junior Football League were involved in rugby league, but there was no evidence (in contrast with St Mary’s ) that the members (or a substantial body of them) were interested in rugby league to any extent which was significant. The members of the Applicant may have been motivated by a desire to enjoy the numerous facilities and benefits provided by the Applicant ranging from gambling, entertainment and cheap meals to hotels, units, cruises and other outings… The Sporting Association was and is a separate entity and there is no basis in my view upon which its results can or should be consolidated. It will be remembered that it was set up as a separate entity purely for tax reasons, on the basis that all of its profit would be devoted to rugby league. Apart from any other considerations the profit of the Applicant was used in part for purposes apart from rugby league… (at 2176-2177) Constitution The objects of the Club include the promotion, conduct and propagation of sport; to encourage, assist and support the entity and the other entity and others; to provide for members and members’ guests a sporting and social club; to promote and conduct sports, games, amusements and entertainment; and, to raise funds. The objects are written so that all of the objects of the Club are ancillary to the sporting purpose of the Club. The Club states their principal activities are the provision of Club facilities to members and guests, and the provision of facilities and financial support to the entity. The Club also states that its objective is to grow the business whilst maintaining the best possible facilities for their members, and that the Club’s goal is to make the Club the best possible function venue in the area. The Club measures its business performance by measuring results against the financial year budgets. The General Manager’s Report and Presidents Report in the Club's Financial Reports, and the Club’s Strategic Plan also shows that an objective of the Club is to develop and improve its facilities, and provide the best possible facilities for its members. Although the objects of the Club are written so that the encouragement of the sport is its main purpose, with other purposes ancillary to that purpose, its other documents (including the annual report and Strategic Plan) show that providing social amenities to members is a separate purpose of the Club, and the Club undertakes several activities to that end. Activities The Club operates a clubhouse which overlooks sporting fields and pavilion owned by the Council. The facilities at the clubhouse include a licenced bar and bistro, a gaming room, sports betting machines, TAB, Keno, meeting rooms, a function room, administration offices and other entertainment for its members. The majority of the Club’s recent revenue came from bar and gaming activities, and much of its expenditure was incurred in generating revenue from the clubhouse. Financial statements show that the Club owns poker machines and that the value of its poker machines entitlements (intangible assets) increased. The Club does not have sporting teams and does not conduct sports activities in its own right. Rather, it provides funds and in-kind support (including sponsorship, cost disbursements and free use of the Clubhouse) to the entity and the other entity, and the cricket club to facilitate their sporting and related activities; the Club assert that without the funding the entity and the other entity would not be viable. Financial statements show that the Club paid donations of $XXX from their gross income in 2017. However, the Club advise that it made contributions (money and in-kind) of $YYY to the entity and the other entity and other sporting groups in 2017. The majority of The Club’s funding to sport is provided to the entity. The Club aims to provide at least $AAA to the entity each year. However, the entity and the other entity (and other groups) are required to make written requests for funding (which the board of the Club must approve). The amount of funding provided by the Club for sport (the sport, cricket or other) depends on the availability of funds in the Club at the time of the request. The Club intends for their sporting contributions to increase over coming years, but the amounts contributed will depend on the funding requests submitted. The Club is not obligated to provide financial or other support to the entity, the other entity or other sporting clubs; its constitution does not require funding to be given (other than its purposes) and there is no evidence of an agreement that requires the Club to provide the funding. The Club does not have its own sporting grounds, but the Clubhouse includes rooms which are used by the entity and the other entity for indoor training. The Club also provided training equipment that is housed at the oval. The Club does not maintain the council grounds or pavilions adjacent to the Clubhouse, but has assisted financially with upgrades to those facilities. The Club has recently applied for funding to further upgrade facilities at the oval, and will contribute to the maintenance of that facility when upgraded. The Club also provides the Clubhouse for use by the entity, the other entity and the cricket club free of charge. The entity and the other entity use the Clubhouse for administrative purposes, for team meetings, match reviews and other sporting functions (including award presentations). The Club also provides its meeting rooms free of charge to other sporting clubs who request it. The Club employed a number of people. Three of the employees provide assistance to the entity and the other entity to enable them to undertake sporting activities. The sports responsibilities of the three employees include the administration of the entity, player list management, game day preparations, player welfare and discipline, marketing, public relations, organising team functions, and others. Two employees work full time and dedicate 50% of their working day to the entity and the other entity. One employee works part time and dedicates their whole working day to the entity and the other entity. The Club displays sports memorabilia, celebrating the entity and the other entity, in the Clubhouse. The Club’s website has a prominent sporting club logo, provides game information, links to information regarding the entity, links to the other entity’s website and advertises merchandise. The Club’s website also advertises the social activities and facilities of the Club, with web pages dedicated to social activities, function rooms and the restaurant. The Club also advertises raffles and other competitions to raise funds for the Club with no mention that these are to support specific sports. The surpluses of the Club (after sport funding and support), are reinvested in the Club’s facilities to generate further income. The Club has bank loans. The Club also owns two investment properties. History The Club formed fielded teams in competitions up until XXXX. The sporting teams fielded by the Club were run by a committee of the Club. In XXXX, the Club separated its sporting teams from the Club and incorporated the teams as a single separate association. The Club did this to protect itself from liability for the debts of the sporting teams. The Club has provided support (funding or in-kind) to the sporting teams since XXXX. Since its creation the Club has always encouraged sport. Control The Club has members; the Club’s membership information (flyer and booklet) promote the Club’s social activities as the benefits of being a members. The Club has no sporting member category. Although a registered player of the Club who has played a set number of Senior competitions is eligible for Life Membership. An individual does not need to participate in sport to become a Full Member of the Club. All Full Members have voting rights in the Club. The Club’s constitution does not require Board members to be involved in sport, although, many of the current Board members have been involved in sport (including as players, coaches, team committee members, or manager). Control of the Club is not vested in members who have an interest in encouraging and promoting sport. Highly persuasive features in identifying whether a club is established for the encouragement of a sport The Commissioner considers that the following features of a club are highly persuasive in support of it being established for the encouragement of sport: ● it conducts activities that directly relate to sport, ● the sporting activities it encourages are extensive ● a significant portion of its surplus is used to encourage sport ● its constituent document emphasises encouragement of sport as its main purpose and its activities reflect that purpose. The Club undertakes activities that are directly related to sport; it provides funding and in-kind support for sport, it provides its Clubhouse facilities for use by sport (and other) teams, and employs staff that are involved in sport activities. However, the Club does not field teams in competitions, does not run competitions or tournaments, does not coach players, does not provide referees, and does not have sporting fields for use by teams. The teams supported by the Club undertake extensive sport activities, but these activities cannot be attributed to the Club (despite it providing funding), as the teams are operated independently of the Club. In 2017 38% of the Clubs after tax surplus was used to fund the activities of the entity and the other entity and in 2016 44% was used. The sport funding is significant, but it is dependent on the sporting teams making requests for funding. The Club also funds and supports upgrades to Council owned sporting facilities (both playing and viewing) which are used by associated sporting teams. Summary The documents of the club (including its constitution, annual reports and strategic plan documents) show that it has two purposes, a purpose of encouraging sport, and a purpose of providing social facilities for members. The foregoing analysis shows that the Club has relatively limited activities directly related to sport, but the activities it does undertake to encourage sport are significant in the area. This level of funding and support enables the entity and the other entity to field teams, helps to improve the standards of sporting facilities used in sport, and encourages more spectators at the Oval. The operations of the Clubhouse provide the Club with the necessary funds to support sport. There is a sufficient nexus between the operations of the Clubhouse and the sport activities of the Club to conclude that the social purpose of the Club (in providing social facilities for members) is secondary and in furtherance of its sporting purpose. On the provision that the Club maintains this level of support and funding it is considered to have a main purpose of encouraging the sport in the relevant period. | Detailed Reasoning - Section 50-47 of the ITAA 1997: Section 50-47 of the ITAA 1997 provides a special condition for all entities covered by section 50-1 of the ITAA 1997, it states: An entity that: (a) is covered by any item; and (b) is an ACNC type of entity; is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for profits Commission Act 2012 . Broadly, an entity that can be registered as a charity with the Australian Charities and Not-for profits Commission (ACNC) is an ‘ACNC type of entity’. The Charities Act 2013 (CA) sets out the requirements to be a charity. Section 12 of the CA provides purposes that are ‘charitable purpose’, and includes purposes such as advancing education and advancing health. The promotion of sport is not a charitable purpose. The Club has sporting and social purposes which are non-charitable purposes. As such, the Club is not capable of being a registered charity, and is not an ACNC type of entity. Section 50-47 of the ITAA 1997 does not apply to the Club. | Detailed Reasoning - Section 50-70: Subsection 50-70(1) of the ITAA 1997 states that an entity covered by item 9.1 is not exempt from income tax unless the entity is not carried on for the profit or gain of its members and: ● it has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia; or ● it is a deductible gift recipient; or ● it is prescribed by law in the income tax regulations and it is located outside Australia and is exempt from income tax in its country of residence. Non-profit requirement Paragraphs 9 and 21 – 23 of TR 97/22 discuss the non-profit requirement. A society, club or association established for the encouragement of a game or sport is non-profit if it is not carried on for the profit or gain of its individual members. Organisations satisfy the non-profit requirement if their constituent documents prevent them from distributing profits or assets among members while the organisation is functional and on winding up. The organisation's actions must be consistent with this requirement. The Club’s constitution prevents distribution to members. The supporting evidence shows that the Club acts in accordance with this prohibition. The Club is not carried on for the profit or gain of its individual members. Has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia The Club is a resident of, and is located in, Australia. The Club carries on its activities in Australia. It pursues its objectives and incurs its expenditure in Australia and therefore satisfies this requirement. Subsection 50-70(2) of the ITAA 1997 provides that the Association must: ● comply with all the substantive requirements in its governing rules; and ● apply its income and assets solely for the purpose for which the entity is established. Taxation Ruling TR 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt (TR 2015/1) provides guidance in respect of the conditions in subsection 50-70(2). Paragraph 9 of TR 2015/1 provides that an entity’s ‘governing rules’ are those rules that authorise the policy, actions and affairs of the entity. Paragraphs 18 and 19 of TR 2015/1 explain that the substantive requirements in an entity’s governing rules are those rules that define the rights and duties of the entity and include rules such as those that: ● give effect to the object or purpose of the entity ● relate to the non-profit status of the entity ● set out the powers and duties of directors and officers of the entity ● require financial statements to be prepared and retained ● set out the criteria for admission as a member of an entity ● require an entity to maintain a register of members, and ● relate to the winding-up of the entity. The supporting evidence shows that the Club complies with the substantive requirements set out in its current constituent document. Paragraphs 33 to 35 of TR 2015/1 provide that an entity must solely apply its income and assets for the purpose for which the entity is established. However, where the misapplication or misapplications of part of the income or assets are immaterial in amount and are a one-off misapplication or occasional misapplications, the income and assets condition will still be satisfied. The earlier discussion shows that the Club applies its income and assets solely for the purpose for which it was established. The Club satisfies the special conditions in section 50-70 and section 50-47 of the ITAA 1997. | Detailed Reasoning - Conclusion: The Club is considered to be a society, association or club established for the encouragement of a game or sport as required under item 9.1(c) of section 50-45 of the ITAA 1997. As such, the income of the Club is exempt from income tax under section 50-1 of the ITAA 1997.

Question 1: Is the Club 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) of section 50-45 of the ITAA 1997?