Private ruling: Income tax exempt - encouragement of a game or sport
Date of advice: 24 January 2017
Published: July 2017
Ruling period: 01 May 2014 to 30 April 2015 | 01 May 2015 to 30 April 2016 | 01 May 2016 to 30 April 2017 | 01 May 2017 to 30 April 2018 | 01 May 2018 to 30 April 2019 | 01 May 2019 to 30 April 2020 | 01 May 2020 to 30 April 2021 | 01 May 2021 to 30 April 2022 | 01 May 2022 to 30 April 2023 | 01 May 2023 to 30 April 2024
Date scheme commenced: 1 May 2014

Ruling: Q1: Does the Applicant continue to hold its tax exempt status under item 9.1(c) of the table in section 50-45 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) as a society, association or club established for the encouragement of a game or sport? | A1: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. 1. The Club is a public company limited by guarantee. 2. The objects of the Club are laid out in the Club's Constitution (Constitution) and states that they are involved in yachting, sailing, racing and fishing. 3. The principal activities of the Club have been to provide activities associated with yachting, sailing, wind surfing, power boating, game fishing and other services. 4. The Club organises and participates in a significant number of competitive regattas, including dinghy regattas, yacht regattas and power boat events as well as running weekly races in during the season. 5. The Club runs a significant amount of training sessions. 6. The Club does have a non-sporting aspect with social functions and activities as well as other social amenities. 7. The Constitution provides that the income and property of the Club shall be applied solely towards promotion of the Club's objects and that no portion of the Club's income or property can be distributed by way of profit to its members. 8. The Constitution provides that on winding up or dissolution of the Club any surplus cannot be distributed the Club's members. 9. The Constitution provides various classes of membership, including social members. Only sporting members vote and may be elected as directors of the Club. 10. The Constitution allows for committees most of which require the majority of committee members to be boat owners. 11. The Constitution states the game fishing competitions must be held to the state's fishing association's rules or the Australian game fishing association's rules. 12. The Club has land that it has developed for members to use including berths, a clubhouse, roads, car parks, utilities and other infrastructure.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 50-45.

Reasons for decision: Summary: It is accepted that the Club is an organisation that has been established for the encouragement of a game or sport. The Club meets the special conditions of not being carried on for the profit or gain of its members and has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia. The Club is therefore considered to be income tax exempt under item 9.1(c) of the table in section 50-45 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: A society, association or club which has been established for the encouragement of a game or sport under section 50-45 item 9.1(c) is exempt from income tax under section 50-1 of the ITAA 1997. Section 50-1 of the Income Tax Assessment Act 1997 (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. (* as defined in section 995-1 of the ITAA 1997) 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 condition detailed in section 50-70 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. The special conditions in section 50-70 of the ITAA 1997 state 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. | 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 members of the Club voluntarily associate together for a common purpose and common interest. The Club has a management committee and rules of association. It is therefore accepted that the Club is an 'association, society 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 Constitution reference the Club's association with the sports of yachting, sailing, racing and fishing. A sport is different to a recreational activity. Yachting, sailing and fishing can all be recreational activities. A common feature that differentiates an activity from a game or sport is a set of conventions, expectations and rules. Another common feature is competition. The Constitution indicates that the activities referenced are done in a sport like manner with races and regattas. The Constitution also states that the game fishing tournaments and events are to be done under the rules of the international, Australian or state's game fishing association. This indicates that the game fishing is intending to be a game or sport rather than a leisure activity. The club's activities also show that the Club runs and participates in significant number of competitive activities. It is accepted that the Club is an organisation associated with a game or sport. Encouragement A society, association or club will only be exempt from income tax if it has as a main or dominant purpose of the encouragement of a game or sport. 'Encouragement' is not defined in the ITAA 1997 and is therefore given its ordinary meaning. Encouragement can occur directly or indirectly. TR 97/22 details features considered to be persuasive of supporting a conclusion that the main purpose of a club is to encourage a game or sport. Paragraph 15 of TR 97/22 describes highly persuasive features which are present when a club is for the encouragement 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. TR 97/22 also lists other features considered relevant at paragraph 16: ● 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. Activities The Club's sporting activities are extensive. The Club organises and participates in a significant number of competitions. The Club further encourages games or sports by having training and education programs. The Constitution emphasises the Club's main purpose is to encourage the game or sport and the Club operates in accordance with this Constitution. The Club's land and infrastructure are for the use and benefit of the members of the Club in pursuing their yachting and sailing activities. Office bearers and committees The office bearers must be boat owners and most of the committees require that a majority of the committee members must be boat owners. It is considered that the members of the committees and office bearers of the Club consist of those involved in or encouraging the game or sport. Membership The Constitution provides various classes of membership, including social members. Only sporting members vote and may be elected as directors of the Club. Social aspect As noted above, to be eligible for the exemption the club's main purpose must be the encouragement of a game or sport and therefore difficulties can arise in instances where a club conducts other activities such as social activities. The Club does have a social aspect. It has Social Members, runs social functions, a clubhouse and bar facilities. The Club derives income from these social activities. It is noted in TR 97/22 at paragraph 42 that 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. Lockhart J in Cronulla Sutherland Leagues Club Limited v. FC of T 90 ATC 4215 at 4225; (1990) 21 ATR 300 at 312 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.' In Terranora Lakes Country Club Limited v. FC of T 93 ATC 4078 (Terranora), Hill J, held that in that case, the provision of extensive social activities to visitors to the club did not prevent a finding that the entity was for the encouragement of the sport undertaken by a majority of the ordinary members: “The attraction the club has for persons living as far away as Brisbane was made apparent by the evidence. Numerous buses arrive at regular intervals during the morning carrying visitors to the club, many of whom are elderly pensioners. Presumably these visitors are attracted, or were attracted in the year of income, by the poker machines not then available in Queensland. The evidence indicates that of the approximately 1,000 visitors per day to the club, 65-70% of them arrive by bus. In addition to the poker machines, the visitors enjoy the special social promotions in the club. In the year of income, there were 4,076 ordinary members of the club, 226 junior members and 130 social members. A social member is entitled to utilise all the facilities of the club, sporting or recreational, but is not entitled to vote or become an office bearer of the club.” (at ATC 4082; ATR 300). “…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 conducted by the club.” (at ATC 4086-4087; ATR 304) In St Marys Rugby League Club Limited v FC of T 97 ATC 4528 (St Marys), Hill J listed at 4534 a combination of factors which are also present in this Club as being in favour of that club's claim to exemption: 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 as its main object or purpose ``the encouragement or promotion'' of rugby league within the meaning of s 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 as being one for ``the encouragement or promotion'' or rugby league. Finally, the control of the Club rests in the hands of former footballers (or Life Members) whose task it is not merely to run the Club but also to promote the competitions in which the Club participates in the rugby league season. Balancing the significant number of competitions, training and teaching that the club does, that only sporting members may vote and may be elected as directors of the Club under the Constitution and the number of social activities it is concluded that the social aspect of the Club are merely ancillary or incidental to the encouragement of the game or sport. Conclusion Considering all of the factors mentioned above it is accepted that the Club is an organisation established for the encouragement for the game or sport. | Detailed Reasoning - Non-profit requirement: Paragraphs 9 and 21 - 23 of Taxation Ruling 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 Constitution of the Club prevents distribution to members. The Club is not carried on for the profit or gain of its individual members and its actions appear consistent with this requirement. The Club therefore satisfies this satisfies this part of the special condition in section 50-70 of the ITAA 1997. | Detailed Reasoning - Has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia: The Club is located in Australia and principally carries on its activities in Australia. While the Club may participate in some international activities, it is accepted that these amounts are minimal and principally the Club's activities are in Australia. It should be noted that the international activity's expenditure may be incurred within Australia, and would therefore also be considered to be classified as being carried on in Australia. When compared to all the activities of the Club these activities are considered incidental and minimal. It is accepted that the Club pursues its objectives and incurs its expenditure principally in Australia and therefore satisfies this satisfies this part of the special condition in section 50-70 of the ITAA 1997.