Private ruling: Tax exempt entity
Date of advice: 3 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019
Date scheme commenced: The scheme has commenced

Ruling: Q1: Is the Applicant as trustee for Trust X 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) in the table of section 50-45 of the ITAA 1997? | A1: Yes. The Applicant as trustee for Trust X is exempt from income tax as Trust X meets the description of 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. This exemption is subject to Trust X continuing to meet the conditions contained in subsection 50-70(2) of the ITAA 1997.

Relevant facts and circumstances: The Applicant is the trustee of Trust X. Trust X's governing document contains a non-profit clause and dissolution clause. Trust X aims to establish a fund and distribute the funds to support the growth and development of sport in Australia. Areas of support include scholarships and apprenticeships for identified athletes, medical, gymnasium and training equipment and player and sport development. The overall object is to increase the strength and participation numbers of sport players by being actively involved in development programs such as facility rent support, purchase of capital equipment and specialist medical and psychological programs for participants.

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 Detailed reasoning | 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. It 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 need to satisfy three tests, and also 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 : | • 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 | The Ruling states at paragraph 8 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. | 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. | Trust X's governing document contains an acceptable non-profit clause which prohibits distribution of income or property to its members. It also contains an acceptable winding up clause which requires that any surplus property on winding up to be transferred to another institution(s) that has or have similar objects, prohibits distribution of income and property to its members and its income is exempt under Division 50 of ITAA 1997. Trust X meets the non-profit requirements. | 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. In particular, 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. | Trust X's only aim is to promote sport by providing financial support to specific sport clubs in the region by fundraising programs. The funds raised will be utilised to provide financial support for the growth and development of the game through scholarships, apprenticeships and funding of equipment and facilities development. | Trust X is considered to have a dominate purpose to encourage sport. | Special Condition | Trust X incurs its expenditure and purses its objectives in Australia, hence, satisfies the special condition pursuant to paragraph 50-70(1)(a) of ITAA 97 as it has a physical presence in Australia. | Further, Trust X's ongoing activities and application of income and assets satisfy the special conditions under subsection 50-70(2) of the ITAA 1997. | Conclusion | The Applicant as trustee for Trust X satisfies the requirements to qualify as a society, association or club that 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. Accordingly, the Applicant as trustee for Trust X is exempt from income tax under section 50-1 of the ITAA 1997.