Clubs minutes, March 2011
Clubs minutes, March 2011
Venue:
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Australian Taxation Office
Latitude East
Sydney
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Date:
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21 March 2011
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Start:
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10.00am
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Finish:
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3.00pm
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Chair:
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Daniel Clode
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Contact and Secretariat:
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Mark Ferguson
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Contact phone:
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(02) 6216 2087
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Attendees
Lisa Evans
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Mingara Leisure Group
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Josh Landis
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Clubs Australia
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Jonathan Chew
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Clubs Australia
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John McCallum
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Clubs Queensland
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Morris Maroon
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Ernst & Young
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Paul Lyon
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PKF Australia
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Scott McDonald
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Easts Group
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Anthony Bowd
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Vicsport
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Con Tziokas
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RACV
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Peter Fogale
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KPMG
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Sam Naidu
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Burwood RSL Group
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Victor Hamit
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Wentworth Lawyers
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Don O'Brien
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BDO Australia
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Penny Wilson
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RSL Queensland
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Australian Taxation Office
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Daniel Clode
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Acting Assistant Commissioner, Non-Profit Centre, Policy and Government Liaison, FBT and Trusts, Small and Medium Enterprises
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Paul Clark
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Director of Employee Obligations, Micro Enterprises and Individuals
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Robert Gjessing
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Director of Employee Obligations (Eastern Region), Micro Enterprises and Individuals
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Marloney Ng
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Director of Indirect Tax Risk and Intelligence, Government and Not for Profit
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Walter Piciocchi
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Director of Non-Profit Centre, National Office
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Mark Campbell
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Non-Profit Centre Technical Advisor
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Mark Ferguson
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Non-Profit Centre Relationship Manager - Secretariat
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Brendan Lavery
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Non-Profit Centre, National Office
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Brian Rayton
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Non-Profit Centre, National Office
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Apologies
David Farley
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Lawler Partners
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Cameron Roan
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KPMG
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Disclaimer
Clubs Consultative Forum agendas, minutes and related papers are not binding on the Australian Taxation Office (ATO) or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.
Daniel Clode opened the meeting and invited participants to introduce themselves. He sought the approval of the minutes of the meeting of 25 November 2010 which were approved with a minor amendment.
Morris Maroon sought clarification on recoupment of tax losses and the application of the same business test. A lot of clubs have made losses in the past and now are bouncing back. The meeting discussed difficulty in satisfying the Continuity of ownership test when there had been membership recruitment since the year(s) of loss (a particular problem also arises when clubs have amalgamated). The same business test also presents challenges where some clubs have sought to diversify activities.
After some discussion Mark Campbell suggested that Morris Maroon send him some examples to assist in identifying the issues and how to deal with them in future revisions to ATO guide materials. This will be further addressed at the next meeting.
It was noted that it was important for clubs to be aware of the need to ensure that membership records are in order, in case they need to check for continuity of ownership.
Action item
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2
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Description
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Scenario(s) to be developed with Mark Campbell and Morris Maroon and discussed with ATO to support future updates to guide material.
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Responsibility
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Mark Campbell (NPC Technical Advisor) and Morris Maroon (E&Y)
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Due date
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July 2011 meeting
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Sam Naidu spoke of the difficulty for clubs separately documenting the poker machines payouts to members and non-members.
- Some of the larger clubs use a ticket in/ticket out systems, but this can end up being a problem for the larger clubs.
- With regard to poker machines, there is no way to determine whether winnings collected have been by a member or non-member, due to ticket-in/ticket-out system.
- Suggestion by Sam Naidu to allow each club to choose whether to use 'Waratah' or one week surveys to work out percentages. The ATO responded that a week would be unlikely to be a sufficiently representative period.
- Mark Campbell noted that although in the Mutuality and taxable income guide the ATO allows a club to apply for set percentage to be used to determine member/non-member winnings, the other apportionment methods explained in the guide to provide more flexibility.
- Whether a club with multiple sites could use a different apportionment method (Waratahs or Credits Payout Method) for its sites was discussed. Mark Campbell read from page 34 of the Mutuality and taxable income guide - 'Other methods' section: -'You may, for the purposes of calculating taxable income, adopt another method of apportionment where there is a reasonable basis to do so and provided that it reasonably and accurately reflects your organisation's revenue and expenses for the year in question.' He added that it was therefore open to a club operating multiple sites to use a different method of apportionment for each site where the club's records supported the basis of apportionment chosen.
- Mark Campbell said that it is expected that the Mutuality and taxable income guide will be updated within the next 12 months.
- Victor Hamit said that a statistical approach may be an appropriate alternative method for some clubs.
- Most clubs thought it would be reasonable to have a separate survey for each site.
Anthony Bowd said about 60 clubs raised $480 million for Victorian Bushfires relief, but only some of those raised funds went back into sporting clubs affected by the bushfires.
- With the Victorian Floods, around 70 clubs were affected by the flooding. The question is whether these clubs should apply for federal disaster relief funding or should they continue to raise money and keep it for themselves.
- Mark Campbell said that typically sporting clubs might not be a priority when it comes to relief funding in times of need as most disaster funds are charitable funds and must distribute for charitable purposes.
- As an alternative, clubs damaged in a disaster could apply to a deductible gift recipient (DGR) like the Australian Sports Foundation for 'conduit funding'. But DGRs and Disaster Relief Funds can only distribute to charitable work.
- Jason Aitchison and Anthony Bowd agreed to discuss ways in which some of the concerns raised could be brought to the attention of Treasury.
Paul Lyon raised the concept analysed in the Co-Operative Bulk Handling court ruling of 'not being carried on for the profitable gain of members' and the consequence that members of the co-op may benefit as much as general members of the community, but not more than. He asked the ATO, under this majority judgment how far this can be taken with regard to members claiming benefits? (For example, is a discount a 'profit' to members? Can members receive benefits to the exclusion of others?).
- Victor Hamit said that he understood that benefits received communally were acceptable.
- Mark Campbell noted that members of clubs generally benefit communally as members (eg, by using the club's facilities) and not by a guaranteed individual share of a 'profit'. Josh Landis said that minor price differences for food/drink are unlikely to be material enough to be profit.
- Mark Campbell said that the ATO will not lodge an appeal for the Co-Operative Bulk Handling case, and the ATO will be releasing a Decision Impact Statement sometime this year.
- The members were broadly satisfied with the ATO's view of how the judgment is likely to apply to clubs.
Action item
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5
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Description
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ATO released a Decision Impact Statement for the Co-Operative Bulk Handling Ltd case on 20 May 2011.
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Responsibility
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Mark Campbell (NPC Technical Advisor)
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Due date
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End 2011
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Marloney Ng presented the GST report and raised the issue on how the ATO would treat free drinks/meals supplied by clubs when vouchers are surrendered. The GST should be accounted for on the one receipt for both meals when a 2-for-1 deal is involved. We recognise value in the 2-for-1 deal, rather than accept that the free meal is for nil consideration. The problem however is that some club system software requires two separate entries for GST purposes.
- Provided clarification on GST implications for monetary prize/non-monetary prizes:
- monetary based prizes would be deducted from gambling revenue for monetary based prizes as to where the GST input would be applied
- non-monetary prizes such as vouchers for free meals/drinks - the ATO is still considering if vouchers equate to money, but currently we think not (this may change in the future as the ATO is currently reviewing this position)
- vouchers or loyalty points valid for external companies are also complicated and refunds of GST are restricted in such cases.
- A member of the forum mentioned it was unfair that GST refunds are currently on hold due to the release of Miscellaneous Taxation Ruling MT 2010/1: Restriction on GST refunds, on the 15 December 2010. A request has been made that the Commissioner's discretion be applied o the clubs industry when it comes to GST refunds.
- Marloney Ng said the ATO is working with the sector to clarify the correct tax treatments.
- Sam Naidu asked if there could be a ruling and was told that would require a formal request. Marloney Ng will speak to Sam Naidu out of session.
Mark Campbell introduced the new sporting clubs guide that he has been working on. This guide contains the collected ATO advice for sporting clubs. A number of suggestions from Clubs Australia have been accommodated. The principal aim of the guide is to minimise the extent to which the ATO needs to seek additional information from a club.
- The ATO is considering whether the trustees of a trust may be considered an association. If so, the matter will be incorporated into the guide.
- Peter Fogale (KPMG) asked whether income tax exemption would continue where purpose and activities diverge, eg where a sporting club's main purpose is to fund sports but its main 'activity' is collecting revenue from pokies?
- Mark Campbell said that it would be dependent on how the main activity relates to the way the club operates, because in most cases, the main purpose of a sporting club is obvious.
- The examples of case law in the guide relate to where a club's 'purpose' was to promote sport but it either; (a) ceased its primary purpose while keeping its social activities alive; (b) its social activities far outweigh any benefit given to the sport the club is meant to be supporting.
- Paul Lyon asked about the scenario where a club enters a joint venture with property developers. The ATO suggested that an ATO ID might be the best way to unpack this scenario and the guide could then refer to this information product.
Note: See St Marys Rugby League Club v. FC of T and Cronulla Sutherland Leagues Club Limited v. FC of T.
- The Commissioner of Taxation v. Word Investments Ltd, was discussed in the context of a sporting club having two purposes, one to maintain and improve club facilities and services for members and the other to raise funding for the sport they support. John McCallum (Clubs Queensland) also pointed out the High Court's determination in Word on the use of separate entities to fund raise for an exempt purpose. John McCallum pointed out that in Queensland prior to 1992 sporting clubs were required to establish a separate entity to obtain a liquor licence for fundraising for their main purpose of promoting sport. This was because all members of a licensed club (at that time) were required to be above the legal drinking age of 21, (later to become 18). John McCallum felt this should be taken into consideration when reviewing those clubs with two entities (formed prior to 1992), one directly involved in the running of sport, and the other raising the necessary funds for the sporting club to achieve its objectives through direct grants, and funding raised by the licensed club for the development and maintenance of the necessary sporting facilities.
- It was observed that today clubs need to re-bid to retain gaming licences and this entails capital requirements which put pressure on surpluses. Don O'Brien (BDO Australia) suggested that activities such as these were non-discretionary and that it's all about providing a sustainable income for the club well into the future. As a result, the Word Investment case may be seen to set a precedent for other clubs to litigate to treat this income as tax exempt.John McCallum (BDO Australia) said that the reliance on gaming/gambling income is becoming an increasingly important issue for sporting clubs and that secondary/multiple income streams are the only way of diversifying their investments to survive.
- Peter Fogale (KPMG) asked about passive income (ie a restaurant renting land and providing club services) and how this would be regarded by the ATO? Mark Campbell observed that this could depend if the income was directed to supporting the primary purpose or could go to other purposes. If the service is provided for members social activities at the club, it is likely that such a service is firstly provided firstly for the club's social purpose.
- The new guide is aimed at licensed clubs and provides a worksheet for club executives to make a balanced decision on whether they will risk their income tax exempt status by taking on a partnership with another business/peak body to continue their existence/growth.
- Word Investments Ltd case needs to be looked at to see whether it will impact decisions relating to secondary objectives or joint ventures of sporting clubs, eg passive income streams or selling off assets (such as land) to gain a share of profit with a commercial company that partners with the club.
- The guide is a 'living document' updates to the guide will be published on the web as changes in legislation interpretation occur.
Paul Clark (Micro Enterprises and Individuals (MEI) ATO - Director Employee Obligations) ran through a number of current issues.
- Flood Levy has not been passed yet but tax tables will be modified if it gets passed around late May 2011.
- The law previously allowed employers to refund overpaid withholding to employees if advised by 21 July following the relevant year. That date has been changed to 30 June.
- In relation to reportable employer super contributions (RESC) many employers incorrectly reported compulsory super amounts on their employees' payment summaries last year under. We have implemented strategies to avoid errors in the coming year.
- Some businesses have been incorrectly treating employees as contractors by pressuring to them to get Australian business numbers (ABNs) and then paying them lesser entitlements and no super. This is sometimes associated with migrant workers. One third of contractors are not lodging tax returns (based on statistics from prior audits). Paul recommends using the self-check tool on the ATO website to make sure the people in your businesses are actually contractors and you are not forcing them into loss of entitlements.
- Check your payment arrangements.
- Check your super responsibilities because they may apply to contractors as well as your employees.
Daniel Clode went through the changes and asked for comments. In particular he emphasised that professionals would be attending on behalf of a club rather than in their own right. This clarification had been proposed by the club members.
He asked if the number of meeting's per annum was satisfactory (it has been increased from 2-3 meetings this year). Paul Lyon said he would prefer twice a year, but the meeting was broadly comfortable with up to three meetings per year.
There were no concerns expressed with the charter but a few minor corrections.
Walter Piciocchi spoke about the voluntary disclosure program relating to Club Keno.
- Keno commissions are not to be treated as mutual income.
- Walter went through the compliance statistics on reviews, private ruling applications and outcomes.
- ATO doesn't regard income from Keno being as high-risk. It is a low-risk, and as such, future broad industry reviews seem unlikely.
- 125 reviews of club status undertaken this financial year will be almost all finalised around June 2011 (including five comprehensive audits of status).Typical time for ATO comprehensive audit is around 14-16 months turnaround.
Treasury are undertaking a scoping study on the creation of a national Not-For-Profit Regulator and the codification of charity law.
General opinion favours an independent regulator rather than it being a function of an existing agency like the ATO or Australian Securities & Investments Commission (ASIC).
ATO has a number of regulatory functions currently and if an independent regulator is established, a hand-over process would most likely occur.
Anthony Bowd (VicSport) said that VicSport would be happy for the ATO to be the NFP Regulator.
Victor Hamit provided some feedback from Victorian Clubs indicating that whilst the ATO website search engine had improved some clubs were still having difficulty in navigating the site and locating information.
Victor also asked about the self-governance tool. Jason Aitchison said that a new design implementation is being worked on and that user testing will occur in March, 2011. Further information will be provided at the next meeting.
20 July 2011, in Brisbane.
Last Modified: Monday, 5 September 2011
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