This document is a reproduction of text from a brochure which was issued in May 1992.
The Australian Taxation Office (ATO) has developed these guidelines in conjunction with Professional Bodies and Registered and Licensed Club Associations around Australia to help Registered and Licensed Clubs (Clubs) to meet their taxation obligations.
These guidelines apply for the 1992 income year or equivalent substituted accounting period.
For taxation purposes, Clubs are regarded as a company. Therefore, all the provisions in the Income Tax Assessment Act which apply to companies have equal application to Clubs.
Under self assessment, Clubs are required to determine their own tax liability and pay the amounts due by dates specified in the law. This is a shift in emphasis by the ATO from that of processing returns and issuing assessments on which tax collections are based, to assisting taxpayers to meet their obligations and taking enforcement action against those who don't.
A Club may be liable to additional tax if it does not declare or calculate the correct amount of taxable income and/or tax payable.
Principle of mutuality
The principle of mutuality provides that where a number of persons contribute to a common fund created and controlled by them for a common purpose, any surplus arising from the use of that fund for the common purpose is not income. This principle, of course, does not extend to include income that is derived from sources outside that group. Where the principle aim of a Club is to provide and improve facilities to its members, the principle of mutuality will apply to all transactions between that club and its members.
The result is that for taxation purposes the income derived and the expenditure incurred by a Club will fall within one of three categories.
1
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Revenue/Expenditure – wholly exempt
Receipts from and/or payments on behalf of the members (eg. subscriptions, cost of membership badges etc.)
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2
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Revenue/Expenditure – wholly assessable/deductible
Income and/or expenditure from sources outside the club or its members (eg. interest on investments).
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3
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Revenue/Expenditure – partly assessable/deductible
Revenue and/or expenditure derived from the general trading activities of the club which cannot be identified as either member or non-member (eg. poker machine, bar and catering trading).
The principle of mutuality will apply where the Club has the following general attributes:
a. the rules of the Club prohibit any distribution of surplus funds to the members
b. upon dissolution of the Club, the rules of the Club provide that surplus funds must be donated to another Club with similar interests and activities
c. the operations of the Club fall within the ambit of State/Federal laws governing Clubs, and
d. the Club is a member of a recognised Club Association.
|
The Waratah's formula
In the calculation of taxable income it is necessary to determine what proportion of partly assessable income and partly deductible expenditure is attributable to non-members.
The 'Waratah's formula' is a simple arithmetic pro-rata equation which attempts to ensure that no member spending (wholly exempt – category 1) is included in non-member spending (wholly assessable –category 2) and is applied to the net income from partly assessable – category 3.
The 'Waratah's formula' is only a rule of thumb, providing the Clubs, their Advisers and the Commissioner with a base formula for isolating member and non-member contributions to income of the Club.
Where:
A -
|
total visitors for the year of income
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B -
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members' guests –those visitors who are accompanied to the club by a member and signed into the club by that member
|
C -
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A - B
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R -
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the average number of subscribed members for the year of income
|
S -
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the percentage of members who attend the club on a daily basis
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T -
|
the number of trading days for the year of income
|
Clubs should ensure that the variables used in the formula are representative of their own individual Club circumstances.
How to determine total visitors
- By summation of the visitors and temporary and honorary members book(s). Where a Club does not have permanent door staff, a survey should be conducted as in (2).
- By surveys – these should be conducted during periods that are likely to be representative of average trading periods. (e.g. during autumn and spring months but not the school holidays). Two one week survey periods are acceptable, provided diligence is applied. The survey results may then be annualised in order to estimate total visitor attendances for the year of income.
How to determine the percentage of members daily attendance
- By summation of members daily attendance. Where a club does not have permanent door staff, a survey should be conducted as in (2); or
- By surveys – these should be conducted during periods that are likely to be representative of average trading periods. (e.g. during autumn and spring months but not the school holidays). Two one week survey periods are acceptable, provided diligence is applied.
Alternative measurement techniques
Clubs may, for the purposes of calculating taxable income, adopt an alternative measurement technique where there is a reasonable basis to do so (eg. better recording system of member/non-member spending) and provided it reasonably and accurately reflects the Club's income for the year in question. Therefore, the Commissioner will accept the alternative measurement technique rather than seek to rely on the 'Waratah's formula'.
How to calculate taxable income/loss
The calculation of a Club's taxable income can be summarised in the following three steps:
|
|
Gross Income (from trading accounts)
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less
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Investment, Property & Member-only Income
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=
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Partly Assessable Income
|
|
|
Gross Expenditure (from trading accounts)
|
less
|
Wholly Deductible Expenditure & Member-only Expenditure
|
=
|
Partly Deductible Expenditure
|
|
|
Partly Assessable Income – Partly Deductible Expenditure (multiplied by non-member percentage)
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plus
|
Investment & Property Income
|
less
|
Wholly Deductible Expenditure
|
=
|
Taxable Income/Loss
|
Exemptions Sec 23 g (iii)
Section 23 g (iii) of the Income Tax Assessment Act provides that the income of a society, association or Club which is not carried on for purposes of profit or gain for its individual members and is a society, association or Club established for the encouragement or promotion of a game or sport shall be exempt from income tax.
The Commissioner will be issuing a separate Ruling on the application of Section 23 (g) (iii) of the Income Tax Assessment Act. Therefore, commentary on this issue is not included in these guidelines.
Who is a visitor?
A visitor to a Club includes anyone who is not a member, child, employee of the Club, or engaged to work or provide services to the Club.
To become a member a person must have:
- been nominated and the appropriate nomination fee paid
- then seconded
- then posted
- then accepted by the Club's board of directors, and
- paid the appropriate membership subscription
Members need not have voting rights, but those who don't must be eligible to all other rights and privileges of membership. This would include knowing that they are a member, they receive the appropriate membership identification (ie. card or badge, etc.) and are in receipt of Club newsletters and publications.
Temporary/honorary members who have not been through the above procedures, are visitors for taxation purposes. This would include members of another Club sharing reciprocal arrangements.
Need more help?
If you have any further questions after reading this booklet, please do not hesitate to contact your local Taxation Office. We will be happy to help you.
Our telephone numbers and addresses are in the ‘Commonwealth Government’ Section of your telephone directory.
Last Modified: Thursday, 29 May 2003
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