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How I can tell if my sporting club can be tax exempt

Last updated 19 September 2022

Your club will be exempt from income tax and can self-assess its exemption if during the year of income it is an entity that:

  • is a not-for-profit society, association or club
  • is established for the encouragement of a game, sport or animal racing
  • is not a charity
  • meets at least one of the 3 tests.

The type of entity my organisation is

An entity for the purposes of income tax exemption as a tax-exempt sporting club includes a:

  • corporation
  • unincorporated association
  • trust
  • partnership.

Income tax exemption will not apply to a group of entities collectively described as 'the club'. Each particular entity in the group must assess its own income tax exempt status.

Example: incorporated associations

A sporting group includes 2 incorporated associations. One association operates a leagues club and the other a football club. Each entity, the leagues club and the football club, must assess its own income tax exempt status. This would be the case irrespective of whether the sporting group was referred to collectively as 'the club'.

End of example

The following features on their own will not be sufficient to show that your club is exempt where:

  • control of your club by an exempt entity or entities
  • common membership of the board of both your club and the exempt entity
  • use of your club's surplus funds for exempt entities or their purposes
  • the commitments of members of your club being related to those of an exempt entity or entities
  • common motives inspiring your club and associated exempt entities
  • the providing of free services to associated exempt entities
  • the holding of property by your club on trust for exempt entities.

The consolidation regime, under which a consolidated group of entities is treated as a single entity for income tax purposes, does not apply to income tax exempt entities.

If my organisation is non-profit

To qualify for income tax exemption as a sporting organisation your club must be non-profit.

An organisation is non-profit if it is not carried on for the profit or gain of its individual members. This applies for direct and indirect gains and both while the organisation is being carried on and on its winding up.

The income tax law does not prescribe a form of words that a non-profit company must have in its constituent documents. The following example clauses would be acceptable, as long as other clauses were not contrary to them. The organisation's activities must be consistent with the clauses.

Example: non-profit clause

The assets and income of the organisation shall be applied solely in furtherance of its above-mentioned objects and no portion shall be distributed directly or indirectly to the members of the organisation except as bona fide compensation for services rendered or expenses incurred on behalf of the organisation.

End of example

 

Example: dissolution clause

In the event of the organisation being dissolved, the amount that remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to another organisation with similar purposes which is not carried on for the profit or gain of its individual members.

End of example

The following do not prevent a club from being non-profit such as:

  • benefits received by members communally as members, such as use of club's facilities
  • benefits received by members incidental to the pursuit of a club's objects, such as sports uniforms
  • payment of reasonable remuneration to members for services they provide to the club.

A non-profit organisation can still make a profit, but this profit must be used to carry out its purposes and must not be distributed to owners, members or other private people.

What a society, association or club is

The term 'society, association or club' is not defined in the tax law and takes the ordinary meaning of the words. It can include incorporated bodies.

The 3 words describe bodies made up of people who have come together to implement common purposes and objects. Consequently:

  • An individual is not a society, club or association and will not qualify as an exempt sporting club.
  • An incorporated body having one member may also not be a society, association or club and not qualify as an exempt sporting club.
  • The members of a society, association or club need not be natural persons. The term therefore includes associations of sporting clubs.
  • An entity that is a fund is not considered a society, association or club.

Example: fund under a trust

A fund is established under an instrument of trust to manage and/or hold property on trust for a sporting organisation. The fund is not a society, association or club.

End of example

QC23868