Edited version of private ruling

Authorisation Number: 1011461202816

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Exempt sporting clubs

Facts

The Association is a peak body for the recreation industry. It has the following objects:

· to provide for the encouragement, recognition, conduct and promotion of recreation and to represent the interests of all members in the recreation industry.

· to foster growth of the recreation industry.

· to provide a forum for discussion and consideration of issues by recreation industry members.

· to promote the health and safety of participants in recreation and encourage best practice within the industry

· to conduct or commission research and development for evaluation and improvements in recreation activities and covering, concepts, techniques, standards and equipment including research into and reporting of safety and accident issues.

Its constitution contains clauses prohibiting the distribution of income and property to its individual members when it is operating and in the event of winding up.

The Association supplied the following additional information to support the private ruling request:

The Association is not for profit member based recreational organisation.

It is committed to quality in supporting the growth and development of community and outdoor recreation and fitness. It advocates for fair and equitable recreational policy, resource allocation, recognition and accountability.

Its mission statement is to increase active participation in recreation by working in partnership with the fitness, outdoor and community recreation industries.

Its mission is to provide leadership to the recreation industry in the state, encourage and promote recreation activity and maximise the social and economic contribution.

The Association also states the difference between Sport and Recreation:

Recreation is any activity physical activity designed for refreshment of one's body or mind. Recreation is participating in an activity for the participant but in a refreshing and diverting manner.

Some sports can become recreations when competition is not present for example:

· Horse riding

· Sailing

· Cycling

· Skiing

Sport is an activity that is governed by a set of rules or customs and engaged in competitively. Used by itself, sports commonly refer to activities where the physical capabilities of the competitor are the sole or primary determiner of the outcome (winning or losing). Sports can be used as entertainment for the player and the viewer.

Reasons for decision:

Taxation Ruling TR 97/22 Income tax: exempt sporting clubs applies to sporting organisations seeking to determine whether they are exempt from income tax.

Paragraph 7 of TR 97/22 provides an overview of the exemption:

For a club to be exempt from income tax under section 50-45, it needs to satisfy three tests. 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. That encouragement must be the club's main purpose.

Non-profit character

It is accepted that the Association has acceptable clauses in its constitution indicating non-profit character.

Encouragement of a game or sport

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 ability 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 or visitors; or

· Encouraging increased and wider participation and improved performance;

and can occur indirectly:

· Through marketing; or

· By initiating or facilitating research and development

Paragraph 12 of TR 97/22 states:

There is no special definition of what constitutes a game or sport for the purposes of section 50-45. Accordingly, the words should be given their ordinary meaning.

The Australian Oxford Dictionary provides the following definitions of 'game' (noun):

Game (n)

1. form or spell of play or sport, esp. a competitive one played according to rules and decided by skill, strength, or luck.

2. a single portion of play forming a scoring unit in some contests, e.g. bridge or tennis.

3(in pl.)a. athletes or sports as organised in a school etc.

3b. a meeting for athletic etc. contests (Olympic Games)

4. a winning score in a game; the state of the score in a game (the game is two all)

5. the equipment for a game.

6. one's level of achievement in a game, as specified (played a good game)

7a. a piece of fun; a jest (was only playing game with you)

7b. (in pl.) dodges, tricks (none of your games!)

8. a scheme or undertaking etc. regarded as a game (so that's your game)

9. a policy or line of action.

10. (collect.)

a. wild animals or birds hunted for sport or food

b. the flesh of these

11. a hunted animal; a quarry or object of pursuit or attack.

12. a kept flock of swans

The Australian Oxford Dictionary provides the following definitions of 'sport' (noun):

Sport (n)

1a. a game or competitive activity, esp. an outdoor one involving physical exercise, e.g. cricket, football, racing, hunting.

b. Such activities collectively (the world of sport)

2(in pl.)a. a meeting for competing in sports, esp. athletics (school sports)

b. athletics.

3a. amusement, diversion, fun

b. jest, play (I said it in sport)

4 colloq a. a fair or generous person

b. a person behaving in a specified way, esp. regarding games, rules, etc (a bad sport at tennis)

c. US & Aust. a form of address, esp. between males

d. US a playboy

5. Biol. An animal or plant deviating suddenly or strikingly from the normal type.

6. a plaything or butt (was the sport or Fortune).

Whilst some of the activities promoted by the Association are clearly recreational and not related to a game or sport, it is accepted that some activities could be defined as a sporting activity.

Main purpose

Paragraph 13 of TR 97/22 states:

To be exempt, the main purpose of the club must be the encouragement of the relevant game or sport.

Paragraph 14 of TR 97/22 states:

A club's main purpose can only be ascertained after objectively weighing all the club's features, including those features described in paragraphs 15 and 16. The presence or absence of a feature may not conclusively determine that the club's main purpose is or is not the encouragement of a game or sport.

Paragraph 15 of TR 97/22 states:

Highly persuasive features

15. Features that are highly persuasive in supporting a conclusion that the main purpose of the club is to encourage a game or sport include:

· 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.

Each of the 'Highly persuasive' characteristics are now examined in more detail:

Directly related to a game or sport

Paragraph 51 of TR 97/22 details features denoting that a club's main purpose is directly related to the encouragement of a game or sport:

A highly persuasive feature that supports a conclusion that a club has a main purpose of encouraging a game or sport is that the club conducts activities in the relevant year that are directly related to the game or sport. Examples of such activities include:

· Participating in competitions or tournaments involving the game or sport;

· Bringing into existence, organising and running such competitions or tournaments;

· Providing referees, umpires or other officials for the game or sport;

· Coaching participants in the game or sport;

· Encouraging club members to be spectators at and to support the game or sport; and

· Fundraising, for specific events in the game or sport in which the club's teams or competitors are involved, such as organising raffles to fund a club member's participation in an overseas event.

The Association's mission statement is to 'increase active participation in recreation by working in partnership with the fitness, outdoor and community recreation industries.'

Whilst it is accepted that some of the activities of the Association may indirectly promote a game or sport, the Association's primary focus of increasing participation in recreation is not directly related to a game or sport.

Extensive encouragement of sporting activities

Paragraph 53 of TR 97/22 states:

Where the sporting activities encouraged by the sporting club are very extensive, it is highly persuasive that the club's main purpose is the encouragement of a game or sport.

It is accepted the Association extensively encourages recreation activities, among them are some sporting activities. The main purpose of the Association is not the encouragement of a game or sport.

A significant proportion of surplus funds are used to encourage the game or sport

Paragraph 54 of TR 97/22 states:

The club should use a significant proportion of its surplus funds in encouraging its game or sport. As noted by Lockhart J in Cronulla Sutherland at ATC 4226; ATR 313, '...the potential of [a club] to apply its surplus funds for purposes having nothing to do with the encouragement or promotion of [a sport or game] is a significant matter'. What is important is the way such funds are used and the activities that are financed by the club.

The Association uses its surplus funds in the promotion of recreation generally, not an individual game or sport.

Constituent documents

Paragraph 56 of TR 97/22 states:

The constitution and founding documents of an exempt organisation should be consistent with the aim of encouraging a game or sport. The club's history should also characterise it as one that was established, originally or after its foundation, by people with an interest in the game or sport and one that has in fact continued to encourage a game or sport: St Marys case ATC 4534, ATR 288; Case G53 (1956) 7 TBRD 301 at 309; Case T52 (1968) 18 TBRD 271 at 276; cf Case K24 78 ATC 216 at 238. See also Brookton Co-operative Society Limited v. FC of T 81 ATC 4346; (1981) 11 ATR 880; A & S Ruffy Pty Ltd v. FC of T (1958) 98 CLR 637; and paragraphs 47 and 48 above.

The objects in the constitution of the Association aim to promote recreation in general and do not seek to encourage a game or sport.

The requirements of TR 97/22 are not met.

FBT rebatable employer

Section 65J of the Fringe Benefits Tax Act 1986 lists rebatable employers for fringe benefits tax. Included in the list of rebatable employers at Subsection 65J(1)(h) is:

A non-profit society, non-profit association, or non-profit club, established for the encouragement or promotion of a game or sport

Based on the evidence discussed in the preceding paragraphs, Recreation SA does not meet the requirements as a club established for the engagement or promotion of sport.

Conclusion

For the above reasons the Association does not meet the requirements of an exempt sporting club as those entities described in the TR 97/22. Therefore, it is a rebatable employer for the purpose of subsection 65J(1)9h) of the Fringe Benefits Tax Act 1986.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).