Edited version of private ruling

Authorisation Number: 1011539092595

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Ruling

Subject: Animal racing

Question:

Is the Company exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a club established for the encouragement of animal racing under item 9.1(a) in section 50-45 of the ITAA 1997?

Answer:

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commences on:

1 July 2010

Facts:

The Company, which sought exemption form income tax under section 50-1 of the ITAA 1997 as a club, established for the encouragement of animal racing pursuant to item 9.1(a) of section 50-45, is a company limited by guarantee and established for animal racing.

The Company will coordinate, manage and regulate the codes of animal racing through a number of distinct functions including:

a) administration of the rules of racing

b) enforcement of standards of safety and integrity

c) licensing industry participants

d) registering race clubs and monitoring their activities

e) racecourse development and capital works

f) research and promotional activities; and

g) administration of industry funding and commercial agreements.

Non-profit

The Constitution contains a non-profit clause:

The income and property of the Company must be applied solely towards the promotion of the objects of the Company as set out in this Constitution and no portion of it can be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise by way of profit to the Members.

The Constitution contains a dissolution clause:

If the Company is wound up and any property remains after satisfaction of all its liabilities, that property:

a) must not be paid to or distributed among the Members; but

b) must be given or transferred to other institutions having similar objects to the Company

Reasons for decision

An animal racing society, association or club which has been established for the encouragement of animal racing under item 9.1(a) of section 50-45 is exempt from income tax under section 50-1 of the ITAA 1997.

Clubs that promote animal racing are not covered by Taxation Ruling TR 97/22 Income tax: exempt sporting clubs. However, the guidelines in this Ruling could apply to animal racing clubs in determining income tax exemption. For a club 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:

· it cannot be carried on for the purposes of profit or gain to its individual members;

· it must be for the encouragement of animal racing; and

· that encouragement must be the club's main purpose

Society, association or club

The Company is a company limited by guarantee and is governed by a set of constituent documents. The Constitution contains specific objects to encourage animal racing and the Company undertake extensive activities in accordance to those objects. The Company also has a board of committee which contains seven members.

The Company is considered to be an association or club.

Non-profit

A non-profit entity is one that does not operate for the profit or gain of its individual members. The Tax Office accepts an organisation as non-profit where its governing documents contain acceptable non-profit and dissolution clauses.

The Company's Constitution contains an acceptable non-profit clause.

This requirement is satisfied.

Encouragement of animal racing as main purpose

The Tax Office publication Income tax guide for non-profit organisations (the Guide) provides the Commissioner's view on what constitutes as exempt animal racing clubs. Page 26 of the Guide states that a club's main purpose must be encouragement of animal racing.

Encouragement

The word "encouragement" is not defined in the ITAA 1997, but paragraph 11 of TR 97/22 indicates that encouragement can occur directly by:

· forming, preparing and entering teams and competitors in competition in the game or sport

· coordinating activities

· organising and conducting tournaments and the like

· improving the abilities of participants

· improving the standards of trainers and coachers

· 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

Encouragement can occur indirectly by:

· through marketing; or

· by initiating or facilitating research and development

The Company's main purpose is to coordinates, manages and regulates the racing industry through a number of distinct functions including:

a) administration of the rules of racing;

b) enforcement of standards of safety and integrity;

c) licensing industry participants;

d) registering race clubs and monitoring their activities;

e) racecourse development and capital works;

f) research and promotional activities; and

g) administration of industry funding and commercial agreements.

These objectives and activities are consistent with the aim of encouraging a game or sport as stated in TR 97/22.

Animal racing

Page 26 of the Guide states that the exemption covers horse racing and trotting, and greyhound racing, but also extend to racing of other animals

As stated above, the Company is established to be the control body for the three codes of racing under the Racing Act 2002. Therefore, the encouragement is considered to be for animal racing.

Main purpose

TR 97/22 state that the main purpose can only be ascertained after objectively weighing all of the club's features. TR 97/22 listed the features that are highly persuasive in supporting a conclusion that the main purpose of the club is to encourage a game or sport. The phrase "game or sport" can be substituted by the phrase "animal racing" to provide a guide:

· the club conducts activities in the relevant year that are directly related to the [animal racing]

· the [animal racing] activities encouraged by the club are extensive

· the club uses a significant proportion of its surplus funds in encouraging [animal racing], and

· the club's constituent documents emphasis that the club's main purpose is to encourage [animal racing] and the club operates in accordance with those documents

The Company's objectives and activities which were discussed above are its main objectives and activities. Therefore, the Company's main purpose is considered to be for the encouragement of animal racing.

Special Requirement

Section 50-70 of the ITAA 1997 provides that an entity covered by item 9.1 of section 50-45 of the ITAA 1997, is not exempt from tax unless the entity is a society, association or club that is not carried on for the purpose of profit or gain of its individual members and that:

a) has a physical presence in Australia, and, to that extent, incurs its expenditure and pursues its objectives principally in Australia, or

b) is a society, association or club that meets the description and requirements in item 1 of the table in section 30-15 of the ITAA, or

c) is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country in which it is resident

The Company is incorporated in Australia with its main offices in Australia. It also achieves its objectives and conducts its activities in Australia. This requirement is satisfied.

Conclusion

It is concluded that from a weighing of all the above factors in a context of the criteria provided by TR 97/22 that in the years to which this ruling applies to the Company is a non-profit club with a main purpose of encouraging animal racing. It is therefore exempt from income tax in these years as it is established for the encouragement of animal racing as described by item 9(a) of section 50-45 of the ITAA 1997.

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