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Edited version of private ruling

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Ruling

Subject: Income tax exemption

Question 1

Is the total ordinary income and statutory income of the Club exempt from income tax as a sporting club pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a society, association or club established for the encouragement of a game or sport pursuant to item 9.1(c) of section 50-45 of the ITAA 1997?

Answer

Yes

Facts

The Club was established to promote sporting activities.

The Club's constitution includes non-profit and dissolution clause to prohibit the distribution of income and property to members while in operation and on winding up.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 50-1

Income Tax Assessment Act 1997 Section 50-5

Income Tax Assessment Act 1997. Section 50-45

Income Tax Assessment Act 1997. Section 50-70

Reasons for decision

Item 9.1 of s50-45 of the ITAA 1997 exempts from income tax an entity that has been established for the encouragement of a game or sport.

The tables referred to in section 50-1 of the ITAA 1997 are contained in sections 50-5 to 50-45 of the ITAA 1997. A society, association or club established for the encouragement of a game or sport is listed at item 9.1(c) in the table in section 50-45 of the ITAA 1997. The society, association or club must meet the special condition detailed in section 50-70 of the ITAA 1997. 

An entity is therefore exempt from income tax as a society, association or club established for the encouragement of a game or sport if it:

Society, association or club 

The term society, association or club is not defined in the ITAA 1997. The term is therefore construed according to the ordinary meaning of the words.  

Taxation Determination TD 95/56 refers to the definition of 'association' in paragraph 2 and states:

The members of the Club are the members of the general public who wish to participate in sport or sporting activities. People only become members of the Club because of their desire to further their interest in participating and competing in the sporting activities. The members of the Club voluntarily associate together for this common purpose and common interest. Therefore, the Club is considered an 'association, society or club'.

Established for the encouragement of a game or sport 

Taxation Ruling TR 97/22 Income tax: exempt sporting clubs describes the circumstances under which a society, association or club is considered to be established for the encouragement of a game or sport.

In this case, the Club's constitution refers to the promotion of a variety of sporting activities. The Club conducts activities which are directly related to various sports. The Club also conducts sporting events and provides numerous financial contributions to other sporting clubs to encourage participation and enhance sport within the local district.

The Club's object to provide for members and guests of members a sporting and social club with all the usual facilities of a club appears to be incidental to its main purpose.

In conclusion, the activities of the Club directly encourage sport (as described in paragraph 11 of TR 97/22) and demonstrate features persuasive of the Club being for the encouragement of a game or sport (as listed in paragraphs 15 and 16 of TR 97/22). The extent of expenditure spent on sporting activities, sporting events and sporting facilities indicates that the dominant purpose if the Club is to encourage sport.

Special condition

Section 50-70 of the ITAA 1997 states that an entity covered by item 9.1 is not exempt from income tax unless the entity is not carried on for the profit or gain of its members and has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia.

The Club satisfies the special conditions, as the Club is located and carries on its activities in Australia and its constitution prohibits the distribution of profits an assets among members while in operation and on winding up.

The Club is similar to those clubs and associations as described in the TR 97/22. Consequently, the Club is exempt from income tax in accordance within the provisions of item 9.1 of the table in section 50-45 of the ITAA 1997.

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