Edited version of private ruling

Authorisation Number: 1011741769869

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Ruling

Subject: Income Tax Exemption

Question 1

Is the entity exempt from income tax under item 9.1(c) of section 50-45 of the Income Tax Assessment Act 1997 as a society, association or club established for the encouragement of a game or sport?

Answer

No

This ruling applies for the following period<s>:

1 October 2008 to 30 September 2009.
The scheme commences on:

1 October 2008.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling

From a letter received from the entity.

Following the death of a tourist on a camping holiday, the entity was requested by the Department of Sport and Recreation to establish Activity Standards to cover a wide range of recreational and sporting activities listed below:

Canyoning

Abseiling

Artificial Climbing

Rock Climbing

Challenge Ropes Courses

Bushwalking

Snorkelling and Wildlife Swims

Recreational Scuba Diving

Canoeing, Kayaking, Sea Kayaking

Rafting

Mountain Bike Touring

Travel Bike Touring

Horse Trail Riding

4 WD Driving

Caving

Surfing

Overview from website

The entity representing the outdoor adventure and recreational activities sector including camping, outdoor recreation activities and professional instructors.

The entity is the GO TO place that services the needs of this rapidly expanding outdoor pursuits industry. This service is based on a quality assurance model for industry standards to support consumers and providers of outdoor adventure activities.

Over the next months there will be some ongoing changes to this website to enable us to provide you with the latest and greatest information on: Up and coming events, Conferences, seminars and professional development opportunities.

Clauses from constitution:

4.0 Objects

The objects of the entity shall be:
4.1 To provide leadership, representation and advocacy for the development of the outdoor adventure activity industry.

4.2 To coordinate, disseminate and communicate to the membership and the broader industry all mailers relevant to industry development and effectiveness.

4.3 To promote and publicise safe practices in outdoor adventure activities including camping, outdoor education, outdoor recreation and adventure tourism.

4.4 To facilitate research into outdoor adventure activities including camping, outdoor education, outdoor recreation and adventure tourism.

4.5 To promote responsible and sustainable use of natural outdoor environments.

4.6 To establish, maintain and develop a quality framework for the delivery of outdoor adventure activities including organisational accreditation, activity standards, leader registration and codes of conduct.

6.0 Income and Property
The income and property of the Association shall be applied solely towards the promotion of the objectives of the Association and no portion of the income or property shall be paid, transferred or distributed directly or indirectly to the members of the Association, provided that nothing shall prevent the payment in good faith of remuneration to any officer or employee of the Association or any person other than a member, in return for services actually rendered to the Association.

18.0 Dissolution

18.2 If upon dissolution or winding up of the Association there remains after the satisfaction of all its debts and liabilities any property whatsoever, the same shall not be paid or distributed amongst the members of the Association, but shall be given or transferred to some other association incorporated under the Act which has similar objectives to those of the Association and which prohibits the distribution of its or their income amongst its or their members, or transferred to an organization for charitable purposes. Such shall be determined by resolution of the members.

Membership Options from website: www.outdoorswa.org

Individual Member

Open to all individuals working in, or with an interest in, the outdoors. Includes all benefits, full voting rights and affiliation to the Australian Camps Association or Outdoor Council of Australia.

Organisational Member

Open to all organisations working in, or with an interest in, the outdoors. Organisational members are entitled to display the entities logo accompanied by the text '. Reciprocal weblink also applies.

Student Member

This discounted option is available to all full time students with an interest in the outdoors. Affiliation to a national body is NOT included.

Associate

Strictly speaking, not a membership, this is available to all supporters of the entity who work in, or have an interest in, the outdoors. Associates receive most member benefits but not voting rights, member discounts or affiliation to national associations.

From the application

The constitution states that the entity is not for profit organisation incorporated for the benefit of its members and the outdoors activity industry in Western Australia.

The entity operation plan also outlines the activities undertaken by the entity, such as activities and raising awareness of the bodies and smaller associations it represents.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 50-45, item 9.1(c).

Summary
The entity is not considered to be income tax exempt under item 9.1(c) of section 50-45 of the Income Tax Assessment Act 1997 as a society, association or club established for the encouragement of a game or sport as it does not have as its main purpose the encouragement of a sport or game.

Detailed reasoning

A sporting club which has been established for the encouragement of a game or sport and which is not carried on for the purposes of profit or gain to its individual members is exempt from income tax in accordance with paragraph (c) of item 9.1 of the table in section 50-45 of the ITAA 1997 subject to the special condition under section 50-70 of the ITAA 1997 which states that:

An entity covered by item 9.1 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; 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 applicant has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia. It therefore satisfies this requirement.

In accordance with Taxation Ruling TR 97/22, for a club to be exempt from income tax under section 50-45 of the ITAA 1997, 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.

Where a club does not satisfy all three requirements, it is not exempt from income tax under section 50-45 of the ITAA 1997. However, in calculating its assessable income it is subject to the mutuality principle. Broadly, this means that member receipts (which include members subscriptions and trading income relating to members) are not included in the clubs assessable income for tax purposes: see Taxation Determination TD 93/194 in relation to subparagraph 23(g)(iii) of the Income Tax Assessment Act 1936 which is equivalent to section 50-45 of the ITAA 1997.

Test 1 It cannot be carried on for profit or gain to individual members

Section 50-45 of the ITAA 1997 requires that the club is not carried on for the purposes of profit or gain of its individual members. Where members, in their individual capacity, are to receive benefits from the club, the club would not satisfy this test.

Benefits received by members communally as members, for example the use of the club facilities, where these benefits are incidental to the pursuit of the clubs objects, do not prevent the club from satisfying this requirement, nor does the payment of reasonable remuneration to members for services they provide to the club.

The applicant's constitution contains acceptable non-profit and winding up clauses. There is no evidence to show that members benefit in any way which would contravene the non-profit requirement.

This requirement is satisfied.

Test 2 It must be for the encouragement of sport

Activities that fall within the meaning of game or sport for the purposes of this provision are set out in Taxation Ruling TR 97/22.

Sporting or game-like activity
32. Activities that could be games or sports may be merely a means to other ends. This is so where the activities themselves are not organised in a sport- or game-like way and some other purpose is predominant. For example, while the activity of dancing could be organised in a game- or sport-like way, it is commonly a means of promoting sociability, participation and relaxation. In such cases it does not constitute a game or sport.
33. The nature of the activity must also be considered in the context of determining the club's main purpose. For example, bingo conducted in-house may be regarded as a game. However, in most cases, a club's bingo games would be a minor activity incidental to its main purpose, such as promoting sociability, communal activities or some other purpose. Guidelines for determining a club's main purpose are detailed below.
Competition
36. Competition is a very common feature although not essential. Competition is an important indicator where the activity is not obviously a game or sport.
37. The element of competition also has some judicial support. In Adcock and Others v. Wilson , Widgery J, at 1037, indicates that the ordinary meaning of 'game' encompasses a competition involving entertainment and fun in which a number of competitors pursue a similar and known object.
Examples of games and sports
38. The following non-exhaustive
list provides examples of activities that would be considered a 'sport' for the purposes of section 50-45, provided they satisfy the features outlined above:

Athletic activity:
aerobics, if competitive; amateur wrestling; athletics including hurdling, jumping, running and walking; boxing; dancing, such as ballroom dancing, if competitive; 'field games', including discus, javelin, shot putt and hammer throwing; martial arts such as judo, kung fu, ju jitsu and karate; mountaineering; orienteering; rogaining; water-based sports including diving, swimming, surfing, surf life-saving, synchronised swimming and water polo;

The applicant does not directly undertake any sporting activities. However many of its members are involved in activities including cycling, climbing, walking and camping.
The facts stated above list a range of sporting and recreational activities. The applicant describes its activities as being outdoor adventure and recreation. Some of the activities listed, could on the face of it be accepted as sporting. It is therefore accepted that the applicant does have a purpose of encouraging sport and games. It is also evident that the encouragement of recreation is also a purpose.

As one of the purposes is the encouragement of sport and games, this requirement is satisfied.

Test 3 that encouragement of a game or sport must be the club's main purpose

In order to determine the tax status it is necessary to determine the main purpose of the entity by reference to its objects and activities in the relevant year. In St Mary's Rugby League Club v. FCT 97 ATC 4528; 36 ATR 281 (St Marys case) Hill J stated:

The law governing the interpretation of the exemption was authoritatively settled in the judgment of a Full Court of this Court in Cronulla-Sutherland Leagues Club Ltd v FC of T where it was held that the exemption was available in the circumstances where the applicant had as its main object or purpose in the years of income the object referred to in the subsection, namely, as the section presently stands, the encouragement or promotion of a game or sport.

The question is one which goes to the character and nature of the applicant.

In Cronulla-Sutherland Leagues Club Ltd v. FC of T 90 ATC 4215 at 4225; (1991) 21 ATR 300, Lockhart J in the Full Federal Court said:

The material facts and circumstances which should be examined to characterise the main purpose of the relevant body include its constitution, its activities, its history and its control. These may alter from time to time and the purpose of establishment may correspondingly change. It is not sufficient to look to the formation of the body and to ascertain what the purpose of its formation was at that time. The statute gives a periodic operation to the words and directs the inquiry to a particular time, namely, the year of income so that consideration must be given not only to the purpose for which the society was established but also the purpose for which it is currently conducted.

In terms of the day to day activities of the applicant, its aim is to develop industry standards, accreditation standards, industry training etc, for the purpose of developing outdoor adventure activities. Its objects make reference to the outdoor adventure activities industry including adventure tourism, No reference is made in the objects to sport or games. However, it has stated that these standards are meant to cover sporting and recreational activities.

An examination of the stated recreational and sporting activities undertaken by the applicant's members is necessary. The first twelve activities would generally be seen as primarily recreational. At the bottom of the list we have surfing, canoeing, kayaking, sea kayaking, mountain bike touring and travel bike touring, all of which are on occasion undertaken as part of organised sporting events, but which or also pursued by many for purely recreational purposes.

Abseiling

Artificial Climbing

Canyoning

Rock Climbing

Challenge Ropes Courses

Bushwalking

Snorkelling and Wildlife Swims

Recreational Scuba Diving

4 WD Driving

Caving

Rafting

Horse Trail Riding

Mountain Bike Touring

Travel Bike Touring

Surfing

Canoeing, Kayaking, Sea Kayaking

As the applicant has two purposes, it is necessary to determine which purpose is dominant, sporting or recreation. While the applicant did indicate that some of their member organisations run or are involved in sports completions, the extent to which that occurs is not apparent from the list of members provides.

The list of activities stated above, are predominantly recreational in nature. This, together with objects, is supportive of a finding that the dominant purpose is recreational. This being the case, it is not possible to reach a conclusion that the applicant exists for the encouragement of sport or games.

This requirement is not satisfied.

As the applicant has failed to satisfy test three, it cannot be said to have as its main purpose the encouraging of sport or games.

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