Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1011949965778

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. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Society, association or club for the encouragement of a game or sport

Question 1

Is The Club exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society, association or club established for the encouragement of a game or sport pursuant to item 9.1(c) of the table in section 50-45 of the ITAA 1997?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commences on:

1 July 2010

Relevant facts and circumstances

The Club was established in 19XX.

The Club's facilities are located at in a State in Australia and include:

The BBQ facility seats is used by The Club as a clubhouse for participating players enabling presentations and refreshments following each sporting events.

The multi-purpose function room is used by The Club for tournaments, pennant events, indoor bowls events, aerobics and as an after match area for the Squash and in-house Racquetball Sections.

Bistro facility catering at The Club is contracted to an external provider.

The number electronic gaming machines located at The Club's facilities will remain the same, post changes to the electronic gaming machine regime in the State in August 2012.

The objects of The Club as stated in their constitution are as follows:

The Club constitution contains the following non-profit clause:

The Club constitution contains the following dissolution clause:

The Club describe their membership categories in the following way:

The Club constitution limits the entitlement of Social Members to:

Social Members do not have rights to vote at General Meetings, alter The Club constitution, nominate, stand or be elected as Committee Members.

The Club 68% of The Club's members are entitled to participate in the ir sporting activities. 32% of The Clubs members are social members.

The members of the Board and their involvement in the sports promoted by The Club are as follows:

The Club operates the following sporting activities:

The Club's 2010/2012 Bowls Section Fixture demonstrates extensive participation of The Club in men's and women's Lawn Bowls.

The Club's Weekly Bowls Calendar for the Period 1 September 2010 to 25 April 2011 is extensive.

The Club fields teams in various sections of the Saturday Bowls Pennant Competition with their local and district bowls association.

The Club fields numerous teams in various divisions of the Saturday Bowls Pennant Competition

The Club has achieved success in the Saturday Bowls Pennant Competition:

The Club fields teams in various sections of the Tuesday Bowls Pennant Competition with the local and District Ladies Bowls Association.

The Club has achieved success in the following in the Ladies Tuesday Bowls Pennant Competition.

The Club fields teams in Indoor Bowls in winter events with the local Indoor Bias Bowls.

The Club has achieved success in local Indoor Bias Bowls Association competition.

Club Members have participated in the District Championships for Ladies Singles Indoor Bowls and achieved success.

The Club conducts indoor social bowls on a regular basis.

To Promote Bowls The Club,

The Club has a long history in fielding Squash teams and maintains its squash courts in accordance with pennant standards and international rules.

The Club currently has registered players in the local Squash Racquetball Association. There are currently teams participating in various grades. There are three seasons per year for this competition and a formal fixture exists.

The Squash section of The Club has achieved success in competitions.

The Club utilises its courts for internal Squash and Racquet Ball Competitions which are conducted regularly on a weekly basis.

The Golf Section of The Club organises competitions and handicapping of players. There are approximately XX Golfing Members of the Golf Section playing 14 events per year with an average field of 36-40 players at each event.

The Golf Sub-Committee is responsible for arranging each type of event, the course to be played, the adjusting and allocation of all handicaps, sourcing of sponsors, allocation of prizes and arranging T-stewards for each event.

The Club supports other sporting activities in its region in the following ways:

The Club utilise their resources on the promotion of sport in the following way:

The Club estimate that Members contribute 790 hours of voluntary labour organising and conducting sporting events across the various sports conducted by The Club per annum.

The Club has approved a development works project for its greens which includes:

Significant capital works were undertaken in 2009 when The Club invested in a water retention and irrigation system to sustain its grass greens. The Club received a grant to assist with the purchase of two large storage tanks, pump system and new sprinkler system. Overall the project cost $X plus 397.5 volunteer man-hours assisting with the project.

The Club has provided their Annual Reports for the Years ending 30 June 2008, 2009 and 2010. Included in these Annual Reports are financial statements for the 2007, 2008, 2009 and 2010 years.

Relevant legislative provisions

ITAA 1997, section 50-1

ITAA 1997, section 50-45

ITAA 1997, section 50-70

Reasons for decision

Summary

Based on the information provided, we accept that the main purpose of The Club is the encouragement of a game or sport pursuant to item 9.1(c) of the table in section 50-45 of the ITAA 1997.

We consider that The Club is non-profit, pursues its objects in principally Australia and incurs its expenditure in principally Australia.

As such The Club is exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society, association or club established for the encouragement of a game or sport.

Detailed reasoning

Section 50-1 of the ITAA 1997 provides exemption from income tax to entities covered by item 9.1(c) of the table in section 50-45 of the ITAA 1997.

Item 9.1(c) of the ITAA 1997 refers to a society, association or club established for the encouragement of a game or sport which meets the special conditions contained in section 50-70 of the ITAA 1997.

Section 50-70 of the ITAA 1997 states:

Paragraph 7 of Taxation Ruling TR 97/22 Income tax: exempt sporting clubs sets out the tests considered relevant in determining an entities tax exempt status under Item 9.1(c) in section 50-45 of the ITAA 1997:

Thus, an entity which passes the above tests and satisfies one of the conditions in Section 50-70 (a), (b) or (c) will be exempt from income tax.

Not carried on for the purpose of profit or gain to its individual members

Paragraphs 9 and 10 of TR 97/22 state:

The Club's constitution states that:

The Club's constitution states that:

It is considered that The Club's constitution contains sufficient prohibition against the distribution of profits and assets among members while it is functional and on it's winding up. The financials of The Club demonstrate that its activities conform to this prohibition. It is accepted that The Club is not being carried on for the purpose of profit or gain to its individual members.

It must be for the encouragement of a game or sport

Game or Sport

Paragraph 38 of TR 97/22 lists bowls, squash and golf as activities considered to be a sport for the purposes of section 50-45 of the ITAA 1997.

The objects of The Club contained in their constitution, are for the encouragement, promotion and fostering of the sports of bowls, squash and golf.

It is accepted that bowls, squash and golf meet the description of a game or sport as intended by section 50-45 of the ITAA 1997.

Encouragement of a game or sport

Paragraph 11 of TR 97/22 states:

And can occur indirectly:

The Club divides its activities into sections based on the type of activity:

The Club provides significant assistance to sporting activities to the local football, netball and little athletics clubs. The Club also provides its bus to the local Primary School for the purposes of transporting students representing the school in sporting events.

Based on this it is considered that The Club, manifested in its purpose and activities, is encouraging the sports of bowls, squash, racquetball and golf.

That encouragement must be the club's main purpose

Paragraph 13 of TR 97/22 provides:

Paragraph 14 of TR 97/22 states:

Paragraph 15 of TR 97/22 lists the following features as being highly persuasive in supporting a conclusion that the main purpose of the club is to encourage a game or sport:

Relevant but less persuasive features are listed at paragraph 16 of TR 97/22 and include:

The above features will now be considered as they apply to The Club.

Highly persuasive features

a) The club conducts activities in the relevant year that are directly related to the game of sport

The Club conducts activities directly related to the sports of bowls, indoor bowls, squash, racquetball and golf. It does this by participating in competitions, hosting competitions, maintaining facilities to pennant and international standards, providing registered coaches and accredited umpires. Additionally it encourages participation in bowls and indoor bowls by local school children, supports local sporting clubs and devotes significant portions of its resources to promoting its sporting activities.

b) The sporting activities encouraged by the club are extensive

The sporting activities conducted by The Club are comprehensive and its facilities are maintained to a high standard. Its historical and current activities indicate a strong and continuing association with the games of bowls, indoor bowls, squash, racquetball and golf. The Club is currently in the process of constructing a new bowling green and redeveloping the surfaces of its current greens.

c) The club uses a significant proportion of its funds in encouraging games or sports.

An analysis of The Club's financial statements for 2007, 2008, 2009, and 2010 demonstrates that The Club generates a surplus from ordinary activities each year.

The Club has expended significant portions of its surplus each year on promoting its sporting activities:

Additionally The Club relies heavily on its Members each year for voluntary labour to sustain its sporting activities who provide 790 hours of volunteer labour.

The Club are committed to devoting its resources to maintaining and improving its sporting facilities. The Club has approved a development works project for its greens over the next four years.

Significant capital works were undertaken in 2009 when The Club invested in a water retention and irrigation system to sustain its grass greens. The Club received a grant to assist with the purchase of two large storage tanks, a pump system and a new sprinkler system. Overall the project utilised 397.5 volunteer man-hours assisting with the project.

Based on this it is considered that The Club devotes a significant portion of its funds and resources in the promotion of its sporting activities.

d) The club's constituent documents emphasise that the Club's main purpose is to encourage a game or sport.

In St Mary's Rugby League Club Limited v. Federal Commissioner of Taxation 97 ATC 4528 (St Mary's) at 97 ATC 4534 Hill J observed:

The objects of The Club as stated in clause 1.2 of their constitution are:

The activities of The Club, as stated, reflect their commitment to promoting these objects. The Club also supports the sporting activities of local community groups including local football, netball, little athletics and the local Primary School.

The Club constitution limits participation in the management of The Club, including standing for office and electing committee members, to Members participating in the sporting activities of The Club. The current members of The Board and their involvement in the sports promoted by The Club demonstrate their involvement in the sporting activities of The Club.

It is accepted that The Club's constituent documents emphasise that The Club's main purpose is to encourage a game or sport.

Relevant but less persuasive features

a) High level of participation in sport encouraged by the club.

The Courts have been favourably persuaded by the number of members participating in sport:

67% of The Club members belong to a membership class which entitles them to participate in one of the sports promoted by The Club.

The Club maintains an extensive fixture for its Bowls Section. The Club fields teams in the Saturday Pennant Competition with the local District Bowls Association and teams in the local District Ladies Bowls Association Pennant competition. The Club has enjoyed success in these competitions.

The Club also fields teams in the local Indoor Bias Bowls Association and has enjoyed success in this competition.

The Club promotes squash and racquetball and has fielded teams in pennant seasons in the local Squash Racquets Association Pennant Competition and has enjoyed success.

The Club Golf section arranges for The Club's golfing members to play several events annually.

It is accepted that a high level of participation in sport is encouraged by The Club.

b) The members of the committee, or persons who control the direction of the club, are predominantly participants in or concerned with the encouragement of the game or sport (as distinct from the day to day management of the club).

The constitution of The Club only permits members who participate in the sporting activities of The Club to stand for office and to vote for office bearers. This is reflected in the membership of the management committee as stated.

The Club contract out the operation and management of its bistro facility which indicates a desire to not be involved in activities not directly related to the promotion of sport.

It is accepted that the members of the committee, or persons who control the direction of The Club, are predominantly participants in or concerned with the encouragement of a game or sport.

c) Voting rights in the club vest only in members involved in encouraging the game or sport whether by personal participation or by encouraging participation by others.

Only members participating in the sporting activities of The Club are given voting rights and are able to participate in the management of The Club.

d) The club promotes itself to patrons and the public as one encouraging the game or sport, and its advertisements and publicity emphasise the game or sporting facilities provided.

The Club promotes itself to patrons and the public as a club that encourages sport and its advertisements and publicity emphasise sporting activities and facilities. The Club provides results of all tournaments and competition play in local newspapers. The Club actively promotes its facilities, particularly bowls, squash and golf to its members and the public.

Other purposes including social or commercial activities

Difficulties can arise in determining a club's main purpose where a club is involved in other activities particularly social or commercial activities.

Lockhart J in Cronulla Sutherland Leagues Club Limited v. FC of T 90 ATC 4215 at 4225; (1990) 21 ATR 300 at 312 (Cronulla Sutherland) said:

Where the main purpose becomes the carrying out of those other activities, a club is not exempt. Nor is it exempt if it continues to be involved in the game or sport to a substantial degree but is equally involved with another purpose or purposes. As Lockhart J said in Cronulla Sutherland at ATC 4225; ATR 312:

In Terranora the Terranora Country Club provided and promoted an extensive range of a sporting activities, including golf, lawn bowls, cricket, and football. Terranora Lakes Country Club also had extensive social facilities that were used by the members and a large number of visitors. In the most recent year reported in the Terranora case, 90.3% of the Terranora Lakes Country Club income came from poker machines, bar trading and catering but only 16.9% was spent on sporting activities.

The Court ruled in favour of the taxpayer and concluded that the main purpose of the Terranora Lakes Country Club was the promotion of athletic sport and not one established for the purpose of carrying on a business of gambling, provision of entertainment and food, and the selling of time-share units. Hill J concluded that while the social activities of the Terranora Lakes Country Club were extensive and could be seen as ends in themselves, these activities were pursued as a means of financing the extensive sporting activities conducted by the club.

In Tweed Heads, the taxpayer was a lawn bowls club which had one indoor and four outdoor bowling greens. The club participated in and organised a large number of tournaments each year. The club building was substantial and the catering and entertainment facilities were extensive. The club's main source of revenue was derived from poker machines which were used predominantly by the 400,000 annual visitors to the club.

In a judgement by Dr P Gerber at 92 ATC 2099 he stated:

In St Mary's, Hill J found that the significant social activities of a sporting club were acceptable if the club was formed principally for sport and if the sport was financed by the social activities. It was acceptable that in that case that only 20% of the funds earned by the social club were spent on football. Hill J stated the importance of the club's constitution which stated that the principal aim of the club was the support of local football and that a large amount of the club's activities were sport related. It was also important that the club's history centred on the support of local football, and that the club rules required a certain proportion of its funds to be applied for the support local football.

Therefore, the fact that a sporting club also encourages social and other activities does not, in itself, preclude a club from being exempt. A club is still exempt provided the encouragement of a game or sport is that club's main purpose. Conversely if a club's main purpose is providing social amenities and licensed club facilities to its members, the exemption does not apply even if sport is encouraged.

In this instance The Club operates:

The constitution of The Club, unlike the Cronulla-Sutherland case, clearly identifies the sporting activities of The Club as its main purpose. These objects are manifested in the activities of The Club. The facts surrounding The Club are in line with the facts of St Mary's, where the constitution, activities, history and control of The Club point to the characterisation of The Club as having its main object or purpose as being the encouragement or promotion of a sport.

As with St Mary's, Tweed Heads and Terranora, it is accepted that the social and commercial activities of The Club exist to provide facilities to members and an income stream for The Club. They do not preclude a conclusion that the main purpose of The Club is the promotion and encouragement of sport.

Section 50-70 (a), (b) or (c) of the ITAA 1997

It is considered that The Club meets the requirements of Section 50-70 (b), (b) or (c) of the ITAA 1997 as it pursues its objects in Australia and incurs its expenditure in Australia.

Conclusion

Based on the information provided, we accept that the main purpose of The Club is the encouragement of a game or sport pursuant to item 9.1(c) of the table in section 50-45 of the ITAA 1997.

The features of The Club leading to this conclusion are summarised as follows:

We consider that The Club is non-profit and pursues its objects in principally Australia and incurs its expenditure in principally Australia.

As such The Club is exempt from income tax under section 50-1 of the ITAA 1997 as a society, association or club established for the encouragement of a game or sport.

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).