Edited version of your written advice

Authorisation Number: 1012996397009

Date of advice: 13 April 2016

Ruling

Subject: Income tax exemption - sporting club

Question

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

This ruling applies for the following period:

1 July 20XX to 30 June 20YY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The objects of the entity are to:

1. To promote and foster the sport and provide for its regulation and administration;

2. Represent the interests of its Members and of the sport generally;

3. Promote the safety of Members;

4. Seek arid obtain improved facilities for the enjoyment of the sport;

5. Act as final arbiter on all matters pertaining to the conduct of the sporting activity in Australia, including disciplinary matters;

6. Pursue such commercial arrangements as are appropriate to further the Objects;

7. Use and protect the Intellectual Property;

8. Have regard to the public interest in its operations; and

9. Undertake and or do all such things or activities which are necessary, incidental or conducive to the advancement of these Objects.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 50-1

Income Tax Assessment Act 1997 Section 50-45

Reasons for Decision

Paragraph 12 of Taxation Ruling TR 97/22: exempt sporting clubs indicates that in considering any application for a private ruling on this subject, the words game or sport should be given their ordinary meaning.

Paragraph 24 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, those words should be given their ordinary meanings.

Paragraph 38 of TR 97/22 provides a non-exhaustive list of examples of activities that are considered to be a sport for those purposes of section 50-45 of the ITAA 1997. There are examples of sports using equipment to achieve mobility.

Is the entity established for the encouragement of the sport of parachuting?

For an organisation to be exempt from income tax as a sporting club under section 50-45 item 9.1(c) of the ITAA 1997 it is essential that the main or dominant purpose of a club is the encouragement or promotion of a game or sport. The encouragement of sport is not only the participation in sporting activities. Encouragement or promotion can occur:

   directly, by providing the necessary facilities, coordinating activities or improving the abilities of participants; - through the improvement of the standard of trainers and coaches or by encouraging increased and improved performances. It also includes the direct involvement by the club in coaching, player development, player payments, providing team equipment, involvement in sport administration bodies, organising teams and providing referees or umpires and having awards for champion players.

and

  indirectly, such as through the marketing of the game or sport to encourage funding, or by initiating or facilitating research and development in the game or sport.

TR 97/22 covers the circumstances under which a club is regarded as being established for the encouragement of a game or sport.

For a club to be exempt from income tax under section 50-45, it needs to satisfy three tests:

1. It cannot be carried on for the purposes of profit or gain to its individual members.

2. It must be for the encouragement of a game or sport.

3. That encouragement must be the club's main purpose.

The Ruling states at paragraph 8 that where a club does not satisfy all three requirements, it is not exempt from income tax.

1. Non-Profit

The non-profit clause in the constitution prevents the distribution of property or income to its members.

The winding up clause requires that any surplus property on winding up be distributed to another association having objects similar to the objects of the entity and which also prohibit the distribution of its property to its members.

The entity meets the non-profit requirement.

2. Whether encouragement of a game or sport is the main purpose

Paragraph 15 of TR 97/22 lists the features that are highly persuasive in supporting a conclusion that the main purpose of the club is to encourage a game or sport. They 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 document emphasises that the club's main purpose is to encourage a game or sport and the club operates in accordance with those documents.

It is necessary to determine whether the entity has the highly persuasive features of being established for the encouragement of a game or sport. Paragraph 57 of TR 97/22 indicates what the courts have considered relevant, though not determinative, to support the main purpose of a sporting club:

A high level of participation by members in the sport or game encouraged by the club would also support the club's main purpose being the encouragement of the game or sport.

While it is not considered that the encouragement or promotion of sport need be the exclusive object or purpose of the club, it does need to show this to be the main or predominant purpose.

Purposes/Activities

The entity conducts and will continue to conduct in the future activities directly related to the sport for example;

• The entity successfully increased participation in the sport. It has also set up a membership retention program to encourage new and existing members to continue to take part in the sport.

• The entity administers certification systems. It has assumed responsibility for the Australian governance of certain technical aspects of the sport, for example the preparation and maintenance of the Operational Regulations which cover certain aspects of the sport including certificates, licenses, safety requirements, records, authorities, instructor ratings

• For many government and commercial organisations the entity is the national contact for the sport.

• The entity is accountable for the safety of the sport incIuding providing detailed rules covering the safe conduct of the sport.

• It participates in the administration and funding of various competitions. It also assists and finances the training for and participation of certain members in international events.

The above information indicates that the only purpose of entity is to administer the activity in Australia and to be its representative body for international competition.

Constituent document

The objects of the entity indicate that the activity is a sport and the entity is established to promote that sport.

Conclusion

The entity satisfies the requirements of TR 97/22 for a club to be exempt from income tax as a sporting club. It is exempt from income tax under section 50-1 of the ITAA 1997 as an association established for the encouragement of a game or sport according to the ordinary meaning of the words pursuant to item 9.1(c) in section 50-45 of the ITAA 1997.

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