Edited version of your written advice

Authorisation Number: 1051277861763

Date of advice: 5 September 2017

Ruling

Subject: Income tax exempt entity

Question 1

Is the Club a society, association or club established for the encouragement of a game or sport under Item 9.1 (c) of section 50-45 of the ITAA 1997 and therefore exempt from income tax under 50-1 of the ITAA 1997?

Answer

Yes

This ruling applies for the following periods:

1 July 2017 to 30 June 2018

1 July 2018 to 30 June 2019

1 July 2019 to 30 June 2020

1 July 2020 to 30 June 2021

1 July 2021 to 30 June 2022

1 July 2022 to 30 June 2023

1 July 2023 to 30 June 2024

1 July 2024 to 30 June 2025

1 July 2025 to 30 June 2026

1 July 2026 to 30 June 2027

The scheme commences on:

1 July 2017

Relevant facts and circumstances

● The Club is a company limited by guarantee. It was founded in the late 1960’s by people concerned with the provision of golf, bowls and other sporting facilities in the area, for the use of residents and their children

● The Club was incorporated and at that date it acquired all the assets of the incorporated club and its objects

● The Club’s constitution outlines the object of the Club. The objects for which the Club is established include:

● To provide for members and guests a social and sporting club

● To form golf and other and other sporting sections within the Club, to maintain a golf course, bowling greens and other amenities deemed necessary

● The constitution states that the profits and other income of the Club shall be applied to the promotion of the purposes for which the members of the Club are associated together and no payment of any dividends or distribution of profits or income to or amongst the members of the Club shall be made

● On the winding up or dissolution of the Club any property shall not be paid to or distributed amongst the members of the Club but shall be given or transferred to some other institution or institutions have objects similar to the objects of the Club which is also not carried on for profit or gain to its individual members and which is similarly exempt from income tax

● Membership of the Club is comprised of golf members, bowls members, social members, life members and junior members

● The Club’s sporting facilities include a golf course and bowling greens. It holds various organised sporting activities on each day of the week

● Any surplus of funds made on the years trading is being reinvested into the Club premises and to provide working capital

● The Club re-built its clubhouse building to provide additional facilities for sports together with meeting rooms

● Estimated costs have been made for capital improvements to Sporting facilities over the next 3 years including golf course improvements, bowling green improvements and equipment. The 2017/2019 business plan has a business strategy which includes capital expenditure of $250,000 for the golf course, bowls greens and facilities for these sports

● Social activities are undertaken to attract new sporting membership and to provide financial support to the sporting activities

● The Club’s overall objective is to one of the premier golfing and bowling clubs in the region and also to assist other sporting clubs and charities in the region

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

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Issue 1

Question 1

Is the Club Limited a society, association or club established for the encouragement of a game or sport under Item 9.1 (c) of section 50-45 of the ITAA 1997 and therefore exempt from income tax under 50-1 of the ITAA 1997?

Summary

The total ordinary income and statutory income of the Club is exempt from income tax pursuant to section 50-1 of the ITAA 1997 on the basis it is an entity described in item 9.1 of section 50-45 of the ITAA1997.

Detailed reasoning

Section 50-1 of the ITAA 1997 states:

The total *ordinary income and *statutory income of the entities covered by the following tables is exempt from income tax. In some cases, the exemption is subject to special conditions.

(* as defined in section 995-1 of the ITAA 1997)

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:

● is a society, association or club,

● is established for the encouragement of a game or sport, and

● satisfies the special conditions.

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.

In Douglas v Federal Commissioner of Taxation 36 ATR 532; (1997) 77 FCR 112; 97 ATC 4722 reference was made by the court to the definitions contained in the Concise Oxford Dictionary for each of these terms. ‘Society, association or club’ was accepted by the court as referring to a voluntary organisation having members associated together for a common or shared purpose.

In Pro-campo Ltd. v. Commr of Land Tax (NSW) 81 ATC 4270; (1981) 12 ATR 26 the court considered the meaning of 'society, club or association'. The court stated at 4279:

In Theosophical Foundation Pty Ltd v. Commr of Land Tax (NSW) [1966] 67 SR (NSW)…Sugerman JA stated at 82:

"A society, in the relevant sense, is a number of persons associated together by some common interest or purpose, united by a common vow, holding the same belief or opinion, following the same trade or profession, etc; an association'…"

…

The meaning of "society" as the Oxford English Dictionary definition shows can be the equivalent of "association" and I do not think that any relevant distinction in nature exists between the two. It merely seems to have happened that some organizations are called "associations", others are called "societies" but no meaningful difference can be detected between the two…Although clubs can in some respects and in some instances be seen to be distinguishable by reason of their purposes from societies or associations, they nevertheless fall squarely within the dictionary definition of "society" set out above. In short the three words are describing bodies made up of groups of persons who have come together to implement common purposes and objects…

Taxation Determination TD 95/56 Fringe benefits tax: can a body which is formed by government, is controlled by government and performs functions on behalf of government be an 'association' for the purposes of section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? (TD 95/56) refers to the definition of 'association':

2. …. The Shorter Oxford English Dictionary defines the term 'association' to be 'a body of persons associated for a common purpose; the organisation formed to effect their purpose'. The Macquarie Dictionary defines 'association' as being 'an organisation of people with a common purpose and having a formal structure'. Olsson J, in Quinton v. South Australian Psychological Board (1985) 38 SASR 523, also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose.

The members of the Club voluntarily associate together for a common purpose and common interest. The Club has a management committee and rules of association.

The Club is an 'association, society or club'.

Established for the encouragement of a game or sport

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

Game or sport

'Game' and 'sport' are not defined in the ITAA 1997 and are therefore given their ordinary meaning. Paragraph 38 of TR 97/22 provides a non-exhaustive list of activities that are considered a 'sport' for the purposes of section 50-45 of the ITAA 1997. The constituent documents of the Club reference its association with sports namely, golf and bowls. The Club provides facilities for members and guests to play golf and bowls.

It is accepted that the Club is an organisation associated with a game or sport.

Encouragement

A society, association or club will only be exempt from income tax if it has as a main purpose the encouragement of a game or sport. Encouragement can occur directly or indirectly.

TR 97/22 details features considered to be persuasive of supporting a conclusion that the main purpose of a club is to encourage a game or sport.

Paragraph 15 of TR 97/22 describes highly persuasive features which are present when a club is for the encouragement a game or sport:

● 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 documents emphasise that the club's main purpose is to encourage a game or sport and the club operates in accordance with those documents.

The Club promotes itself as a country club. It conducts activities that are directly related to sport. It provides a 9 hole golf course and 2 bowling greens. A ‘golf shop’ hires and sells sporting equipment and accessories. The clubhouse also provides social amenities for members and guests.

The Club’s objects in its constitution clearly state a main purpose being sport while membership categories also indicate a sporting purpose. The club provides facilities for both sporting and social purposes.

Taxation ruling TR 97/22 also lists other features considered relevant at paragraph 16:

● a high level of participation by members in the game or sport;

● 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 day to day management of the club);

● 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; and

● 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’s constitution allows for several membership categories however members currently fall in a sporting category or a social category. It is recognised that social members may also play golf and bowls but do not seek full sporting membership.

The Club’s website states that the Club is committed to supporting the community and are involved in ongoing support of sporting and sub clubs. Further, the Club allows the sporting community to use of its auditorium and function rooms at no cost.

In Terranora Lakes Country Club Limited v. FC of T 93 ATC 4078 (Terranora), Hill J, held that in that case, the provision of extensive social activities to visitors to the club did not prevent a finding that the entity was for the encouragement of the sport undertaken by a majority of the ordinary members:

“The attraction the club has for persons living as far away as Brisbane was made apparent by the evidence. Numerous buses arrive at regular intervals during the morning carrying visitors to the club, many of whom are elderly pensioners. Presumably these visitors are attracted, or were attracted in the year of income, by the poker machines not then available in Queensland. The evidence indicates that of the approximately 1,000 visitors per day to the club, 65-70% of them arrive by bus. In addition to the poker machines, the visitors enjoy the special social promotions in the club.

In the year of income, there were 4,076 ordinary members of the club, 226 junior members and 130 social members. A social member is entitled to utilise all the facilities of the club, sporting or recreational, but is not entitled to vote or become an office bearer of the club.” (at ATC 4082; ATR 300).

“…in the present case, I have reached the conclusion that, while the social activities (by which I include the gambling, entertainment, dining and accommodation activities) were very extensive and could clearly be seen as an end, or perhaps as ends in themselves, those activities were, I am satisfied, pursued as a means of financing the extensive sporting activities conducted by the club.” (at ATC 4086-4087; ATR 304)

In St Marys Rugby League Club Limited v FC of T 97 ATC 4528 (St Marys), Hill J listed at 4534 a combination of factors which are also present in this Club as being in favour of that club’s claim to exemption:

In the present case each of the matters said by Lockhart J in Cronulla-Sutherland to be significant, namely ``constitution, activities, history and control'' point to the characterisation of the Club as one having as its main object or purpose ``the encouragement or promotion'' of rugby league within the meaning of s 23(g)(iii) of the Act. The Memorandum of Association records the significance of rugby league as the major object of the Club. The Articles of Association, both in the membership categories and in the conferring of control upon Football Members (or Life Members), point to the significance of the football activities over the social activities. The activities of the Club involve both social and football activities. Were this not so then, no doubt, the case would not be before the Court. But, although income is derived from the social activities and the football activities constitute an outgoing, there is an intensity of activity directed towards football which tips the balance in favour of the applicant. The history of the Club is one of close association with rugby league from its inception and again points to the correct characterisation as being one for ``the encouragement or promotion'' or rugby league.

Finally, the control of the Club rests in the hands of former footballers (or Life Members) whose task it is not merely to run the Club but also to promote the competitions in which the Club participates in the rugby league season.

Tribunal decisions which also support the Club’s claim are Tweed Heads Bowls Club v. FC of T 92 ATC 2087; AAT Case 8267 (1992) 24 ATR 1068 and Case X25 90 ATC 251; (1990) 21 ATR 3257.

Consideration of all these factors leads to the conclusion that the Club is established for the encouragement of a game or 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:

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

● it is a deductible gift recipient; or

● it is prescribed by law in the income tax regulations and it is located outside Australia and is exempt from income tax in its country of residence.

Non-profit requirement

Paragraphs 9 and 21 – 23 of Taxation Ruling TR 97/22 discuss the non-profit requirement. A society, club or association established for the encouragement of a game or sport is non-profit if it is not carried on for the profit or gain of its individual members.

Organisations satisfy the non-profit requirement if their constituent documents prevent them from distributing profits or assets among members while the organisation is functional and on winding up. The organisation's actions must be consistent with this requirement.

The Club’s constitution prevents distribution to members. The Club is not carried on for the profit or gain of its individual members.

Has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia

The Club is a resident of, and is located in, Australia. The Club carries on its activities in Australia. It pursues its objectives and incurs its expenditure in Australia and therefore satisfies this requirement.

The Club satisfies the special condition in section 50-70 of the ITAA 1997.

Conclusion

Section 50-1 of the ITAA 1997 provides that the incomes of the entities covered by the tables in sections 50-5 to 50-45 of the ITAA 1997 are exempt from income tax.

An entity is exempt from income tax 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 if it:

● is a society, association or club,

● is established for the encouragement of a game or sport, and

● satisfies the special condition.

The Club is a society, association or club and is established for the encouragement of a game or sport. In addition, it satisfies the special condition and is therefore exempt from income tax for the years ended 30 June 2018 until 30 June 2027.

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