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This edited version has been archived due to the length of time since original publication.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 written advice

Authorisation Number: 1051361816656

Date of advice: 17 April 2018

Ruling

Subject: Income Tax exempt status

Question

Will the Club be an exempt entity under section 50-45 of the Income Tax Assessment Act 1997 (ITAA 1997) after establishing and making initial contributions to the Trust and deriving income from the Trust?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

Year ending 30 June 2022

Year ending 30 June 2023

Year ending 30 June 2024

Year ending 30 June 2025

The scheme commences on:

1 July 2017

Relevant facts and circumstances

The Deed states the trustee has, in addition to, all the specific powers provided in the Deed:

Relevant legislative provisions

Gaming Machine Act 2004 (ACT)

Income Tax Assessment Act 1936, section 102R

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

Question 1

Will the Club Limited be an exempt entity under section 50-45 of the Income Tax Assessment Act 1997 (ITAA 1997) after establishing and making initial contributions to the Trust and deriving income from the Trust?

Exempt Entities

Section 50-1 of the ITAA 1997 states:

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.

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:

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':

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.

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 promotes itself as a sports club and supports activities that are directly related to sport. The Club directly encourages sport by entering teams in competitions. The clubhouses provide 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. Gaming proceeds account for a significant portion of the Club’s revenue, however the proceeds from the conduct of gaming are used in a way that promotes the objects of the Club. Therefore, as the objects of the Club are to foster and promote sport in the community, gaming operation revenue also promotes sport.

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

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:

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:

The Club is controlled by voting members and many of these are members are current or recent participants in the sport. The other member categories with voting rights include past players and administrators and those with a strong interest in sports. This indicates a high level of participation in the administration of the Club by members associated with sport.

The Club’s annual report states that the Club is committed to supporting the community and are involved in the ongoing financial support of over 45 different sporting groups. In addition, the Club supports 85 community groups. Further, the Club allows community groups to use of its auditorium. The Club spends funds on sporting activities and facilities.

The Club will be providing a financial contribution to the Trust. The Trust has a purpose to hold its capital and income on trust for the Club. The Trust will also be running a business. The Club will be entitled to all the profits derived from the business. The Club decided to set up the Trust and to open the business in order to create additional revenue to meet the increased costs of operating the sporting teams.

All the income and assets of the Trust will be used solely for the purpose that the Club was established. The establishment of the Trust and the financial contribution to be made to the Trust supports the Club’s objects and furthers its purpose. Taking into consideration of all the factors discussed above, particularly the level of control of the Club by sporting members, the number of members participating in teams operated by the Club, and the level of expenditure on sporting operations, as well as the history of the Club, it is concluded that the Club is established for the encouragement of a game or sport.

Special conditions

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:

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

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 conditions and is therefore exempt from income tax.

Establishing, making initial contributions to, and deriving income from the Trust will not compromise the Club’s Income Tax exempt status.


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).