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Edited version of your written advice

Authorisation Number: 1051453760847

Date of advice: 13 November 2018

Ruling

Subject: Not for profit sporting organisation

Question

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 Income Tax Assessment Act 1997 (ITAA 1997) and therefore exempt from income tax under section 50-1 of the ITAA 1997?

Answer Yes

This ruling applies for the following period(s)

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

The scheme commences on

1 July 20xx

Relevant facts and circumstances

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-45 table item 9.1(c)

Income Tax Assessment Act 1997 section 50-70

Summary

The Club is exempt from income tax as a club established for the encouragement of a game or sport as described in item 9.1(c) of section 50-45 of the ITAA 1997 because it is a club whose main purpose is the encouragement of a game or sport and it satisfies the special condition.

Detailed reasoning

Section 50-1 of the ITAA 1997 exempts from income tax a society, association or club established for the encouragement of a game or sport described in item 9.1(c) of the table in section 50-45 of the ITAA 1997.

A sporting club is exempt from income tax if:

Society, association or club

The entity must be a ‘society, association or club’. This term is not defined in the ITAA 1997 and therefore is 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.

The members of the Club are bound by its constitution including its objects which state that the purpose of the Club is to promote and carry on Sport A and other sports. The members of the Club voluntarily associate together for his common purpose and interest.

It is established for the encouragement of a game or sport

Taxation Ruling TR 97/22 Income tax: exempt sporting clubs describes the circumstances under which a sporting club is regarded as being established for the encouragement of a game or sport. Paragraph 11 of TR 97/22 provides guidance on the meaning of ‘encouragement’.

‘Encouragement' means 'stimulation by assistance', according to the Macquarie Dictionary. It is essential that the encouragement of a game or sport is the main or dominant purpose of a club. Encouragement can occur directly by:

can occur indirectly:

The Club conducts activities directly related to sport by organising, hosting and participating in sporting events at the local and state level, providing referees and other officials at these events and coaching and entering teams and competitors in competitions.

The Club provides sponsorships for various other sports such as. The Club is also involved in the encouragement of sports through the coaching of clinics at schools and encourages increased participation through its marketing of the sport.

The Club is carried on for the encouragement of a game or sport.

That encouragement must be the club's main purpose

Paragraph 13 of TR 97/22 provides: to be exempt, the main purpose of the club must be the encouragement of a game or sport.

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:

Paragraph 16 of TR 97/22 specifies other factors that are relevant but less persuasive to determining purpose, including whether the persons controlling the direction of the club and whether voting rights vest in those persons concerned with participating in or encouraging sport.

Paragraph 41 of TR 97/22 explains that difficulties can arise in determining the club’s main purpose where the club conducts other activities, particularly social or commercial activities. TR 97/22 elaborates at paragraph 42 stating that where the club conducts other activities, particularly social or commercial activities, which are merely ancillary or incidental or secondary to the encouragement of the game or sport, we accept that the main purpose may still be that of encouragement. 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 case) said:

We are satisfied that the Clubs’ social and commercial activities are pursued as a means of financing the extensive sporting activities conducted by the Club and that its main purpose is the encouragement of a game or sport.

Special conditions

Section 50-47 of the ITAA 1997

Section 50-47 of the ITAA 1997 provides a special condition for all entities covered by section 50-1 of the ITAA 1997, it states:

Broadly, an entity that can be registered as a charity with the Australian Charities and Not-for profits Commission (ACNC) is an ‘ACNC type of entity’. The Charities Act 2013 (CA) sets out the requirements to be a charity. Section 12 of the CA provides purposes that are ‘charitable purpose’, and includes purposes such as advancing education and advancing health. The promotion of sport is not a charitable purpose.

The Club has sporting and social purposes which are non-charitable purposes. As such, the Club is not capable of being a registered charity, and is not an ACNC type of entity.

Section 50-47 of the ITAA 1997 does not apply to the Club.

Section 50-70 pf the ITAA 1997

A club will satisfy the special condition in section 50-70 of the ITAA 1997 if it:

The Club satisfies the special condition as explained below.

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

Paragraphs 9 and 10 of TR 97/22 explain the non-profit requirement.

Paragraph 22 of TR 97/22 explains that we accept a club as being non-profit where, for example, the Constitution of the club includes a non-profit clause and dissolution clause.

The constituent documents of the Club are its Memorandum of Association and Articles of Association. The Articles of Association provides that any profits or other income of the club shall be applied only to the promotion of the purposes of the club and shall not be paid to or distributed among the members of the club. The Memorandum of Association provides that the income and property of the club must be applied solely to its objects and not distributed to members except as payment in good faith for services rendered, etc. The Memorandum of Association prohibits distribution of the Club’s income and property to its members upon dissolution. The income and property shall be transferred to similar institutions having similar objects to the Club.

The Club has met the non-profit requirement.

Physical presence in Australia

The Club is a resident of and is located in Australia. The Club pursues its objectives and carries on its activities in Australia. The Club has a physical presence in Australia and to that extent pursues its objectives and incurs its expenditure in Australia.

Complies with all the substantive requirements in its governing rules

The supporting evidence provided shows that the Club complies with all the substantive requirements in its governing rules.

Applies its income and assets solely for the purpose for which it is established

The supporting evidence provided shows that the Club applies its income and assets solely for the purpose for which it is established.


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