South Sydney Junior Rugby League Club Ltd v. Commissioner of Taxation

[2006] AATA 265
NT2004/365

(Decision by: Mr Julian Block, Deputy President )

Re South Sydney Junior Rugby League Club Limited, Applicant
v. Commissioner Of Taxation, Respondent

Tribunal:
Administrative Appeals Tribunal, Taxation Appeals Division

Member:
Mr Julian Block, Deputy President

Subject References:
TAXATION
licensed club
principal object
whether encouragement of a sport (rugby league) the or a principal object
consideration of leading cases
the objection decision under review is affirmed.

Legislative References:
Income Tax Assessment Act 1997 - sections 50-45; 50-70
Income Tax Assessment Act 1936 - section 23 (g (iii))

Case References:
Cronulla-Sutherland Leagues Club v Federal Commissioner of Taxation - (1989) 89 ATC 4936
Cronulla-Sutherland Leagues Club v Commissioner of Taxation - (1990) 23 FCR 82
St Mary's Rugby League Club Ltd v Commissioner of Taxation - (1997) 36 ATR 281
Terranora Lakes Country Club v Federal Commissioner of Taxation - (1993) 25 ATR 294

Hearing date: 27 and 28 February 2006, 1 March 2006
Decision date: 21 March 2006

Sydney


Decision by:
Mr Julian Block, Deputy President

Decision

The objection decision under review is affirmed.

..........................................

Mr Julian Block, Deputy President

REASONS FOR DECISION

PART - INTRODUCTION AND BACKGROUND

1. The decision under review is the disallowance (by notice dated 25 October 2004) by the Respondent of an objection dated 20 April 2004 by the Applicant against assessments of tax for the years ended 30 June 2001, 2002 and 2003, and also against an amended assessment for the year ended 30 June 2000. Those four tax years are collectively referred to as the "Relevant Years"; individual years are referred to by reference to the actual years involved.

2. The Applicant was represented by Mr. R.L. Hamilton and Mr. B.L. Jones of Counsel instructed by Ms L Sherif of Pigott Stinson Ratner Thom, solicitors. The Respondent was represented by Mr. S.W. Gibb, SC and Mr. M Richmond of Counsel instructed by Mr. Michael Donohoe of the Australian Government Solicitor.

3. The Tribunal had before it the T Documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 together with Exhibits as follows:

Exhibit A1: An expert report dated 18 August 2005 by Mr D Meredith, a partner in BDO;
Exhibit A2: An affidavit by Mr Meredith dated 24 February 2006; it includes three annexures marked A, B and C respectively;
Exhibit A3: An affidavit by Mr FJ Cookson dated 14 November 2005 the president and a director of the Applicant. That affidavit is very lengthy; it runs to 38 pages and 177 numbered paragraphs. The affidavit itself must be considered in conjunction with the exhibits which are referred to in the affidavit proper as "FJC". The exhibits proper are contained in two large volumes separated by tabs. The first volume contains tabs 1 to 31 inclusive but excluding tabs 7 and 15 which are separately contained in a second and equally large volume. Tab 7 in the second volume contains a book by Ian Heads entitled "The Juniors: The Best for the Best"; published in 2000. Tab references contained in these reasons are references to the exhibits to Exhibit A3;
Exhibit A4: The 47th Annual Report (2004-2005) in respect of the Applicant;
Exhibit A5: A card in respect of Mr. Cookson indicating he is a life member of the Applicant; and
Exhibit A6: A circular entitled "South Sydney District Junior Rugby League Club Limited: Play Rugby League 4 Free; Our Juniors Our Future".
Exhibit R1: An affidavit dated 8 December 2005 by Mr TJ Vella of Horwath;
Exhibit R2: An extract for the Applicant's website dated 27 February 2006 and headed "Holiday Resorts - Una Voce"; and
Exhibit R3: Another extract from the Applicant's website dated 28 February 2006 entitled "Home & Business Loans".

4. The Tribunal was furnished with Statements of Facts and Contentions and also written submissions by each of the parties. Furthermore and on the third of three hearing days, the Tribunal received a document entitled "Respondent's Comparison of this case with Cronulla-Sutherland and St Mary's", coupled with a document entitled "Applicant's activities during Relevant Years"; those two documents are referred to in these reasons as the "Comparison" and the "Activity Summary" respectively.

5. Clauses 1 to 6 inclusive of the Respondent's outline of submissions are introductory in nature. They deal both with the relevant legislation and also with the manner in which, in accordance with relevant case law, an entity should be characterised for the purposes of para (c) of Item 9.1 in s 50-45 of the Income Tax Assessment Act 1997 ("the 1997 Act"). It is common cause that the special conditions set out in s 50-70 of the 1997 Act were complied with. Put in brief terms, the Applicant will be entitled to succeed in respect of the Relevant Years if its main purpose was the encouragement of rugby league. The Applicant will not be entitled to succeed if its main purpose was the pursuance of other activities or where the other activities and the encouragement of rugby league were equally important. Those introductory clauses provide so useful a survey of the applicable law that they are included in these reasons as follows:

Introduction:

1. The question for decision is whether the income of the Applicant for the years ended 30 June 2000, 2001, 2002 and 2003 is exempt from income tax, by operation of s50-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997). The answer to that question turns upon whether the Applicant falls within paragraph (c) of Item 9.1 in s50-45, which relevantly identifies as an exempt entity:

"a ...club established for the encouragement of:
...
(c) a game or sport;..."

The proper construction of this item, and whether the facts fully found fall within it, each involve a question of law[F1].

2. The corresponding provision of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) is s23(g)(iii). Section 50-45 of the ITAA 1997 was inserted by the Tax Law Improvement Act 1997 (Cth) s3 and Sch 1 Item 11, with effect from 1 July 1997. Explanatory memorandum material for that section may be found in the Explanatory Memorandum, Tax Law Improvement Bill 1997, in particular, in Ch. 9. Part B of that Chapter contains a statement that the exempt income provisions of the Bill would not change the legal effect of the corresponding provisions of the ITAA 1936. This means that the earlier case law is still of relevance to the interpretation of s50-45, at least so far as the present form of the exemption corresponds with the previous form[F2].

3. The section was further amended by the Taxation Laws Amendment Act (No. 3) 1998 (Cth) s3 and Sch 3 Item 14, with effect from 23 June 1998. Explanatory Memorandum material for that amendment may be found in the Explanatory Memorandum, Taxation Laws Amendment Bill (No. 3) 1998, in particular, in Ch. 3. In essence, the amendment was to enable the section to "catch up" with the ITAA 1936, under which, to remain eligible for the exemption, it was necessary to meet an extended set of special conditions. These are now to be found in s50-70 of the ITAA 1997. They are that the club is not carried on for the purpose of profit or gain to the individual members, and that it has a physical presence in Australia, and to that extent, incurs its expenditure and pursues its objectives principally in Australia. There is no issue between the parties that the Applicant satisfied each of these special conditions in the relevant years of income.

4. The history of this exemption, from its origins in earlier legislation and its amendment from time to time down to its present form, has been fully discussed in the cases[F3]. Addressing its present form, the noun "encouragement" ordinarily means "the act of encouraging", and the verb "encouraging" ordinarily means "stimulate by assistance, approval, etc.". "Encouragement", both in theory and in practice, could occur by a number of means, including, directly, by the entity itself forming, preparing and entering teams in competitions in the relevant game or sport, or itself organizing or conducting such competitions, or else, indirectly, by the entity giving financial and other kinds of assistance in the promotion of the game or sport by other entities which, themselves, encourage the game or sport directly. The words "game" and "sport" also carry their ordinary meanings, and there can be no doubt that rugby league football is both a "game" and "sport" in ordinary parlance. The word "game" would include games such as bridge and euchre, whereas it is doubtful whether old time dancing would be regarded as a "game" or "sport", but activities such as TAB betting, playing poker machines, art, the study of French, or photography could scarcely be regarded as a "game" or 'sport" in ordinary parlance.

How the Applicant should be characterised for tax exempt purposes:

5. In determining the purposes of an entity, one considers its objects as stated in its founding document, as well as its activities subsequent to formation[F4]. Specifically, in relation to the corresponding exemption in the ITAA 1936, it has been held that one has regard to its constitution, its activities, its history and its control at the relevant time[F5]; further, that although the intentions of the promoters may be relevant in determining the purpose for which an entity is incorporated, it is necessary to look at its actual activities at the relevant time[F6]; and that one is not concerned with the motives or ultimate aims of the founders of the entity[F7]. Financial information, and an analysis of it, will also be relevant in determining the character of an entity in a relevant year[F8], although not, of itself, determinative of that character.

6. The question whether an entity has a particular character (is a club established for the encouragement of a game or sport) depends upon the main purpose of the entity[F9], not that of some other entity, with which it may have an association or connection. The main purpose of an entity is a question of fact. Most difficulties with this concept have arisen where, as here, the entity conducts activities other than the encouragement of a game or sport, such as social or commercial activities. Where those activities are merely ancillary or incidental to the encouragement of a game or sport, the main purpose of the entity will still be that encouragement[F10]. But if the main purpose of the entity is or becomes the carrying out of those other activities (as ends in themselves), the entity will not be exempt. Nor will it be exempt if it is, or continues to be, involved in a game or sport to a substantial degree, but is, or continues to be, equally involved with those other activities[F11]. So, the fact that a sporting club also encourages social and other activities does not, of itself, preclude the club from being exempt. However, an entity which is primarily engaged in commercial transactions, even if for the purpose of raising funds for the benefit of an associated entity, which entity is a club established for the encouragement of a game or sport, is, itself, only indirectly or incidentally conducive to the encouragement of a game or sport: the former may not, for that reason alone, be characterized as one established for the encouragement of a game or sport, merely because this may be the main purpose of the latter. An approach to characterization of an entity, such as a Leagues Club, which approach regards the manner in which surplus funds are utilised by the club as the real test of the application of the exemption, has been authoritatively rejected[F12].

So, the policy of a Leagues Club to maximize the surplus and to enable the Leagues Club, by making donations, to support another separate legal entity, a Rugby League Football Club, has been held to be insufficient to characterize the Leagues Club in question as established primarily for the encouragement or promotion of football; its main purpose was held to be that of carrying on a social club for the benefit of its members[F13], or the provision of the facilities of a licensed club for its members and visitors[F14], not the encouragement or promotion of football[F15]. Also, in characterizing an entity for present purposes, while the absence of a legal obligation upon the entity to support a game or sport may not be fatal, the fact that the entity could appropriate its surplus funds to a purpose inconsistent with the encouragement of a game or sport may be a significant matter. Further, while such clubs may have "intra-clubs", all or some of which may be established for the encouragement of a game or sport, the nature and extent of the participation of the membership in these intra-clubs is unlikely, in many cases, to have a great deal of weight in the proper characterization of the club whose tax exempt status is under consideration[F16]. In arriving at a conclusion about an entity's status, material such as its constituent documents, promotional material concerning its activities, and published reports such as annual reports, will be of relevance.

...

6. The most important case authority in this area is Cronulla-Sutherland Leagues Club v Commissioner of Taxation. It was heard at first instance by Hill J (reported as Cronulla-Sutherland Leagues Club v Federal Commissioner of Taxation (1989) 89 ATC 4936 and in which his Honour denied the application for an exemption. His decision was affirmed by the Full Court (reported as Cronulla-Sutherland Leagues Club v Commissioner of Taxation (1990) 23 FCR 82) by majority (Lockhart J and Beaumont J, Foster J dissenting). The Applicant recognised (and see clause 22 of its written submissions) that it is necessary if it is to succeed that its case be distinguishable from Cronulla-Sutherland. As noted by Hill J in Terranora Lakes Country Club v Federal Commissioner of Taxation (1993) 25 ATR 294 at 296 , Cronulla-Sutherland "authoritatively laid down the test to be applied".

7. Hill J was as, I have noted, the judge at first instance in Cronulla-Sutherland. Hill J also, and apart from Terranora, decided St Mary's Rugby League Club Ltd v Commissioner of Taxation (1997) 36 ATR 281. It is in these circumstances that the Comparison referred to previously in these reasons was particularly helpful.

8. The similarity of a number of relevant entity names is such that a glossary is needed. Accordingly, the following abbreviated names are used in these reasons:

The Applicant (sometimes referred to as "the Club") refers to the Applicant in this matter;
"Junior Football League" refers to South Sydney District Junior Rugby Football League Limited, a company limited by guarantee;
"The Rabbitohs" refers to South Sydney District Rugby League Football Club Limited, also a company limited by guarantee; and
"The Sporting Association" refers to South Juniors Sporting Association Limited, also a company limited by guarantee.

9. It may be noted that at this early stage that:

(a)
The Applicant is the owner of and manages and conducts a licensed club in South Sydney;
(b)
The Junior Football League is concerned with the administration of junior rugby league in South Sydney. The Applicant during the Relevant Years furnished the Junior Football League with significant financial assistance;
(c)
The Rabbitohs also received financial assistance from the Applicant in the Relevant Years but excluding the 2001 year when the Rabbitohs did not take part in the senior competition. This latter statement is subject to some qualification because the evidence as to financial assistance to the Rabbitohs in the 2001 year was decidedly unclear; this aspect will be dealt with more fully later in these reasons;
(d)
The Sporting Association was described as an entity controlled by the Applicant; that description was not altogether apt in that the Sporting Association is also a company limited by guarantee. However it was controlled in the sense that the boards of directors of the Applicant and the Sporting Association were the same. The Sporting Association was referred to by Mr. Hamilton as akin to a treasury arm although he agreed that its function could have been carried out by the Applicant itself. The evidence revealed that the Sporting Association was constituted some years ago as a company limited by guarantee which borrowed substantial sums from the Applicant and deposited the amounts so borrowed so as to derive interest. An exemption was granted by the Respondent to the Sporting Association conditionally upon its devoting all (and not part only) of its income to rugby league. Mr. Cookson in his evidence said that it was formed and constituted on accounting advice because of the tax advantages thereby conferred.
(e)
There is another similarly named entity which is also relevant. The South Sydney Leagues Club Limited (referred to in these reasons as the "Other Licensed Club") runs a licensed club which resembles the Applicant's licensed club except that it was not and is not nearly as extensive or as profitable. Indeed, the Other Licensed Club could, had it only had the means, have supported the Rabbitohs; it is precisely because it could not do so that the Applicant made significant contributions to the Rabbitohs. A proposal to acquire the Other Licensed Club was referred to in the 2001 President's Report of the Applicant, and which was in turn referred to in clause 9.2 of Exhibit R1 as follows:
...

9.2 In the 2001 President's Report [Annual Report pages 2-3] there is a discussion of a proposal to acquire the South Sydney Leagues Club Limited;

"Your Board of directors has recently decided that it is time to diversify our Club interests. We propose, with the sanction of our members, to acquire the South Sydney Leagues Club Limited (Souths Licensed Club) at Redfern subject to certain legal requirements and special conditions. These will include reciprocal membership although the Souths Licensed Club will be under the total control of our Board of Directors.
We believe the South Sydney Leagues Club, including freehold property, which has an approximate unimproved capital value of $12 million will provide a valuable asset. The Club currently trades at a significant loss due to extensive interest and capital payments on loans. If members approve, it is out intention to discharge the Souths Licensed Club debts using our own resources, completely upgrade the gaming facilities and improve other areas. Upon doing so and with the expertise of our aggressive Management Team we envisage a significant profit is achievable. Your Board of Directors thus request you that vote for special resolution to this issue which requires the support of the majority of members in attendance, at an extraordinary general meeting which will be conducted immediately following the conclusion of our Annual General Meeting."

The General Manager comments [at page 5 of the 2001 Annual Report]:

"....if this purchase does go ahead you can be assured that it will give the members of the club some exciting possibilities for the future."

...

10. Mr Cookson's evidence was that in respect of the proposed acquisition by the Applicant of the Other Licensed Club, the Applicant's members approved the acquisition in general meeting but the members of the Other Licensed Club did not, and accordingly that acquisition did not proceed to completion.

11. Oral evidence was given by each of Mr. Meredith, Mr. Vella and Mr. Cookson. Mr. Meredith was not cross-examined at all. Mr. Vella was cross-examined to some slight extent and Mr. Cookson was cross-examined at some length. Their evidence will be dealt with in Parts B, C and D respectively.

12. It is convenient in this Part A to note that Mr. Hamilton objected to certain parts of Exhibit R1 on the basis inter alia that Mr. Vella was expressing opinions as to matters of law. A consideration of Exhibit R1 indicates that Mr. Vella has acted as the expert in earlier cases and that in preparing his report he referred to judicial comment which he considered relevant. Mr. Hamilton's objections were disallowed, as were objections by the Respondent (on grounds of relevance) to aspects of Mr. Cookson's statement Exhibit A3. In respect of all objections disallowed, the rights of the respective parties were reserved.

13. In brief opening remarks and before calling his evidence Mr. Hamilton advised the Tribunal:

(a)
The Applicant is through its constituent documents under the control of the Junior Football League. This is so because four of the seven directors (and thus a majority) must be nominated by the Junior Football League and during the Relevant Years all seven directors of the Applicant were nominated by the Junior Football League;
(b)
The Junior Football League which was at one stage unincorporated manages the Junior Football League in South Sydney. The Applicant was, so Mr. Hamilton said, born and conceived out of the Junior Football League;
(c)
Support for the Rabbitohs is necessary to ensure that there is a South Sydney senior team into which junior rugby league players in South Sydney can be promoted;
(d)
In contrast with Cronulla-Sutherland which distributed roughly 20 percent of its profits in respect of rugby league the Applicant in three of the four Relevant Years distributed between 70 to 80 percent of its profits to the Junior Football League and the Rabbitohs. The percentage was lower in respect of the year in which the Rabbitohs were not in the league. Moreover, the figures presented by the Applicant assume that the profit derived from the sale of certain land should not be treated as a profit for these purposes;
(e)
Mr Hamilton referred to the Sporting Association, as I have indicated, as a "kind of treasury";
(f)
Mr Hamilton said also that the South Sydney Bowling Club, an entity referred to in the papers was not of much relevance and was referred to only for the sake of completeness;
(g)
Mr Hamilton noted that in respect of the year ending 30 June 2004 the Respondent by ruling granted a tax exemption to the Applicant under the relevant statutory provision and that since there was no change in the nature of its activities from the Relevant Years to the 2004 year, I should take account of this factor in favour of the Applicant. (That allegation was disputed by the Respondent.); and
(h)
Put in short at this stage, Mr Hamilton said that this case was indeed distinguishable from Cronulla-Sutherland. He said moreover that the activities of the Sporting Association, although a separate legal entity could and should be treated as part and parcel of the activities of the Applicant.

14. Clause 24 of the Applicant's written submissions indicates that the Applicant contends that "the crucial factual differences between the present case and Cronulla-Sutherland" are:

24. ...

(a)
Control - the Applicant Club has at all times, by reason of the terms of its Articles, remained under the control of the Junior Football League who appoint four out of the seven directors (see Art. 21.2 at Tab 13 FJC1). Further, the evidence is that all seven directors of the Applicant Club throughout Mr. Cookson's 30-year tenure as a director have been elected from a ticket nominated by the Junior Football League (oral evidence);
(b)
direct financial support - the nature and extent of the Applicant's involvement in sporting activities through the provision of financial support to the junior and senior football clubs of between 70% and 80% of its net profit (in 3 out of the 4 years) in direct financial support (cash) with the principal focus on junior rugby league (Cookson, para 78FF Tabs 15 and 16 FJC1, Meredith para 6.1.3, Vella para 5.3 and 5.6); and
(c)
non-cash support - the Applicant Club has provided extensive additional support to the Junior Football League, in particular with an annual market value in excess of $425,000.

...

PART B - THE EVIDENCE OF MR MEREDITH

15. Mr Meredith was asked whether he wished to correct anything in Exhibit A1. He said that although his experience as referred to in Exhibit A1 was correct at the time when it was made he has since completed his Master's Degree and has embarked on a doctorate. He said also that he wish to amend clause 6.1.3 of Exhibit A1 by deleting the words "and its controlled entity" in the second line.

16. Clause 5 of Exhibit A1 reads as follows:

5. Methodology
5.1 In forming my opinion as to the proportion of net profit before tax and donations ("NPBT&D") devoted to donations to the Junior Football League, Senior Football Club and other sporting clubs and sporting and charitable groups by the Applicant for each of the years of income in dispute, I determined the NPBT&D for each of the income years in dispute by using as a starting point the profit from ordinary activities before income tax expense ("PBT") for the Applicant, being the Parent Entity, for each of those years, as shown in the audited statement of financial performance and adding to the PBT the amount of donations expense shown in the audited financial statement of performance of the Applicant.
5.2 The PBT of the Applicant for each of the income years in dispute, as shown in the audited financial statements of the Applicant for each of those years (rounded to the nearest thousand dollars) are:
Year ended 30 June 2000 $ 201,000
Year ended 30 June 2001 $3,848,000
Year ended 30 June 2002 $1,056,000
Year ended 30 June 2003 $4,514,000
5.3 Total donations expense incurred by the Applicant in each of the income years in dispute, as shown in the audited financial statements of the Applicant for each of those years (rounded to the nearest thousand dollars) are:
Year ended 30 June 2000 $2,993,000
Year ended 30 June 2001 $1,232,000
Year ended 30 June 2002 $2,884,000
Year ended 30 June 2003 $2,926,000
5.4 I determined the amount of donations devoted to the Junior Football League by the Applicant through reference to the audited financial statements of the Applicant and its controlled entity and the notes thereto for each of the income years in dispute. The amounts so determined (rounded to the nearest thousand dollars) are:
Year ended 30 June 2000 $1,000,000
Year ended 30 June 2001 $ 783,000
Year ended 30 June 2002 $1,838,000
Year ended 30 June 2003 $1,870,000
5.5 I determined the amount of donations devoted to the Senior Football Club by the Applicant through reference to the information referred to in item 4.1.5 of my report. The amounts so determined (rounded to the nearest thousand dollars) are:
Year ended 30 June 2000 $1,650,000
Year ended 30 June 2001 Nil
Year ended 30 June 2002 $1,000,000
Year ended 30 June 2003 $ 500,000
5.6 I determined the amount of donations devoted to other clubs or sporting groups or charitable groups by the Applicant for each of the income years in dispute by deducting from the total donations expense listed in item 5.3 of my report, the aggregate of donations devoted by the Applicant to the Junior Football League and the Senior Football Club, as listed in items 5.4 and 5.5 of my report. The amounts so determined (rounded to the nearest thousand dollars) are:
Year ended 30 June 2000 $343,000
Year ended 30 June 2001 $449,000
Year ended 30 June 2002 $ 46,000
Year ended 30 June 2003 $556,000
5.7 In order to provide the information contained in the section of my report dealing with the level of direct financial support provided by the Applicant to the Junior Football League (section 6.2), I referred to the audited financial statements and notes thereto of the Junior Football League for the years ended 30 June 2000, 2001, 2002 and 2003.
5.8 In order to provide the information contained in the section of my report as to the value of "in kind" support provided to the Junior Football League (section 6.3), I referred to the annual reports of the Applicant and its controlled entity, including the audited financial statements and notes thereto, for the years ended 30 June 2000, 2001, 2002 and 2003.
6. ...

17. Exhibit A2 was completed by Mr Meredith after he had considered Exhibit R1, Mr Vella's expert statement. It was completed in particular because he had determined that in the 2001 year the Applicant made no contribution at all to the Rabbitohs whereas Mr. Cookson in a letter to the Respondent seeking a private ruling (Annexure C to Exhibit A2) had claimed that in that year 14.84 percent of profits was donated to the Rabbitohs.

18. Mr. Meredith referred in particular to T p44 which dealt with the manner in which surplus funds were utilised. He said that T p44 dealt with donations as a percentage of available profits. Exhibit A2 was executed in order to explain why certain percentages contained in Exhibit A1 differed from those set out in the application for a ruling. He went on to say that although the denominator figures differed, the numerator figures were the same but with one exception. He did not, relying on public documents, reflect any donation to the Rabbitohs in the 2001 year. He said that there was in this regard some confusion and that Exhibit A2 was intended to resolve the discrepancies. (I note at this point that the parties in referring to the T documents cited both the document number and the page number; thus e.g. T17-284 appears in the Comparison. Since the pages were numbered sequentially a reference to the page number alone is sufficient and this is the methodology adopted in these reasons.)

19. Mr. Meredith was asked why in his calculations (and see in particular Annexure A to Exhibit A2), "members facilities\expenses" were reflected as if there were two components in that presumably the cost of members facilities would figure as part of those expenses. His answer was that he could not explain because the schedule was taken from a file prepared by someone else in BDO and before he became a partner in BDO. That other person is apparently no longer with BDO. When it was put to him that the cost of members facilities would have been included in operating expenses he answered that "I would have thought so". He went on to say that the reference to the expenses in respect of members facilities might include the cost of maintaining the boat (a reference to the catamaran).

20. Counsel for the Respondent did not ask Mr. Meredith anything at all in cross-examination; that there was no cross-examination is in the circumstances understandable.

PART C- THE EVIDENCE OF MR VELLA

21. Mr Vella's evidence was, by agreement between the parties, taken after that of Mr Meredith but before that of Mr Cookson.

22. Exhibit R1 is a lengthy and comprehensive statement by an accountant who has through his participation as an expert witness in cases in this area clearly gained considerable expertise and experience.

23. Mr Vella's comments on Mr Cookson's statement (Exhibit A3) and in particular in relation to financial matters are contained in clause 4 as follows:

1.
4. Comments on the Cookson Statement
4.1 The Cookson Statement comments on various aspects of the Applicant's operations. Paragraphs 88 to 130 of the Cookson Statement set out the details of the various "logistical and other contributions" that the Applicant provides to the junior Football League, in addition to the annual donations, during the Relevant Period. In these paragraphs, Mr. Cookson attributes a value to all, or most, of the services and facilities provided. Some detail of the calculations.
4.2 The Table behind Tab 18 of the Cookson Statement provided, in some, but not all, cases, some further detail of the calculations of the values put forward by Mr Cookson. However, there is no supporting documentation (vouchers, or other business records) provided. I have not been provided with any other documentation supporting the amounts stipulated. Accordingly, I are unable to form any views on the reasonableness or otherwise of the values attributed to the services and facilities provided by the Applicant to the junior Football League during the Relevant Period. I am able to say that the mathematical calculations in the table at Tab 18, are correct and that the amounts shown in the paragraphs which are drawn form the table are consistent with what is shown in the Table. For the purpose of the calculations set out in this report, I have assumed that the amounts set out in the table at paragraph 4.3 below can be supported by appropriate underlying documentation. My calculations may need to be amended in the event that the amounts cannot be so supported. I have taken account of the total of the values listed in the table below in my calculations in sections 6 and 7 below.
4.3 The alleged total value of services and facilities provided by the Applicant to the Junior Football League in each of the years in the Relevant Period is set out in the table below, based on the figures shown in the table at Tab 18:
Para of Cookson Statement   Cash Non-cash total
89 Staff/office staff [F22] 53,683 0 53,683
92 Maintenance staff 5,440 0 5,440
93 Drivers 17,118 0 17,118
94 Employment of players[F23] 0 0 0
102 Office and other rooms 0 75,000 75,000
103 Auditorium charge[F24] 0 42,900 42,900
105 Stationery and printing 55,000 0 55,000
106 Accounting software[F25] 8,796 0 8,796
107 Electricity 12,500 0 12,500
108 Telephone 19,100 0 19,100
109 Mobile telephones 12,000 0 12,000
114 Insurance 48,000 0 48,000
115 Audit and accounting fees[F26] 14,750 0 14,750
119 Transport 60,000 0 60,000
122 Cars 1,500 0 1,500
Alleged value of services and facilities provided by the Applicant to the JFL $307,769 $117,900 $425,787
4.4 It might be argued that some of these costs would be incurred whether or not the Applicant supported the Junior Football League. For example, the various personnel described at paragraph 89 of the Cookson Statement would likely have to be employed in any event. The rental cost is measured as the "market value of the premises" but there is no cost involved unless the relevant space could and would otherwise be rented. I do not explore these issues.
4.5 Mr Cookson also refers to other "contributions":

(i)
South Sydney Building & Training Company ("BTC") [paragraphs 95-99] - it is not clear what costs were incurred during the Relevant Period. It appears that "establishment costs" of $100,000 [paragraph 97] were incurred in 1998, outside the Relevant Period. Mr Cookson says "the Applicant was the ultimate holding company of BTC". A company search indicates that BTC is now deregistered and that it was wound up in or around 2002;
(ii)
land or capital owned or contributed by the Applicant [paragraph 110-113] - as I understand it, no cost was incurred by the Relevant Period. It is not clear when the "commitment" described at paragraph 113 was made, or when it must be honoured;
(iii)
Erskineville Gymnasium [paragraph 123-125] - Mr. Cookson does not specify what are the "costs associated with maintaining the Erskineville Gymnasium";
(iv)
Mascot Gymnasium [paragraph 126] - no indication was given of the timing or quantum of the contributions referred to;
(v)
pool facilities [paragraph 127] - it would seem that any incremental cost involved is negligible; and
(vi)
medical officer [paragraph 128-130] - there is no cash out involved; the "cost" is the opportunity cost (if any) of the rental premises, which is not specified.

4.6 Mr Cookson does not seek to place any monetary value of the various aspects "promotion of Rugby League through encouragement" described in paragraph 131-153 of his statement,
"Intra-CIubs"
4.7 At paragraph 26 of his statement Mr Cookson provides a schedule setting out the number of members of each "Intra-Club". Mr Cookson does not disclose the date to which the numbers relate. I reproduce that schedule below.
Art 95 Golf - Ladies 74
Bowling - Men,' 79 Golf - Men 25
Bowling - Women,' 26 Gym - Tuesday ladie.' 37
Bowling - Ladies' Wed Night 15 Gym - Wednesday Ladies 54
Bowling - Ladies' Thurs Night 24 Gym - Tues Night Ladies 25
Bowling - Men's indoor 26 Gym - Men 30
Bowling - Mixed Thur Night 19 Karate 34
Bridge 111 Netball 38
Camera 12 Old Time Dance 95
Canasta 14 Rummy 11
Chess 25 Snowy 118
Cricket 29 Squash 114
Darts 12 Swimming 65
Euchre 19 Table Tennis 18
Fishing 83 Water Ski 45
French 10    
4.8 The total number of members is 1,477, all of whom are members of the Applicant. If one assumes that there are no members who belong to more than one Intra-Club and that the numbers of members are unchanged over the Relevant Period, then the total membership represents the following proportions of the total club membership:
    2000 2001 2002 2003
Number of Intra-Club Members A 1,477 1,477 1,477 1,477
Number of Club Members B 45,725 45,978 45,476 44,924
Percentage a/b 3.2% 3.3% 3.3% 3.2%
2000 2001 2002 2003
Number of Intra-Club Members A 1,477 1,477 1,477 1,477
Number of Club Members B 45,725 45,978 45,476 44,924
Percentage a/b 3.2% 3.3% 3.3% 3.2%
The percentage is somewhat lower if those activities which do not constitute a "game or sport" are excluded. As I understand it, those activities would be Art, Camera, Fishing[F27], French and old time dance. Is not clear to us what "Snowy" means. Mr Cookson does not discuss what costs are incurred in operating the Intra-Clubs.
...

24. Mr Vella's comments on Mr Meredith's report are contained in clause 5 of Exhibit R1 as follows:

5. Comments on the BDO Report
5.1 The author of the BDO Report has been requested as follows[F28]
"Could you please obtain the audited financial accounts of the applicant for the years of income in dispute and any earlier years which you consider to be relevant and prepare a report which specifies the proportion of the applicant and controlled entities' net profit before tax and donations are devoted to donations to the Junior Football League, the Senior Football League and any other clubs or sporting groups or charitable groups.
Could you also please obtain and examine the [audited] financial accounts of the Junior Football League [and if you consider it necessary, the Senior Football League] and report on the level of direct financial support provided by the applicant to the Junior Football League [and, if appropriate, to the Senior Football Club]. [If it is possible to discern from the financial accounts of the applicant the value of "in kind" support provided to the Junior Football League and the Senior Football Club, can you please include that in your report.]"
5.2 Paragraph 4.1.5 of the BDO Report makes reference to certain audit working papers that were provided to the author of the BDO Report. I have not been provided with copies of these working papers.
5.3 I have reviewed financial data shown in each of paragraphs 5.2 to 5.6 of the BDO Report. That data is summarised in columns A, C, E and G of the following table:
    A B C D E F G H
2000 2000 2001 2001 2002 2002 2003 2003
a $'000 % $'000 % $'000 % $'000 %
Profit before tax b 201 3,848 1,056 4,514
Donations to JFL c 1,000 31% 783 15% 1,838 47% 1,870 25%
Donations to SFL d 1,650 52% 0 0% 1,000 25% .500 7%
Other donations e = b + c + d 343 11% 449 9% 46 1% 556 7%
Total donations f = a + e 2,993 1,232 2,884 2,926
PBTD e/f 3,194 5,080 3,940 7,440
Donations / PBTD 94% 24% 73% 39%
PBTD = profit before tax and donations
5.4 Table 6.1.3b of the BDO Report recalculates the net profit before tax and donations for the 2003 year. In calculating the net profit before tax, the BDO Report deducts the profit from the sale of land on the basis that this is a significant and non-recurring item. On this adjusted basis the total donations represent 88.2% (rather than 39.3%) of the (adjusted) profit (before donations).
5.5 I have checked the data in the BDO tables referred to against the underlying financial statements of the Applicant from which it has been sourced by Mr Meredith and the data correctly reflects what is shown in those statements. Columns B, D, F and H of the above table summarise the calculations in the tables at each of paragraphs 6.1.1, 6.1.2 and 6.3 of the BDO Report. I have confirmed that these calculations are correct.
5.6 I observe as follows.
(i) the calculations effected by Mr. Meredith are of total donations as a proportion of profit plus donations. This is the proportion which he has been asked to calculate. It is not clear why non sporting donations made by the taxpayer are relevant in determining the tax exempt status of the taxpayer. If the proportions are recalculated by reference to football donations only, the proportions are as follows:
    A B C D E F G H
2000 2000 2001 2001 2002 2002 2003 2003
$'000 % $'000 % $'000 % $'000 %
Profit before tax a 201 3,848 1,056 4,514
Donations to JFL b 1,000 31% 783 15% 1,838 47% 1,870 25%
Donations to SFL c 1,650 52% 0 0% 1,000 25% 500 7%
Total football donations d 2,650 783 2,838 2,370
PBTD e = a + d 2,851 4,631 3,894 6,884
Football Donations/PBTD d/e 93% 17% 73% 34%
PBTD = profit before tax and donations

(ii)
Mr Meredith has been asked to "prepare a report which specifies the proportion of the Applicant's and controlled entities' net profit before tax and donations devoted to [sport and charity]". As I understand it, donations made by another taxpayer are not relevant to the tax status of the Applicant. Mr. Meredith does not, in any event, calculate these proportions in relation to the Applicant and its controlled entity, but only in relation to the Applicant. He does, however, at paragraph 6..2 and Appendix C deal with the total contributions by two entities together; and
(iii)
at Tab 41 of the Annexure to the Cookson Statement is a copy of a request for a private ruling in relation to tax-exempt status for the Applicant. No particular years of income are specified [the ruling subsequently issued - at Tab 40 to the Cookson Statement- relates to the 2004 year". The financial information included in the request[F29] indicates certain proportions of "surplus funds..." distributed for the 2001, 2002 and 2003 years. These proportions do not accord with those in the table at paragraph 5.3 above. I are unable to explain the differences. I note, for example, that there is shown, in the request, a donation to the Senior Football League of 14.84% of surplus funds/profit in 2001, but no donation at all was made to the Senior. Football League in that year.

5.7 I refer to paragraph 5.1 above and to the request made to Mr Meredith to examine the financial accounts of the Senior Football League. I note the use of the words "if you consider it necessary" and "if appropriate. Mr Meredith does not appear to have provided in his report any comment on the financial statements of the Senior Football League whereas he has examined those for the Junior Football League. There is no explanation offered.
5.8 Paragraph 6.2 of the BMO Report compares the level of donations received from the Applicant with certain financial information of the junior Football League. I have compared the data in Tables 6.2a and 6.2b with the underlying source documentation and confirm the data is correctly extracted. I agree with Mr Meredith's conclusion [at the foot of page 13] that the JFL is financially dependant upon the support in the form of donations' from the Applicant [unless financial support could have been obtained from another source]. I are not aware what, if anything, turns on this. I note the comments of Hill J in Cronulla-Sutherland [at page l7]:
"I accept without hesitation that the football club would not have survived, at least in the form of which it presently is, without the financial assistance which it obtained from the Applicant...but that fact tells nothing of the purpose for which in any year .the Applicant is established. The donations represented the result of the Applicant making a profit but could not be seen objectively as the sole business of the Applicant." The same argument was made and rejected in the Waratah's case."
...

25. Mr Vella was asked in examination-in-chief as to the fact that he had not been provided with working papers. He said that they had been provided about a week prior to the hearing but that they were unclear in a number of respects. In particular the working papers did not deal with the contribution (if any) to the Rabbitohs in the 2001 year.

26. As regards clause 8.14 of Exhibit R1 and in respect of depreciation schedules, Mr Vella received registers only "last Tuesday". He said that he did not consider that any detailed examination was worthwhile especially if the Applicant acknowledged the correctness of the last sentence of clause 8.14 of Exhibit R1 and which the Applicant did in fact acknowledge. The last sentence of clause 8.14 of Exhibit R1 reads:

...
It would appear that the bulk of the items of plant and equipment are constituted by these items in the above listing which are not within the category "land and buildings".
...

27. Mr Vella said that he saw Exhibit A2 only that morning and he was asked whether he had any comments. He answered that he attempted to compare the proportions of donations to net profits and that in particular he sought to compare them with the information contained in the ruling application letter. He said that his task was complicated by the fact that he did not know what members facility expenses were and "I can't take it further".

28. In cross-examination, it was put to Mr Vella that he was presented with audited accounts which had been signed off by the Applicant's auditors. He said that the disclosure of donations in respect of the 2001 year did not disclose the break-up of those donations.

29. Mr Vella was asked in relation to clause 4.4 of his report whether he could not agree that in respect of the premises provided to the Junior Football League there would be some cost and for example cleaning and electricity. He answered that there was not in fact a rental cost. When asked again about cleaning and electricity as examples, he answered that the whole question depended on whether there was some rental foregone and which would in turn depend on the actual market value.

30. Mr Vella agreed that as regards clause 5.4 of his report it would not be unreasonable to include as a non-recurring item, the profit derived from the sale of land.

31. Mr Vella agreed as regards clause 5.6(i) that some of the donations (eg, Olympic athletes, surf organisations) could be classified as sporting but that there were other donations to organisations which had no connection with sport of any kind.

32. Mr Vella agreed in relation to clause 6.11 that the quoted comment was made in the context of a proposed increase in the rate of gambling tax.

33. I do not think it necessary to deal in further detail with the evidence of Mr Vella. As indicated previously he has over a number of years gained a considerable degree of expertise and experience in this comparatively narrow field. He made concessions where it was proper for him to do so. His evidence was acceptable and must be preferred to that of Mr Meredith who was handicapped by the fact that in respect of certain important aspects he was obliged to rely on a document prepared by someone else in BDO and who could not, so Mr. Meredith said, be contacted for enlightenment precisely because he is no longer with BDO.

34. I have previously noted that objections by Mr Hamilton in respect of Exhibit R1 were disallowed. Mr Vella referred (in my view aptly) to certain Presidential Reports and I have previously included clause 9.2 of Exhibit R1 in relation to the proposed acquisition of the Other Licensed Club.

35. I include, because they are also relevant, other references by Mr Vella to Presidential Reports in respect of the Applicant, and which are contained in clauses 8.11 to 8.14 and 9.1 of Exhibit R1 which read as follows:

8.11 In this regard I note the following extracts from the Applicant's Annual Reports:
2000 Annual Report
"... a new, state of the art, swimming pool will be built in the recently approved extensions to our Club on the eastern wing. Stage one of this project will commence mid October, 2000 with work scheduled for completion prior to Christmas 2001. The news from indoor pool and gymnasium will be incorporated in this section, and it will be magnificent!!" [President's Report, at p2]
"Work has commenced on the ground floor refurbishment project with the completion dated expected to be the second week of December, 2000. This project will see the combination of the old swimming pool area and the current Orbit Room combined into one spacious area.
Feature of the room will be:

A new bar with three plasma screen displays in the bulkhead, providing highest quality pictures that are digital signal ready.
Cellar located in close proximity to the new bar, providing a shorter pull for the beer, ensuring the best beer in Sydney will be at the Juniors.
Additional lounge seating for 100 people.
Additional coffee shop seating.
Roulette, Blackjack and Sic Bo machines.
Cash Express - Hyperlink with a $50,000 start up jackpot.
Cashcade Jackpots on every machine, once new controllers are available.

Once completed, the room will be open 24 hours a day, providing high quality facilities for our members, regardless of the hour." [General Manager's Report, at p4]
2001 Annual Report
"Our building project next door, which will incorporate car parking, sports bar, specialty restaurant, function rooms, gymnasium and swimming pool as well as offices etc., is slightly behind schedule. It was anticipated the project would be completed prior to Christmas this year. Mid February 2002 now seems more appropriate.
Planning is also in its final stage for "revamp" of the remainder of the ground floor, as well as the upgrade of certain areas on the 1st floor. In part the renovations are to comply with the State Governments Legislation requiring the partitioning of areas where food is prepared or consumed from other areas of the Club where smoking is permitted. It is anticipated work on these areas will commence in Mid January next year and will conclude some six months later." [President's Report, at p2]
2002 Annual Report
"Since my last report we have seen the opening of the new building which accommodates our offices, swimming pool and gymnasium facilities, the Swordfish Restaurant and Legends Sports Bar as well as undercover parking for 125 cars. In addition renovations to the ground floor and 1st floor eating areas have also been undertaken. Your Board of Directors is not satisfied with the ground floor eating and this will be altered in the near future at no cost to the Club. We propose further minor alternations to both the ground and first floors which will provided additional seating for the comfort of members and their guests." [President's Report, at p2]
8.12 The President's Report in the 2002 Annual Report notes that the Applicant has holiday premises available to its members at Lower Portland, The Entrance and Forster. In relation to the holiday premises at Lower Portland, the 2002 President's Report at page 3 says:
"Una Voce, our Resort at Lower Portland, continues to be a financial problem. The resort has suffered substantial continuous losses over many years which has not been a great concern because it was considered an amenity of members. However, it is factual only about one percent of our total membership now uses the facility. Low occupancy rates, escalating maintenance costs and wages have resulted in a $557,818.00 loss this year. Una Voce continued operation will necessitate further capital expenditure of approximately $800,000 on the sewage and water supply system alone. Whilst your board of directors appreciates many members and their families who have enjoyed wonderful times at Una Voce over the years, it is now frequented by very few. Your board of directors previously recommended the resort be sold with members deciding against doing so. In view of the aforementioned, we are duty bound to ask members to reconsider this decision and vote in favour of the resolution relating to this issue, which requires the support of the majority of members in attendance, at our Annual General Meeting."
It appears that the resolution was defeated. The President's Report for the 2003 year [Annual Report, page 3] continues to promote the use of the resort.
In the General Managers report in the same year appears the following [at page 4]:
"Una Voce has just had a large amount of money spent on renovations and new facilities..."
Marine vessels
8.13 A marine vessel was purchased during the 2000 year at a cost of around $400,000. In the Presidents' Report in the 2000 Annual Report [at page 3] appears the following:
"I have never weakened in my resolve that, we as a Club must be aggressive in our attitudes towards progress and competitive in gaming, but at the same time not lose our compassion, or conscience and our generosity towards the community. The Juniors never have and never will. We will always be 'The best for the Best'. Acknowledging this, I'm sure you will be impressed with the new catamaran cruiser purchased during the year, along with the employment of a full time-skipper. I know that it will serve the needs and requirements of all members."
Plant & equipment
8.14 I have not had access to the Applicant's depreciation schedules or plant registers and I cannot check what comprises plant and equipment. However, I note that. under the heading "Facilities" at paragraph 25 of the Cookson Statement appears the following:
"During the relevant period the applicant had (and still has) the following facilities:

(i)
The main club building which contains:

(a)
A gymnasium;
(b)
A 25 metre swimming pool at Kingsford;
(c)
4 squash courts;
(d)
2 function rooms;
(e)
2 privately run restaurants, 1 club run Bistro/Snack bar;
(f)
7 bars covering various levels on the Club's premises;
(g)
A library;
(h)
Auditorium seating for 600;
(i)
TAB, Keno facilities;
(j)
545 Poker machines;
(k)
Undercover parking for 120 cars;

(ii)
3 buses and one van;
(iii)
9 cars;
(iv)
2 holiday flats at Forster (total of 12 units);
(v)
1 holiday flat at The Entrance (9 units);
(vi)
Tourist Hotel (at Una Voce) at Lower Portland - including 20 rooms, dining and bar facilities; a swimming pool, 2 tennis courts, ski facilities, a small par 3 nine hole golf course;
(vii)
Gymnasiums at Mascot and Erskineville."

It would appear that the bulk of the items of plant and equipment are constituted by these items in the above listing which are not within the category "land and buildings".
8.15 ...
...
9. Other matters relating to financial aspects
9.1 I note that the main activity of the Applicant is described in the Annual Reports as follows:

(i)
in Note 26 to the 2000 Annual Report and note 27 to the 2001 Annual Report [at page 33] appear the following words under the heading "Segment information";
"the parent entity operates predominantly in the licensed club industry. The principal activities of the parent entity are to provide club facilities and services to its members";
(ii)
the Directors' reports for each year in the Relevant Period state:
"The principal activity during the year of the economic entity constituted by South Sydney Junior Rugby League Club Limited and its controlled entity is the operation of a licensed club."

Mr. Vella's comments in clause 9.1 as to the Applicant's own description of its principal activity are particularly relevant; as will be noted the Applicant consistently described its principal activity as the operation of a licensed club; that description was in my view, on the evidence before me, altogether accurate.

PART D - THE EVIDENCE OF MR COOKSON

36. I do not think it necessary to deal in detail with all of the evidence of Mr Cookson and its content is confined to some of the more salient and relevant aspects. During the course of his evidence, Mr Cookson was referred to some of the President's Reports forming part of annual statements of the Applicant.

37. Mr. Cookson noted that clause 8 of his statement Exhibit A3 should be amended in that he was the coach from 1970 (and see clause 8(ii)) and that clause 8(iii) should be amended to record at the end that he was then President until 1991.

38. Mr. Cookson noted that as set out in the constituent documents of the Applicant four of its seven directors (a majority) must be appointed by the Junior Football League. Three directors could be nominated by members (referred to by him as "floor directors"). He said that he in fact was elected as one of the floor directors. All seven directors of the Applicant were nominated by the Junior Football League. As his statement indicates, all seven have extensive experience and involvement in rugby league gained over many years.

39. Clause 26 of Mr. Cookson's statement deals with the 23 intra clubs as follows:

...

Intra Clubs

26. In addition to the facilities set out in the preceding paragraph, the applicant presently has, and had over the relevant period, 23 Intra Clubs. A schedule showing each Club, and the number of members of each Club (each of who is also a member of the applicant) is set out below:

CLUB NUMBER OF MEMBERS
Art 95
Bowling -Men's 79
Bowling - Woman's 26
Bowling - Ladies' Wed Night 15
Bowling - Ladies' Thur Night 24
Bowling - Men's Indoor 26
Bowling - Mixed Thur Night 19
Bridge 111
Camera 12
Canasta 14
Chess 25
Cricket 29
Darts 12
Euchre 19
Fishing 83
French 10
Golf - Ladies 74
Golf - Men 25
Gym - Tuesday ladies' 37
Gym - Wednesday Ladies" 54
Gym - Tues Night Ladies 25
Gym - Men 30
Karate 34
Netball 38
Old Time Dance 95
Rummy 11
Snowy 118
Squash 114
Swimming 65
Table Tennis 18
Water Ski 45

27. ...

Mr Cookson was asked about the club entitled "Snowy". He said that the Applicant supplied a coach, petrol and a driver for four trips during the ski season.

40. As to the Sporting Association Mr Cookson said that it formed on accounting advice to enable the Applicant to provide support to the Junior Football League without paying tax. He said that it was controlled because the directors are the same.

41. Mr. Cookson said that the Junior Football League is dependent on the Applicant, that it asks for funds when it needs them and that it would not be able to continue without the Applicant's support. He said that the Other Licensed Club "battles for survival. It is a club like ours, smaller but similar. It has next- to-no facilities". He said also that Other Licensed Club does not give any money to the Rabbitohs; "they are supposed to do so but can't and we do".

42. Mr. Cookson was referred to T p189 which is one of his reports as President, and which deals in some detail with a proposal to increase the rate of gambling tax; the second paragraph on the right-hand side of T p189 reads as follows:

...
I consider I am not being dramatic but honest in my assessment of this Club's future should the State Government's proposed tax increases on gaming REVENUE be implemented. I believe members should be made well aware of the ramifications should this occur, as never before in the history of the Club industry has there been an issue of such crucial significance as this proposed tax increase. If implemented the tax rate on gaming machine REVENUE will increase from 17.1% to a maximum of 40%, phased in over the next few years, beginning in 2004. G.S.T. of 9.09% will similarly be payable bringing the maximum tax rate on gaming machine REVENUE up to 49.09%. These taxes are on TOTAL GAMING REVENUE BEFORE ANY DEDUCTIONS and will by 2010 cost this Club, on current trading figures an extra $7,500,000.00 a year. To be required to pay almost 50% of total gaming revenue before allowances for wages, insurance, replacements, repairs and maintenance, electricity etc. is a definite formula for disaster. You only need deduct $7,500,000.00 from our trading profit of $507,000.00 to assess the situation this Club will be placed in. In such circumstances, for the Club to have hope of survival it will, not necessarily immediately but in the near future need to be conducted as basically a total commercial rather than community entity. Donations, sponsorships and subsidies will regrettably no longer be affordable and ultimately there will unfortunately be job losses [ind] means our affiliated sporting association will suffer as will charitable organisations. Our intra clubs will also lose financial support. Subsidised drinks, meals, entertainment, games, holidays, accommodation, bus and boat trips etc. will no longer be affordable. To put in transparently, Club life to which we have been long accustomed, will cease to exist. Clubs will finish up as merely mini gambling Casinos from which the Government will reap a vast percentage of the profits.
...

The same page indicates that the year's overall profit was $4,630,000.00 which included the proceeds of sale of a section of land adjacent to the Bowling Club in Botany. It noted further that the total net assets of the parent entity were then $42,562,000.00.

Mr Cookson said that the effect of higher taxes would be that there would be reductions in amenities and staff. He went on to say that much of the entertainment provided was free and moreover that the Applicant provided cheap meals (eg, $5 steaks) which were particularly attractive to pensioners. However, so he said, if there were to be a cut down, the last to suffer would be the Junior Football League.

43. Mr Cookson was asked (in the light of the conflicting evidence referred to previously) as to whether the Rabbitohs received any amounts in the 2001 year. He said that the Applicant's financial year ends on 30 June but that they, the Rabbitohs, might have received amounts between July and October 2001. He went on to say that "we honoured our contract". He was referred to clause 173 of Exhibit A3 which reads as follows:

...
173. Ultimately, the Senior Football League requested the applicant donate $3.5million a year to the Senior Football League commencing on 1 January 2000. The applicant's Board of Directors considered the request but rejected it on the grounds it was beyond the financial capacity of the applicant to meet the request. However, the applicant made donations to the Senior Football League in the relevant period as follows:
Year ended 30 June Donation Amount
2000 $1,650,000.00
2001 Nil
2002 $1 mil
2003 $ 500,000.00
174. ...
He said that the Applicant contracted to give the Rabbitohs $1.5M a year in either 1989 or 1990, for three years. The Rabbitohs received payments in accordance with the contract but not when they were out of the league. However the final payment was made after the Rabbitohs came back into the league.

44. Clause 113 of Exhibit A3 reads as follows: Land or capital owned or contributed to by the applicant

110. ...
...
113. In a joint venture with Marcellan College, the applicant has committed to pay $175,000.00 to upgrade Marcellan College Oval and its facilities for the benefit of junior rugby league players and to keep up with ongoing demand for more grades as a result of more children playing rugby league football.

Mr Cookson said that in respect of Marcellan College (the College), an arrangement has been entered into with the College and pursuant to which the Applicant shares the cost of maintaining certain grounds, at a cost to the Applicant of approximately $15,000 per annum.

45. Mr Cookson was asked as regards clause 119 of Exhibit A3 whether he believed that 40 percent of bus use was genuinely attributable to the Junior Football League more particularly having regard to Tab 18 which refers to a percentage of 30 percent. Mr Cookson said that he believed that a percentage of 40 percent was more appropriate.

46. Mr Cookson was referred in the context of clause 176 of Exhibit A3 to Note 16 in Exhibit A4 (the 2004 - 2005 report) in respect of commitments and which indicated that donations and commitments were not contracted for. Clause 176 of Exhibit A3 reads as follows:

... Future Direction of applicant Financial Commitment

176. The applicant's audited financial statements for the years ending 30 June 2003 and 30 June 2004, at notes 22 and 19 respectively, show that as at 30 June 2003 and 2004, the applicant had committed to providing donations and sponsorships as follows:
  2003 2004
(i) Not later than one year $3.6 million $2.9 million
(ii) Later than one year but not later than five years $10million $10 million
The applicant has committed these amounts (almost in their entirety) for donation or sponsorship in respect of rugby league football.
...

47. Note 16 in Exhibit A4 reads as follows:

...
  Consolidated Entity Parent Entity
Note 2005 2004 2005 2004
$'000 $'000 $'000 $'000
16 Commitments
Donations and Sponsorship
Not contracted for:
Within one year 3,000 2,900 2,200 2,900
One year or later and no later than five years 12,800 10,000 11,600 10,000
15,800 12,900 13,800 12,900
The donation and sponsorship commitments are not contracted for, but are directors.' estimates based on donations and sponsorship payments to the South Sydney District Junior Rugby Football League Limited and other parties in prior years.

...

Mr Cookson's said that there had been periodic increases arising in particular from increases in the number of clubs.

48. T p66 is a President's Report where the President was Mr Henry Morris (Mr Cookson's predecessor in that office). It contains a paragraph reading as follows:

...
I made mention last year of our intention to utilise virgin land on the surrounds of our Bowling Club at Botany to build quality town houses. Plans are currently before Botany Bay City Council awaiting approval and I urge all Members to view these plans which will be displayed at the Club. I am sure that you will all be suitably impressed.
...

Mr Cookson said that the land was sold as unimproved land with development approval. When asked whether this occurred in 2003 he said that he thought that it occurred before that time.

49. Mr Cookson said that about 17 percent of the persons who use the Club's facilities are not members of the Club. He said later in his evidence that a non-member can enter the Club and use its members' facilities if signed in by a member and where the non-member lives within a five kilometre radius, but that where the non-member lives outside that radius he can and will be admitted merely upon proof that he lives outside that radius.

50. The remainder of this Part D relates in the main (but not exclusively) to the cross-examination of Mr Cookson. It may be noted that in general terms Mr Cookson answered a number of questions to the effect that he did not know the answers.

51. Mr Cookson was asked whether the Applicant's licensed club was not one of the biggest clubs. He said that it was in the top ten. Mr. Cookson agreed that in 2000 the Applicant embarked on a substantial development involving a new building; the Applicant expanded its building onto adjoining property and in consequence obtained a substantial underground car park with four floors above ground level. He did not know when completion of the extensions took place.

52. Mr. Cookson was asked whether the Applicant was trying to obtain additional poker machines. He said that he did not think so. He recollected a policy of "capping" machines but did not know whether the Applicant bought more before "capping". He was referred to T p65 and where Mr. Morris said:

...
Now is the time to bite the bullet and make the tough decision to have the whole bottom floor available for 24 hour trading, if required. We must progress. Standing still is not the answer. We must look at what challenges await us.
Whilst the pool is 'out of action' the Directors have negotiated with management of the Des Renford Aquatic Centre for Members of this Club to use their facilities free of charge. This arrangement will remain until completions of the Club's new pool.
An artist's impression is on display within the Club and I urge all Members to come and inspect what is destined to be a most outstanding development. Please contact our Operations Manager, Mr. Ron Harder, to view these plans.
Also, let me lay to rest some whispers that have been circulating in regard to the Board wanting more poker to support South Sydney Football team. We, in fact, anticipated the Government's policy on the capping of poker machines and therefore were forced to move quickly, and by establishing this new area, we will also have a much needed lunge area. The first stage of this project will also see the Orbit Room opened up and connected to this new area. I am sure you will be most impressed.
Let me unequivocally assure you that the needs and requirements of the Members of this Club are paramount in the Board's decision making, and whilst we love and have great admiration and affinity with the Rabbitohs, our Members will always have first priority. Our written agreement and support of Souths continues for Seasons 2001 and 2002, providing that they are in the elite NRL competition. This commitment is for $1.5 million per season.
...

Mr Cookson said that he did not support the new building and as to "priority to the members" he said "I can't remember". It will be noted that the Report made it clear that the interests of members of the Club were paramount and had first priority.

When asked whether the renovations gave the Applicant power to obtain more poker machines he said "we were forced to move quickly. I don't know what he meant. You could ask him".

53. Referred again to T p66 he said that the Applicant owned the virgin land from the 1960s. There were two options; one involved developing townhouses (and this was discussed); the other option, which was adopted, was the sale of the land as undeveloped land but with development approval, and which fetched $5M. When asked whether there was any intention to do anything, other than develop, he said that the land was originally park land which was subdivided in the early 2000s.

54. Mr Cookson was referred to T p97 which refers to the recipients of donations from the Applicant. The relevant recipients set out in T p97 are as follows:

A. Sporting Donations:

Brett Hawke (Olympian-Swimming)
Jane Saville (Olympian-Athletics)
Lars Kleppich (Olympian-Sailing)
Paul Rowney (Olympian-Cycling)
Maui Channel Swim Team
Sth Maroubra Surf Club (surf ski)
Candice Falzon (Meadow Lea Ironwoman)
South Sydney Cricket Club
Surf Life Saving Australia
Randwick Botany Harriers
Maroubra S.L.S.C.
Pat Farmer (Ultra Distance runner)
South Eastern Little Athletics

B. Community Donations:

Sydney Children's Hospital
World Vision
Bear Cottage
Gardeners Rd Public School
Life Education Program
Mental Health Association
Vision Education Centre
Matraville High School
Maroubra Lions Club
Tempe Public School
Warioa School
J.J. Cahill High School
Redfern PCYC
Botany Public School
Victor Chang Cardiac Research
Southside Surfriders Association
Meals On Wheels
Eastlakes Public School

He agreed that some were not related to sport. He said that the Applicant was always sympathetic to pensioners; at a later time in his evidence he said that the Applicant was (also) always sympathetic to surf life saving associations.

55. The left-hand side of T p101 reads as follows:

In this my first year as your President it is my pleasure to report our Club has continued to progress with the Board of Directors and Management team making every effort to ensure all amenities etc. are in keeping with the high standards to which you, the members, are accustomed.
As will be seen from the Profit and Loss Statement a net trading profit of $2,789,000 was achieved after allowances for major items such as depreciation ($3,880,000) donations ($1,832,000) and taxation ($647,000). Our Club is certainly in a healthy state financially with the total net assets of the parent entity now exceeding $37,181,000). However, if the State Government's further proposed changes to gaming laws, due for ratification soon, go through in their introduced form, future Club trading profits and services in general, will certainly be effected.
We have totally supported and instituted the Government's previous policies in relation to problem gambling and alcoholism as well as introducing some of our own. We also accept, without criticism, the bulk of the proposed new changes. However, it is our opinion the proposed six hour per day "turn off" of poker machines in Clubs and pubs but not the Casino, will not prove beneficial. As members would realise in our current twenty four trading span we are able to cater for the entertainment of people whose employment restricts or precludes their attendance during, to us, normal hours. By basically closing down our industry between 4.00am and 10.00am it will, to say the least, thwart these people's options to socialise. It may also have an adverse effect on employment both within and related to the industry.
Our building project next door, which will incorporate car parking, sports bar, specialty restaurant, function rooms, gymnasium and swimming pool as well as offices, etc., is slightly behind schedule. It was anticipated the project would be completed prior to Christmas this year. Mid February 2002 now seems more appropriate.

Mr Cookson gave evidence in this connection as to the extent to which there were changes in gambling laws, and I refer to those changes later in these reasons.

On the same page on the right hand side of Mr Cookson's President's Report he referred to the Other Licensed Club in the following terms:

We believe the South Sydney Leagues Club, including freehold property, which has an approximate unimproved capital value of $12,000,000 will prove a valuable asset. The Club currently trades at a significant loss due to extensive interest and capital payments on loans. If members approve, it is our intention to discharge the Souths Licensed Clubs debts using our own resources, completely upgrade the gaming facilities and improve other areas. Upon doing so and with the expertise of our aggressive Management Team we envisage a significant profit is achievable. Your Board of Directors thus requests you vote for the special resolution relating to this issue, which requires the support of the majority members in attendance, at an Extraordinary General Meeting which will be conducted immediately following the conclusion of our Annual General Meeting.

He said that the Other Licensed Club would be a valuable asset because of its land. The Applicant believed that they could run it more profitably and had formulated detailed plans. The Other Licensed Club had 59 machines. As indicated previously the proposal did not proceed when the Other Licensed Club's members did not support it.

56. T p103 refers to the Applicant's entertainment resources. It also referred to Una Voce, a hotel resort on the Hawkesbury River. Mr Cookson said of Una Voce that it had been purchased some time previously and that it was available for use both by members and non-members but in the case of the latter at a somewhat increased tariff. He described it as a "white elephant". However, proposals to sell it had been defeated on more than one occasion by members at general meetings (or as he put it, the proposed sale was "blocked by self-interest groups"). Apparently, members who wished to retain the use of Una Voce's facilities on the Hawkesbury were able to mobilise sufficient support to block the proposed sale. (The fact that all seven members of the Applicant's board were nominated by the Junior Football League did not as Una Voce demonstrates, confer absolute control on the board since members retained sufficient power to defeat the directors.)

57. T p107 reflects the wide range of entertainment options available. Some were free and some required entrance fees but all were subsidised. As Mr Cookson put it "we get it back through the poker machines".

58. T p141 in the first paragraph reads as follows:

Since my last report we have seen the opening of the new building which accommodates our offices, the swimming pool and gymnasium facilities, the Swordfish Restaurant and Legends Sports Bar as well as undercover parking for 125 cars. In addition renovations to the ground floor and 1st floor eating areas have been undertaken. Your Board of Directors is not satisfied with the ground floor eating and this will be altered in the near future at no cost to the Club.

59. T p143 refers to CDSE (Community Development and Support Expenditure). Under this scheme poker machine profits to the extent of either one percent or one and a half percent had to be distributed to charities and which were divided for this purpose into categories, category one being charities as that term is commonly understood and where rugby league came within category two.

60. T p166 contains a Note as to the Chelmsford Green Project. Mr. Cookson said that it referred to the land which was sold at a profit with development approval.

61. T p167 contains a Note as to the Narellan Properties Partnership. This is a golf course purchased originally by 12 clubs and so that the Applicant originally owned one-twelfth. Having purchased the Other Licensed Club's interest it now owns one-sixth. Mr Cookson said that it involves a motel and a golf course used by the lady members and also by the male members but less often. Mr Cookson was asked as to the fact that the Note refers to the fact that "... the principal activity of which is the rental of properties". He said that he did not know and that the Applicant did not receive any rent. He said also that a housing development on the land surrounding the golf course is contemplated.

62. T p177 continues from T p 176 with a Note as to a director-related sale. That Note reads as follows: Note 26 Related Party Transactions

(c) ...
...
(iv) Director Related Sale of Property
During the year ended 30 June 2001, a property at 36 Chelmsford Avenue, Botany was acquired from the Company by relatives of a Director, Ron Floyd, at public auction for an amount of $410,000. On settlement a reduction of $90,000 was applied to the purchase price. The discount represented an independent valuation of capital improvements to the property made at the expense of Ron Floyd during the course of this tenancy of the property. The valuation was conducted by a registered real estate valuer.

63. Mr Cookson said that "it was purchased I think in the 1960s. There were two houses, one of which was sold.

64. T p184 (and other pages) refer to study trips by the Applicant's staff to study casino management. Countries visited including Hong Kong, Malaysia and the Republic of South Africa. Mr Cookson said that the Applicant cannot call itself a casino is a right reserved to the current monopoly owner but that monopoly right will endure only until 2010.

65. T p148 refers to one of the years when donations were specified separately. Mr Cookson said in relation to the relevant recipients that he did not know what some of them were but agreed that some had nothing to do with sport. This was so also as to the list at T p196.

66. On the second hearing day, Mr Cookson was asked about Note 16 in Exhibit A4 which I have referred to previously in these reasons.

67. Mr Cookson said that the Applicant had no entrenched obligation to make payments to the Junior Football League.

68. Further questions were asked of Mr Cookson as to the Narellan Golf Course. He agreed that the golf course was used by members but did not know whether it was listed on the Applicant's website. Nor could he answer questions as to what rental income was involved although he said, as indicated previously, that the Applicant receiving nothing. He agreed that the interest would be worth about $1.5M.

69. A catamaran was purchased in 2000 for about $500,000. It has a full-time skipper. Mr Cookson said that while it was used to provide pleasure cruises for members it was also used by the fishing club.

70. Mr Cookson was referred to Club website advertisements as to the availability of loans. Mr Cookson said that the Applicant acted purely as a commission agent, and that the Applicant was in other words only an intermediary. He said that the Applicant when it does negotiate a loan (and there have not according to his evidence been many), it receives a trail commission on an on-going basis.

71. Tab 7 of Exhibit A3 is the book by Mr Ian Heads referred to previously in these reasons. Page 228 of that book describes 'A Week in the Life of the Club, 1999'; it reads as follows:

Members: 24,891 men, 22,466 women. Total: 48,727
Intra-clubs: 32
Club is open 24 hours per day in Smithy's Gaming Lounge
Bar trade - per week: 80-100 kegs ordered per week, plus 400 dozen packaged beer (bottles and cans). Nice dozen bottles of spirits. 10 dozen bottles of wine (red and white) plus 215 litres of bulk wine. 15-20 carton of orange juice (15 litres per carton). 40 dozen bottles of water. Four dozen Oasis. 204 dozen soft drinks of various types (including sports drinks). 270 litres of Post Mix
Gamin machines: 475 - with the jewel in the crown being 'The Jockey Club' one 24-terminal simulated racing game
Staff numbers: 106 permanent; 294 casual
Auditorium: approximately 2500 people per week attend the shows
Tax paid weekly: $175,000
Weekly wages bill: $207,000
Poker machine duty: Last year (1998) averaged out at $165,000 per week paid to the NSW Government
Yearly Donations (charities, hospitals etc): $2.8 million.

Some Fun At the Club

Monday Bingo

Tuesday Market Place

Punters' Choice

Wednesday Spin 'n' Win

Kaffy's Kashboard

Thursday You're Laughing

Members' Badge Draw

Friday Bingo

Stack the Deck

Saturday You're Laughing

Sunday Line Dancing

Spin a Dinner

Go Racing

...

Mr Cookson agreed that the book was published in 2000 and that so far as he is aware what was said then is still correct. He was referred to the description of the Applicant's club as a pleasure palace and agreed that it is now an even bigger palace. When asked whether he agreed that it was a "miniature Las Vegas" his answer was that he had never been to Las Vegas. That page (from the book) indicated that in 1999 the Club had 48727 members.

72. Mr Cookson said that gambling at one time took place 24 hours per day every day. There was then (in 2002 or 2003) a change which restricted gambling hours to 18 hours a day, Monday to Friday and 21 hours a day on Saturdays and Sundays. However, about 18 months ago a further change allowed 21 hours a day throughout the whole of each week.

73. Further as to the Narellan venture Mr Cookson was asked whether the reference to rental income at T p121 was a reference to rental from this source. He said that he did not know. Similarly, he said that he did not know what commission income was referred to at T p179 (or at T p225). It was put to him (and he agreed) that the commission might relate to rebates from poker machine vending companies.

74. Mr Cookson said in relation to T p225 that the revenue from sale of land related to the bowling green land sold with development approval. T p225 specifies in Note 27 (the 2003 report) and under the head of "Other": "In addition the Club also generates revenue from entertainment and shows, hotel accommodation, sale of land, commission and sponsorship".

Having regard to that entry it must be wondered whether the profit from the sale of the land was properly excluded as a one-off item in the manner for which the Applicant contended. It will be remembered that Mr Hamilton asked Mr Vella whether to exclude it would be fair and Mr Vella agreed that as a one-off sale such exclusion would be proper. However, the Applicant appears to have treated the profit derived differently.

PART E - EXAMINATION OF THE EVIDENCE

75. There can be no doubt that the Applicant made substantial donations in cash to the Junior Football League. It is also likely that the value of the non-cash donations to the Junior Football League has been exaggerated. As Mr Vella pointed out, the value of accommodation in the Applicant's building must depend on whether that accommodation could or would be let separately. If employees of the Applicant furnish services to the Junior Football League there was no evidence that the employees in question would be paid less if their services to the Junior Football League were not rendered. In the absence of evidence as to these aspects (and I refer here to two examples only) it is not possible to be more specific and equally it is not possible to calculate the true aggregate value of non-cash donations.

76. The dubious nature of the evidence as to what, if anything, was paid to the Rabbitohs in the year (the 2001 year) in which they were out of the league has the effect that it is unlikely that anything was paid in that year. This is so despite evidence by Mr Cookson which would suggest the contrary and it is also so despite the content of the letter to the Respondent seeking an exemption and which is Annexure C to Exhibit A2.

77. The contract with the Rabbitohs was not produced and one has to wonder why. So much evidence was before the Tribunal; one would imagine that it would have been possible to produce that contract or to include it in the Exhibits. In a relevant accounting note (referred to later in these reasons) the commitment to the Rabbitohs was describes as an "in principle commitment" only.

78. The activities of the Applicant gathered by the Respondent in the Activities Summary comprised the following:

APPLICANT'S ACTIVITIES DURING RELEVANT YEARS

The Applicant's extensive business activities during the relevant years included:

(a)
the provision of entertainment and shows (including at the Applicant's auditorium seating 600 people) described in the annual reports as "world class entertainment" (T12-103) and as a "vast array of entertainment" (T14-192) and on the web site as "top line entertainment" (Cookson, Tab 25). Some examples are described at T11-71 and 72, T12-103, 107 and 108. It was voted "variety Venue of the Year" in 2001: T12-98. They were available to members and non-members alike: Cookson XXN.
(b)
2 restaurants, a bistro/snack bar and 7 bars: see Cookson at paragraph 25 (i)
(c)
extensive gaming facilities (including TAB, Keno and 545 poker machines): Cookson at paragraph 25(i), T14-225
(d)
a tourist hotel called "Una Voce" which was "upgraded" during the 2001 year (T12-102, T12-103, T13-142, T15-267) which was open to members and also to non-members (at a slightly higher tariff): R2 and Cookson XXN.
[This is particularly significant in light of Hill J's reference in St Mary's to the prospect of a different conclusion in that case had the motel development gone ahead: 36 ATR at 288.]
(e)
holiday units at the Entrance and Forster: T12-102 and Cookson XXN
(f)
harbour cruises on Applicant's "luxury" catamaran which has a full-time skipper and cost the Applicant approximately $500,000 (T11-85, T12-102, T13-142 and T14-190) and Cookson XXN
(g)
coach trips on Applicant's buses: T12-102, T13-142 and Cookson XXN
(h)
a facility for the provision of home and business loans: R3 and Cookson XXN. [See also Cookson at Tab 25 which is the home page of the web site which has a link to "home and business loans" which leads to R3)
(i)
investment in real estate (shown in the accounts with a cost or value of $1,477,000) including land from which rental income was derived (T12-121) and land held for resale for which DA approval was obtained (T11-66, T13-166, T13-177, T14-210)

79. It is clear that the undertaking of the Club was of very considerable size and magnitude. it may have been larger and more extensive than the club in Cronulla-Sutherland, and was at all events certainly not smaller or less extensive. The President's Reports in the T Documents indicate in clear terms that the Applicant was a very large and profitable undertaking and the Applicant was anxious to ensure that it remained so. As indicated previously the Applicant itself described its principal activity as the operation of a licensed club. Evidence to the effect that the Applicant was seeking to maximise its profits in order to benefit rugby league cannot be accepted in the light of the fact that benefits were paid to many other recipients, and moreover because profits were retained in order to expand and to diversify the activities of the Club. I have referred previously to a statement in a report by the Club that the interests of members were paramount. The Club even embarked on the provision of loans to members and that activity featured on the Club's web-site, although Mr. Cookson referred to this activity as being of minor importance only. The only possible conclusion is that the Applicant had developed a life and an importance of its own. Put in other words it cannot be said that the support or encouragement of rugby league was a main object or even an object equal to that of the licensed club itself. To the extent that the Applicant now seeks to contend that the encouragement of rugby league was a principal activity, its own reports indicate otherwise.

80. It must be remembered that the Applicant does not provide a field which it makes available for rugby league at a nominal cost or fee (and see Cronulla-Sutherland which did just that) and it does not field any teams itself (and contrast St Mary's which did). The Applicant did contribute annually to the maintenance of the Marcellan field where the cost involved on an annual basis was only $15000.

81. It cannot be doubted that the seven directors of each of the Applicant and the Junior Football League were involved in rugby league, but there was no evidence (in contrast with that in St Mary's) that the members (or a substantial body of them) were interested in rugby league to any extent which was significant. The members of the Applicant may have been motivated by a desire to enjoy the numerous facilities and benefits provided by the Applicant ranging from gambling, entertainment and cheap meals to hotels, units, cruises and other outings.

82. The percentages for which the Applicant contends (and it must be noted that the percentages contended for are of limited relevance only) assume that the land profit was an extraordinary item which should be excluded. That assertion is contradicted by the reference to the note quoted earlier in these reasons, pursuant to which that profit was reflected as revenue.

83. The Sporting Association was and is a separate entity and there is no basis in my view upon which its results can or should be consolidated. It will be remembered that it was set up as a separate entity purely for tax reasons, on the basis that all of its profit would be devoted to rugby league. Apart from any other considerations the profit of the Applicant was used in part for purposes apart from rugby league. But my decision would not differ if the Applicant were entitled to contend that consolidation is appropriate.

PART F - THE COMPARISON

84. The Comparison reads as follows:

Respondent's comparison of this case with Cronulla Sutherland and St Mary's
Relevant matters Cronulla Sutherland St Mary's Applicant
Objects in constitution

(a)
to provide a social and sporting club and
(b)
to promote rugby league

Yes

(23 FCR at 84)

Yes

(36 ATR at 283)

Yes

(T16-279)

Was association with a game or sport a pre-requisite of membership? No express finding, but apparently not

(per Hill J in St Mary's 36 ATR at 288)

Yes

(36 ATR at 283)

No

(the only pre-requisite for ordinary members is that they are at least 18: T17-284)

Did taxpayer conduct any football activities? No

(23 FCR at 87)

Yes

(they were "substantial" and Hill J said that it was "the intensity of activity directed towards football" which tipped the balance in favour of the taxpayer: 36 ATR at 284 and 288)

No
Was there a separate Football Club which controlled the taxpayer? Yes[1]

(23 FCR at 85 and 96 repeating a finding of Hill J 20 ATR at 1406)

N/A

(the taxpayer was controlled by former footballers: 36 ATR at 287 and 288)

Yes

(Cookson at paragraphs 50 - 56)

Did the taxpayer provide significant cash support to the Football Club? Yes

(23 FCR at 85 and 96)

N/A

(the taxpayer made "football grants":36 ATR 286)

Yes

(Cookson at paragraphs 78 - 87)

Did the taxpayer provide significant indirect financial support to the Football Club (eg football grounds, offices and meeting facilities at no charge)? Yes

(23 FCR at 85-86, 96 and 99 and findings of Hill J at 20 ATR at 1408-9)

N/A Yes

(Cookson at paragraphs 88-130)

In the absence of that financial support, would the Football Club have been unable to operate? Yes

(23 FCR at 86 and 96)

N/A Yes

(Cookson at paragraph 78)

Was that financial support provided pursuant to a contractual obligation? No

(23 FCR at 97)

N/A No[2]
Was the policy of the taxpayer to maximise the surplus available to it to support the Football Club? Yes

(23 FCR at 85 and 96)

N/A Arguably yes

(Cookson at paragraphs 78-87)

Did the taxpayer have intra-clubs to cater for other sports? Yes

(20 ATR at 1409)

Yes

(36 ATR at 284)

Yes

(Cookson at paragraph 26)

Did the taxpayer have a club house and provide extensive social and other facilities to its members (and non-members)? Yes

(23 FCR at 86-87 and 96 where Lockhart J describes it as a "very substantial business as a social club"; and see findings of Hill J at 20ATR at 1409)

Yes

(36 ATR at 285 and 288; Hill J indicates at 288 that his conclusion may have been different if the "motel development" had gone ahead)

Yes

(see attached list of activities)

85. The Comparison is of particular assistance because it includes references to and citations from the judgments in the cases themselves.

86. Mr Hamilton criticised the Comparison on a number of bases. In the case of the second relevant matter he contended that the entrenchment of control of the board of the Applicant by Junior Football League persons had the effect that this question should, in the case of the Applicant, be answered "yes" and not "no". I disagree. While it is true that the Junior Football League controlled the board of directors of the Applicant, this was not so in respect of members. There was no suggestion in this case of a class of football members as was the case in St Mary's. There was control also in Cronulla-Sutherland, and although the control in that case was of a de facto nature rather than control of an entrenched nature, there does not seem to be any doubt that there was in fact control.

87. Mr Hamilton criticised the content of the Comparison in respect of the third relevant matter, but not in my view in a manner which was tenable. St Mary's had a heavy football involvement amongst its own members and conducted and ran its own teams; in this case the Junior Rugby League had a heavy direct involvement in rugby league but the Applicant did not. The Applicant provided financial assistance; and it provided non-cash benefits, the precise real value of which is difficult to quantify.

88. As to the fourth relevant matter, Mr Hamilton said that "arguable" should be substituted for "yes" in respect of the Applicant and that this was so because of the board control entrenchment to which I have referred. In my view that contention is doubtful. It is of course true, as I have said, that board control was entrenched but the judgments in Cronulla-Sutherland suggest that the degree of control was, even if not formally entrenched, similar.

89. As to the sixth relevant matter, Mr Hamilton recognised that Cronulla-Sutherland provided a football ground. As to the value of indirect support Mr Vella's reservations had merit; the true value of the Applicant's indirect contributions to the Junior Football League was not established.

90. As to the eighth relevant matter, Mr Hamilton considered that the answer should have been "no" in the case of the Junior Football League and "yes" in the case of the Rabbitohs. Note (3) to the Comparison makes reference to this qualification, but even then the reference to an obligation in principle has the effect that there is room for doubt. T p90 contains at its foot the following notation:

This includes an annual commitment, in principle, of $1,500,000 for a period of three years commencing January 2000, to the South Sydney District Rugby League Football Club. The annual commitment is subject to a number of terms and conditions set out in the agreement and is contingent on the Club being readmitted into the NRL competition.

The reference to a commitment in principle is surely different from an absolute commitment since otherwise the words "in principle" are redundant.

91. As to the tenth relevant matter, the intra clubs in all cases do not appear to have figured largely and the number of members involved appears in all cases to have been in comparative terms, minor in relation to the membership as a whole.

92. As to the last relevant matter, St Mary's might have been decided differently (per Hill J) if the motel development had gone ahead. Previous content of these reasons indicates that this Applicant has not only contemplated activities of a similar nature but has undertaken them. I refer in particular in this context to Una Voce, and also the Activities Summary as to units.. It is to be noted also that the Applicant considered developing the bowling green land as townhouses, but instead (and presumably the preferred alternative) sold the land as undeveloped land but with development approval.

PART G - EXTRACTS FROM THE RELEVANT CASES

93. Although it may not be necessary to do so, and more particularly having regard to the detail contained in the extracts from the Respondent's submissions quoted in Part A I intend in this Part G, and if only for the sake of completeness, to include extracts from Cronulla-Sutherland at first instance, Cronulla-Sutherland in the Full Federal Court and St Mary's, and notwithstanding the fact that other cases were cited before the Tribunal.

94. In Cronulla-Sutherland at first instance, Hill J said:

(a) at page 4937:
...
The control of the applicant has always remained in the hands of persons interested in promoting the Football Club. All the directors of the applicant have since the formation of the present football club in 1963 been members of that club.
...
(b) at page 4940:
...
A significant part of the applicant's contribution to the Football Club lies in the grant to the Football Club for a nominal fee of $1 per year of the right to use what was known as "Endeavour Field" and what is now, as a result of a sponsorship arrangement with Caltex Refining Co Pty Ltd known as "Caltex Field".
The applicant purchased the land upon which the Caltex Field now stands in 1968, developing one main playing field and two smaller fields. Also built upon the site adjacent to the main playing field is the Club-house now occupied by the applicant. The playing fields alone are now worth nearly $3,000,000 excluding the value of other improvements. On the site are also a main stand for spectators, two grand-stands, two large dressing sheds and a referees' dressing room. Canteen facilities and a score board are also available.
Notwithstanding the terms of the licence agreement to the Football Club for the use of the fields, the applicant bears the costs of running and maintaining the fields including electricity and costs of water and meets all capital expenditure required. The Football Club is thereby enabled to raise funds for ground advertising, to collect gate money and to receive annual amounts from the Caltex sponsorship agreement. The field contains parking facilities for 2000 cars and the parking revenue is collected and retained by the Football Club.
In addition the applicant in the relevant years made available to the Football Club two fully equipped offices in its premises for the exclusive use of the Football Club without rental and provided other meeting facilities.
On match days, a part of the Club-house with a viewing window is dedicated for use by the "White Pointer Club" a group of members who pay approximately $1000 per head annually to the Football Club in return for which they become entitled to a reserved seat within the serviced viewing area. The applicant does not charge the Football Club for the provision of this facility and the profit is retained by the Football Club.
...
The evidence makes it quite clear that in the absence of the continued support of the applicant in the manner set out above the Football Club could not have continued to play in the competitions organised by the NSWRL. I accept without reservation that the consequence of the Football Club discontinuing its participation in the competitions organised by the NSWRL would be a loss of interest in and a decline of support of rugby league in the Sutherland Shire.

(c) at page 4941:

...
In evidence before me were the financial accounts of the applicant for the years in question. From those accounts had been prepared by the applicant a schedule purporting to show the net available funds and the extent to which such funds had been appropriated for sporting purposes in the years 1971 to 1986 inclusive. That schedule is as follows.
...

(d) the schedule referred to in (c) above which appears at pages 4942 and 4943, is contained separately in Annexure A to these reasons);

(e) at pages 4950 and 4951:

...
Behind these submissions lie two distinct strains of thought both of which, in my opinion, are erroneous. The first is that there is a necessary dichotomy between the encouragement of sport on the one hand and the holding of a sporting spectacle on the other. The two are not in my view necessarily mutually exclusive. Perhaps the most important way in which sport in general and rugby league football in particular may be promoted is at the level of children. Unless school children are encouraged to play a particular sport that sport will quickly die out. That is why, no doubt, as the evidence in the present case shows, attention is given to schoolboy football. Thus it was an essential, for example for admission into the Winfield Cup Premiership Competition in 1988 that 100 teams be fielded in a junior league competition commencing with children aged seven to nine playing mini-league and children aged ten to twelve playing mod-league. It was essential also that there be spent on schools and junior league development no less than $50,000 per annum excluding wages as well as there being fielded three junior representative teams in the Ball, Flegg and Matthews Cup. Children need sporting heroes and these are provided by the players of the first grade teams who do battle week after week in the football season. It seems to me quite likely that without the holding of first grade matches, it would be indeed difficult to encourage younger players to participate in the sport. They would drift off to other codes which did hold first grade representative matches. Additionally, I cannot close my eyes to the fact that the first grade match is not the only match played on a day.
...

(f) at pages 4953 and 4954:

...
The applicant's argument in the Waratahs' case is summarised in the following passage at 39 of 10 ATR 33; at 4342 of the report in 79 ATC 4337:
The appellant's case in relation to its activities during the relevant period is that if these are looked at globally it will be seen that the appellant answers the statutory description; that in fact a great deal of time and energy is devoted to sporting matters by its office-bearers, members and employees, the significance of which is not to be assessed solely in monetary terms; that the sporting activities provide the real reason for its establishment and existence; that its social activities and the amenities which it provides for its members should be seen as part and parcel of the conduct of a strong and active sporting club; and that the provision of social amenities for its members, including poker machines, should be seen as a means of earning income for immediate or ultimate application for the promotion or encouragement of sporting activities.
That argument is in essence the same argument as is put by the applicant here. The Board of Review by majority upheld the assessment of the Commissioner. Mr O'Neill, who dissented, characterised the club as one where the main purpose of the club was the encouragement of rugby although also established for the purpose of promoting social amenities to members as a subsidiary purpose. Such a characterisation would seem to fall within category (d) as defined in Case T53 ante.
Waddell J held that the question was to be resolved by an application of what was said in the High Court in Royal Australasian College of Surgeons v. FCT (1943) 68 CLR 436; 2 AITR 490, a case concerned with the question whether the college was a "scientific institution" for the purposes of s 23(e) of the Act. After citing passages from the judgments of Latham CJ, Rich, Starke, McTiernan and McWilliams JJ, Waddell J continued at (ATR) 37 and (ATC) 4341:
The conclusion which I draw from the Royal Australasian College of Surgeons is that, in order for the appellant to come within the statutory description in question in this case it must appear from the evidence that the main or real purpose for which it was established during the tax years in question was for the encouragement or promotion of an athletic game or athletic sport of the kind mentioned and that the purpose of a social club was not collateral to or independent of this purpose but merely concomitant and incidental to it.
It might be argued that his Honour's test, while clearly echoing what had been said by Rich J in the Royal Australasian College of Surgeons' case did not necessarily follow from what had been said by the other members of the High Court. Indeed, when the matter had been before the Board of Review, Mr O'Neill in dissenting had taken the view that the exemption was available even if the club was established with a collateral object provided that the pursuit of that collateral object was subsidiary to or no more than jointly with and as an aid to the pursuit of its main or prevailing object. Mr O'Neill referred, inter alia, to the Royal Australasian College of Surgeons' case without suggesting that it required a contrary conclusion. However, having regard to the later decision of the High Court in Stratton v Simpson (1970) 125 CLR 138; [1971] ALR 117 it now seems clear that Waddell J had correctly construed the Royal Australasian College of Surgeons' case.
...

(g) at page 4955:

...
While the facts of the present case differ in detail from those of the Waratahs' case, the overall picture which they reveal compels me to the same conclusion as that reached by Waddell J. It would in my view be quite unreal in the present case to regard the social activities of the Club with its dining rooms, bars, television room, auditorium and poker machine facilities as being activities engaged in solely for the purpose of providing funds for the Football Club. In my view the social activities became, if they were not originally, ultimately an end in themselves. They took on a life of their own notwithstanding that it was necessary that these activities be pursued to enable profits to be channelled to the Football Club so that these Club could continue. No mere disinterested observer would describe the social activities of the applicant, its trading as a members' club, as being merely concomitant and incidental to its activities of promoting or encouraging sport. At the very least these activities were engaged in the pursuit of a collateral or independent purpose. Indeed there is much to be said for the view that it is the social activities of the applicant as a members' club which give to the Club its essential character, which stamp it as a club which in the relevant years was established to provide for the social needs of its members rather than for the promotion or encouragement of football.
...

(h) at page 4957:

...
I accept without hesitation that the Football Club would not have survived, at least in the form which it presently is, without the financial assistance which it obtained from the applicant. That was made clear in a number of reports of Mr Poulter as Treasurer of the Football Club when giving thanks to the Leagues Club for its support. But that fact tells nothing of the purpose for which in any year the applicant is established. The donations represented the result of the applicant making a profit but could not be seen objectively as the sole business activity of the applicant. The same argument was made and rejected in the Waratahs' case, supra .
7 Relevance of the Financial Evidence
The financial evidence was put forward by both sides as providing some measure of the extent of the activities of the applicant. The evidence of the applicant was not completely satisfactory in that the percentages were arrived at taking into account expenditure that would not fall totally within the section ie the expenditure on the intra-club activities. However I accept that the financial evidence does show that substantial amounts were contributed in all of the years in question by the applicant to the Football Club and further that those amounts represented a substantial percentage of the Club's after tax profit.
While the figures prepared by Mr Leong were, if considered as a source and application of funds statement obviously erroneous for the reasons which I have already indicated, those figures did point out one significant fact, although not too much weight could be put upon it, that being that the overall expenditure of the applicant on its social activities was so far in excess of the expenditure for sporting activities, howsoever that expenditure should be calculated, that it was hard to characterise the activities of the applicant as falling within the statutory exemption. The fact that Mr Leong's figures did not take into account a percentage of overheads that could be said to relate to the sporting activities did not, in my view, materially affect the result. It is not necessary to reach a precise figure to see the trend which the figures in fact reveal.
However, I do not think that a conclusion can be based on financial information alone. It is ultimately more useful to take into account all of the evidence dealing with the nature and extent of the sporting activities as well as the nature and extent of the social club activities to form a view whether the main or real object of the applicant can be said to be the encouragement or promotion of rugby league football. In recent years the Club has derived, so its profit and loss accounts indicate, income in excess of $2,000,000 from revenue from poker machines, bar trading and the like. Its income is generated from the provision of social activities for its members and its expenditure is geared in large part to the production of this income. There is no doubt at all from a mere look at the balance sheet and profit and loss accounts of the Club that it carries on a very substantial business activity independently of any support it gives to football. Further the evidence would indicate that it must continue to carry on this activity if it wishes to donate the sums that are needed to further football. The fact that the Club has purchased the football field and made it available at no cost to the Football Club does not characterise the activity of the Club. That fact of course points out, as counsel for the Commissioner submitted, that the Club's activities are obviously related to football to a significant degree but such matters do not characterise the applicant's business activities to such an extent that it can be said that the Club falls within the exemption.
It follows in my view that the applications must be dismissed with costs.
...

95. In respect of Cronulla-Sutherland in the Full Court and in respect of one of the majority judgments (by Lockhart J):

(i) at pages 85, 86 and 87:

...
The control of the appellant has always been in the hands of persons interested in promoting the Football Club. All the directors of the appellant have been members of the Football Club since its formation in 1963.
During the years of income with which these proceedings are concerned the Football Club derived its revenue almost entirely from financial assistance given by the appellant in the form of direct grants, the provision of facilities at either no or nominal cost and the guarantee of expenditure of the Football Club. The other sources of the Football Club's revenue were prize money, grants from the New South Wales Rugby League and membership fees from the Football Club itself, gate money from rugby league matches, annual grants from what is known as the Caltex Sponsorship Agreement and ground advertising.
During the relevant years of income the policy of the appellant was to conduct its affairs so as to maximise the surplus of revenue over expenditure to enable it to support the Football Club. A significant part of the appellant's contribution to the Football Club was the grant to the latter of the right to use what was known as "Endeavour Field" (now known as "Caltex Field") for a nominal fee of $1 per year. The appellant purchased the land upon which the Caltex Field now stands in 1968 and developed one main playing field and two smaller fields. The playing fields now have a value of some $3 million excluding the value of other improvements. Also on the site are a main stand for spectators, two grandstands, two large dressing sheds and a referees' dressing room, canteen facilities and a scoreboard. Adjacent to the main playing field is the club house which is occupied by the appellant. The appellant bears the cost of running and maintaining the fields and meets all necessary capital expenditure. The fields contain parking facilities for 2,000 cars and the parking revenue is collected and retained by the Football Club. During the relevant years the appellant made available to the Football Club two fully equipped offices in its premises for the exclusive use of the Football Club without charge and provided other facilities for its meetings.
...
The club house occupied by the appellant has four levels. On the bottom level are squash courts, a gymnasium and training facilities available both to members and footballers. There is a bar area now called "The Garden Lawn" which adjoins the football ground. There is also on this level a receiving dock. The next level is the main trading area of the appellant where there are bars, one with poker machines, a bistro seating approximately 200 people and some office area. On the next level is an auditorium, a cocktail bar, a Chinese restaurant capable of seating 300 people and viewing areas overlooking the football field. The top storey consists of a mezzanine floor for the auditorium below, an office area, a games lounge used for table tennis, carpet bowls, cards and snooker, a function room and some further viewing areas overlooking the field. The appellant uses the auditorium for various forms of entertainment including discos and variety shows. It makes facilities available to its members such as a large video screen for viewing television programmes, including the "Sky" television service beamed by satellite, and organises other recreational activities for members and their friends in the form of basketball, snooker, sailing, cricket, karate, table tennis and squash. There are some 13,000 members of the appellant.
...

(j) at page 90:

...
The judgment of the High Court in the Royal Australasian College of Surgeons case is of particular importance to the question in the present case. The Royal Australasian College of Surgeons was registered in Victoria as a limited company. Some of its objects as stated in its memorandum of association were for the promotion of the professional interests of its members and others were for the promotion of the science of surgery. The members of the College were all surgeons. Its principal activities included the holding of conferences of surgeons for the discussion and study of surgical matters and the dissemination of knowledge of surgery, the provision of a technical surgical library for the use of its members and the publication of a surgical journal, the conduct of examinations for admission to fellowship of the College and the administration of funds for surgical research and for the award of scholarships to medical students. The Commissioner assessed the College to tax on income received by it from investments. A case was stated before the Full Court of the High Court which asked the question whether the income of the College was exempt from income tax as being the income of a scientific, charitable or public educational institution within the meaning of s 23(e) of the Act.
It was argued before the High Court by counsel for the College that it was a scientific or charitable institution within the meaning of s 23(e) in that its main object was the advancement of surgery and that any benefit that may accrue to its members was secondary. Counsel for the Commissioner argued that a scientific institution is one which has for its sole or dominant object the enlargement of scientific knowledge; that if there are two co-ordinate objects, one of which is outside the exception, the exception cannot apply; that the College had two objects, namely, the advancement of science and the professional advancement of its members and that it was impossible to say that one predominated over the other.
...

(k) at page 92:

...
The principles which I distill from the Royal Australasian College of Surgeons case are that the question whether the College was a scientific institution within the meaning of s 23(e) depended upon whether its main object was to promote the science of surgery and that the exemption was available even if its objects were of a mixed character, partly professional and partly scientific, provided that its main object was the promotion of science of surgery. Each member of the Court approached the question this way, though there are shades of difference of opinion between their Honours in their characterisation of the objects or activities of the College.
...

(l) at page 95:

...
For a society, association or club to qualify for the exemption granted by s 23(g)(iii) it must be one that has as its main object or purpose the encouragement or promotion of an athletic game or athletic sport in which human beings are the sole participants. It may have other objects or purposes which are merely incidental or ancillary thereto or which are secondary and even unrelated to the main object or purpose without disqualifying the body from the exemption. But if it has two co-ordinate objects, one of which is outside the exemption, the exemption cannot apply because it would be impossible to say that one object is the main or predominant object.
...

96. In respect of the Full Court and again in relation to the majority judgment (by Beaumont J):

(m) at pages 111 and 112:

...
In College of Surgeons' case, the question was whether the income of the College of Surgeons was exempt from tax under the Income Tax Assessment Act 1936, s 23(e), which then provided that "the income of a religious, scientific, charitable or public educational institution" was exempt from income tax. The College was registered as a limited company. Its income and property were to be applied solely towards the promotion of its objects, and no portion thereof was to be paid by way of profits to its members. Its objects, as stated in its memorandum of association, were partly for the promotion of professional interests and partly for the promotion of surgical knowledge and practice. The members of the College were all surgeons. The College had no power to confer degrees in surgery, and it could not admit its fellows or any other persons to practise surgery. Its principal activities included the holding of conferences of surgeons for the discussion and study of surgical matters and the dissemination of knowledge of surgery; the provision of a technical surgical library for the use of its members and the publication of a surgical journal; the conduct of examinations for admission to fellowship of the College; and the administration of funds for surgical research and for the award of scholarships to medical students. No part of the College's income had ever been applied for entertainment or social functions of any kind.
The Commissioner assessed the College to tax on income received by it from investments, but it was held by the High Court that the income of the College was exempt from tax.
On behalf of the College it was argued (see at 441) that, if an institution exists in part for the benefit of its members, but has also scientific objects, one must look for its "main" object; that, if its main object is scientific, then it is a scientific institution within the section; and that it is plain that the College's main object was the advancement of surgery and that any benefit that may accrue to members was secondary. On behalf of the Commissioner, it was argued (see at 442) that a scientific institution is one which has for its "sole" or "dominant" object the enlargement of scientific knowledge; that the College had as its objects both the advancement of science and the professional advancement of its members; and that it was impossible to say that one predominates over the other.
Latham CJ said that the question for determination, as expressed by the Lord President in Inland Revenue Commissioners v Aberdeen Medico-Chirurgical Society (1931) 16 Tax Case 237, was as follows:
" ... what is the true nature and the objects and activities of the ... society? If these objects and activities are of a mixed character, being partly professional and partly ... scientific, then the question must be decided according to the prevalent or main character" (at 444).
Latham CJ said that "[u]nless the promotion of surgical science is the main substantial or primary object of the College, it cannot be described as a scientific institution" (at 444). Latham CJ was of the opinion that the reasoning of Lord Watson in Forrest's case, applied to engineering science in the case of the Institution of Civil Engineers, was equally applicable to surgical science in the case of the College of Surgeons (at 445-446).
Rich J said (at 447):
" ... the test is whether it can be predicated that the College is in the main scientific. The inclusion of an institution in the exemption clause depends upon the intrinsic character of the object which it promotes and not upon the scope of the benefits which may result from its transactions. After considering all the relevant matter ... I have come to the conclusion that the main or real object of the College is the promotion and advancement of surgery. By this I mean that its essential purpose is to enlarge and extend the boundaries or area of the science of surgery. Its other objects are not collateral or independent but merely concomitant and incidental to the main object. And the fact that some of these subsidiary or ancillary functions and purposes may indirectly and incidentally be of benefit to the members of the profession does not destroy the exemption claimed."
...

(n) at pages 113 and 114:.

...
In the "Waratahs" Rugby Union Football Ltd v Commissioner of Taxation (Cth) (1979) 37 FCR 413, the taxpayer was incorporated as a company limited by guarantee to take over the activities previously undertaken by an unincorporated football club. From that time, its sporting and social activities grew. It was held by the Supreme Court of New South Wales that its income was not exempt under s 23(g)(iii).
Waddell J said (at 416-417) that in determining whether the club was established for the encouragement or promotion of an athletic game, regard should be had to the objects for which it was incorporated and the activities in which it has engaged, particularly in the years of income in question. In his opinion, the question for determination was to be answered in accordance with what was said in the College of Surgeons' case. After citing from the judgments given in that case, Waddell J said (at 418):
"The conclusion which I draw from the Royal Australasian College of Surgeons is that, in order for the appellant to come within the statutory description in question in this case it must appear from the evidence that the main or real purpose for which it was established during the tax years in question was for the encouragement or promotion of an athletic game or athletic sport of the kind mentioned and that the purpose of a social club was not collateral to or independent of this purpose but merely concomitant and incidental to it."
Waddell J then turned to the facts. Having analysed the evidence, he concluded as follows (at 425-426):
"Having regard to the whole of the evidence it is my view that it does not justify a conclusion that the promotion and encouragement of the requisite sporting activities was the main or real object of the appellant during the years in question. There can be little doubt that in a practical sense the provision of social club amenities and the activities conducted there were of importance in achieving the appellant's sporting objectives in that the Club was virtually the sole source of income for the sporting activities and was an important factor in promoting the comradeship and loyalty necessary for successful sporting activities. However, it would be unreal to regard the provision of the social club and its activities as having been undertaken purely for these purposes. Rather, they should be regarded as having been pursued for a second and independent purpose of importance, namely the provision for members of a social and sporting club with all the usual facilities pursuant to the objects set out in par 3(d) of the appellant's Memorandum of Association. In my view the activities of the appellant in the years in question relating to its social club facilities cannot be regarded as merely concomitant and incidental to its sporting activities but were in pursuit of a collateral or independent purpose. Accordingly it cannot be said that the evidence establishes that the appellant comes within the statutory description."
...

(o) At pages 117 and 118:

...
In order to qualify for the exemption, is it sufficient that the encouragement or promotion of the game or sport be the main or predominant purpose or object? In my opinion, this is sufficient. As Starke J pointed out in the College of Surgeons' case, the question whether the exemption applies is really one of fact. This is not, of course, only a matter of the primary facts. Starke J clearly had in mind a question of ultimate fact, being a conclusion to be drawn from a consideration of all the circumstances of the case. The ultimate fact is the proper characterisation of the object which the institution encourages or promotes. As Rich J said in the College of Surgeons' case, the relevant inquiry is directed towards discovery of the "intrinsic character" of the object sought to be promoted, rather than a consideration of the scope of the benefits which may result from the transactions entered into by the institution.
In my opinion, the tests in this area propounded by Starke J and by Rich J are essentially the same. Moreover, their test is, in its essentials, the same as the "main" or "predominant" object criterion adopted by the majority in Forrests' case and also by Latham CJ, McTiernan J and Williams J in the College of Surgeons' case and by Gibbs J and Windeyer J in Stratton v Simpson. That is, although it is not necessary that the promotion or encouragement of the sport or game be the only, or exclusive, object, in order to qualify for the exemption of its income from tax, the institution must have, as its predominant purpose, the promotion or encouragement of the sport or game. If the institution has such a purpose, that will be the intrinsic character of the object it seeks to promote and the existence of merely incidental functions and purposes will not destroy the claim for exemption. This is so, even if a "not unduly restrictive" construction of s 23(g)(iii) be adopted.
...
It is true that a significant proportion of the profits generated from that activity are given to the Football Club to be used for its purposes. But, as Rich J pointed out in the College of Surgeons' case, the fact that benefits may result for others (in that case, surgeons; in this case, footballers) does not detract from the intrinsic character of the object sought to be promoted by the taxpayer. In Forrests' case, the main or predominant object of the institution was the promotion of science and this was its intrinsic character, notwithstanding that professional engineers may have received some incidental benefit from its activities. In the College of Surgeons' case, the main or predominant object of the College was the promotion of science, notwithstanding that practising surgeons may have received some incidental benefits. In the present case, the main or predominant object of the taxpayer was to provide for its members, and others, the facilities of a licensed club. This was the true character of the object or purpose for which it was and is established, notwithstanding that footballers may have received some incidental benefits in the form of the grants made to the Football Club. Although these benefits may have resulted from transactions entered into by the taxpayer, as Rich J put it, "the inclusion of [the taxpayer] in the exemption clause depended upon the intrinsic character of the object which it promotes and not upon the scope of the benefits which may result from its transactions."
The appeal should be dismissed, with costs.
...

97. In respect of St Mary's Hill J said:

(p) at pages 283 and 284:

...
Thereafter there are a number of general objects until para (k) refers to a registered club and para (p) and (q) are concerned with liquor trading and refreshments. The articles refer to ordinary members, life members, provisional members, honorary members and temporary members. The categories of membership were renamed by amendments made at the end of the period in question, but nothing turns on that renaming. The real distinction among members (apart from whether they are life members or otherwise) is to be found in the following categories of ordinary membership (Art 11):

(i)
Football members
(ii)
Supporting members
(iii)
Associate members
(iv)
Junior sporting members

Football members are persons who are or have been players in the Penrith competition and supporting members are persons who are or have been players of football but not in the Penrith competition. Persons who have been supporting members for two years are eligible to become football members. Associate members are persons who satisfy the board that:
... by reason of consistent attendance at football matches or personal effort in relation to the organisation, coaching, managing or otherwise carrying out work or duties in relation to the playing of football (whether by teams of the club or not) such persons shall be regarded as giving substantial support to football. Junior sporting members are persons who have not obtained the age of 18 years but are interested in taking an active part in the sporting activities of the club on a regular basis. Provisional members are entitled to the social facilities and amenities of the club but can not vote.
The apparent rigidity of these classifications is not observed in practice. There appears to be no real attempt on the part of the Board to investigate whether persons claiming to qualify as associate members by reason of consistent attendance at football matches, do so. In the result it seems safe to say that some persons become associate members without necessarily meeting the qualification required in the articles.
The number of members and class of members in the years of income in question was as follows:
Class of Member 1992 1993 1994 1995
Life 7 7 7 7
Football 1,661 1,515 1,962 2,257
Supporting 64 70 54 251
Associate 1,512 1,991 3,038 3,953
Total 3,244 3,583 5,061 6,468
...
Activities
As is apparent from the comments made earlier, the club has had a distinguished and extensive role to play in the game of rugby league, particularly in the St Marys/Penrith district. There is a great deal of material before me detailing the club's activities in the competitions in which the club played. That material demonstrates that clubs such as the applicant provide the nursery without which the professional sport over which media barons now fight could not be possible. The material shows, for example, that in 1995 the club had twenty-six Saturday sides, from under sixes to under fourteens, of which sixteen were semi-finalists. Ultimately, eight sides participated in the grand finals, three teams winning premierships. Four of the six Sunday sides were also semi-finalists, these encompassing under fifteens, under sixteens and under eighteens. The A reserve grade apparently finished the competition rounds that year as minor premiers but lost in the grand final and the A grade team finished in the top three, winning the A grade premiership. The club produces a yearbook in which appear photos of the various teams with names of players, coaches and the like. The evidence makes it clear that the football activities of the club are substantial, and involve considerable organisational time and effort.
There are sub-clubs within the club to cater for members who play golf, snooker, darts, softball or cricket or who fish. While, no doubt, all of these activities are relevantly sporting activities, none of them would give character to the club and ultimately counsel for the club did not seek to rely upon these activities as bringing the club within the benefit of the exemption.
...

(q) at pages 287 and 288:

...
There is no doubt that the financial information and an analysis of it will be relevant in determining the character of a club in a relevant year. But statistics do not necessarily tell the whole story. It is obvious that the majority of the profit of the club came from poker machines. It requires little space and even less effort on the part of the club to derive this profit. It takes a great deal more time and effort to put on the field week after week some 32 rugby league teams involving some 450 players, not to mention fielding a first grade team and a reserve grade team in the Metropolitan Cup competition.
Conclusions
It is obvious from the evidence that persons are drawn to membership of the club because of their interest in rugby league. It is not without significance that the control of the club effectively vests with persons who have been footballers. Parents of boys playing football are drawn to the club, no doubt to support their sons. So, too, are persons who enjoy the social facilities which the club provides, whether these be entertainment in the auditorium, dining in the restaurant, drinking in the bar or gambling with poker machines or keno.
The social activities of the club are significant, both financially and in number. They cannot be ignored. But the evidence persuades me that while the social and gambling activities of the club are significant in their own right, they are nevertheless subordinate to the activities of the club in encouraging and promoting rugby league football in the St Marys area, particularly among children.
The present case differs from the Cronulla-Sutherland case in a number of respects. It will be recalled that there were two clubs in the Cronulla-Sutherland area. One devoted to the pursuit of football and the other, the Cronulla-Sutherland Leagues club, which assisted in financing the football club but which, in all the circumstances, was found to be a members' or social club rather than a club existing primarily to support or encourage football. The appellant in Cronulla-Sutherland had no football team. It organised no competitive football at all. Its only connection with football were the grants which it made to the football club and the provision of facilities to that club.
The membership structure of the Cronulla-Sutherland Leagues club did not, as the structure of St Marys Rugby League club does, give emphasis and importance to present or previous footballers or supporters. In the Cronulla-Sutherland case control of the licensed club was, de facto, in the hands of those who were interested in promoting the football club. That was not a formalised structure. The sheer size and intensity of the social activities of the Cronulla-Sutherland club led to the conclusion that the social activity was of such great significance that it was impossible to reach a conclusion other than that the main purpose of the club was the encouragement or promotion of rugby league.
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.
The combination of these factors leads me to the conclusion that the application should succeed.
I would, however, mention one matter which has given me some concern. That is the increase in liquidity in the club over the years to 1995 when the club had almost $2.5 million of funds on deposit or short term investment. No evidence was led as to the use which the club intended for these funds. In his oral testimony Mr Smith, the President of the club in the relevant years, referred to the club's desire to build two football fields on the club's land and feasibility studies which had been undertaken with a current estimated cost of $3.5 million. That evidence suggests that the funds accumulated were being kept liquid for the purpose of developing a football oval, a circumstance which would be favourable to the club's claim. The other possibility, however, is that the club was accumulating funds for a possible motel development. I do not think that the evidence permits me to reach a conclusion, one way or the other, as to the proposed use of the funds. I should say, however, that if the club were to proceed with the building of a motel, as foreshadowed in the 1993 Annual Report, the conclusion that it was established for the purpose of "the promotion or encouragement" of rugby league would become progressively more difficult to arrive at.
In the result I would allow the application, set aside the objection decisions and in lieu thereof direct that the objection be allowed and the assessment amended in accordance with these reasons. The Commissioner should pay the applicant's costs.
...

PART H - CONCLUSION

98. The fact that the Applicant received an exemption from tax for the 2004 year in consequence of a ruling (perhaps erroneous) does not bear on the Relevant Years.

99. The Applicant's case is in my view not as strong as was the case for Cronulla-Sutherland which also failed in its attempt to obtain an exemption. In Cronulla-Sutherland a playing field was provided for nominal consideration. And the Applicant was at least as successful as was Cronulla-Sutherland. Moreover, the range and extent of the Applicant's activities appears to have been in excess of those which applied in Cronulla-Sutherland, or at the very least were at least as extensive.

100. Hill J indicated in Cronulla-Sutherland that the actual figures in respect of amounts distributed, while relevant, would not be determinative. I do not know and cannot ascertain the precise proportion of profits devoted by the Applicant to rugby league although I am satisfied that they were not as high as was claimed on behalf of the Applicant.

101. At the end of the day the matter is one of fact. The evidence before me indicates in clear terms that the Club which had a very large membership, offered a large range of activities and facilities and entertainment (much of it subsidized). The emphasis on gambling as a source of revenue comes through the annual reports to which I have referred, in the clearest possible terms.

As Mr. Cookson said, subsidies, in respect of entertainment and catering, could be and was recouped through the poker machines. The pervading importance of gambling was altogether evident. This very large undertaking was profitable in its own right and independently of rugby league, although it undoubtedly made significant contributions to rugby league. One measure of its success arises from its support of the Rabbitohs a function which should have been fulfilled by the Other Leagues Club, but was in fact fulfilled by the Applicant because the Other Leagues Club did not have the financial ability to do so. While there was clearly, in respect of the Applicant, a great deal of interest and involvement in rugby league at the level of the board of directors, there was no evidence before me as to the level of involvement (if any) in rugby league of the members or even a significant body of them. It is conceivable and perhaps likely, that to the members of the Club, rugby league was a matter of (at most) peripheral interest and that the members were primarily or solely interested in the numerous and various benefits obtainable from membership of the Club. There was indeed evidence of significant participation in the activities of the Club by non-members; the percentage of non-members using the facilities of the Club was put, as I have said, at 17% although there was no specific evidence as to how this figure was calculated. But assuming that that the Club's facilities were utilized to the extent of nearly one fifth by non-members, there was no evidence that those persons had any interest in anything other than the Club's facilities and amenities; it will be remembered that its hotel accommodation was available to non-members although at a slightly higher cost.

102. In all the circumstances and having regard to the evidence before me, Cronulla-Sutherland is not in my opinion distinguishable, and accordingly, the decision under review must be affirmed.

ANNEXURE A

Cronulla-Sutherland Leagues Club Limited v Federal Commissioner of Taxation (1989) 89 ATC 4936 at pages 4942 and 4943

[F1]
"The Waratahs" Rugby Union Club Ltd v Federal Commissioner of Taxation (1979) 37 FLR 413 at 415 (Waddell J); Collector of Customs v Agfa-Gevaert Limited (1996) 186 CLR 389 at 395-396.

[F2]
Section 23(g)(iii) refers to " the income of a... club that...is established for the encouragement or promotion of a game or sport".

[F3]
See Grand United Port Macquarie West Bowling Club v FCT (1989) 20 ATR 4125 at 4125-4126 (Senior Member Roach); Cronulla Sutherland Leagues Club Ltd v Federal Commissioner of Taxation (1989) 20 ATR 1404 at 1416-1417 (Hill J); Cronulla Sutherland Leagues Club Ltd v Commissioner of Taxation (1990) 23 FCR 82 (FFC) at 108-109 per Beaumont J and at 118-119 per Foster J (dissenting); AAT Case 6793 (1991) 22 ATR 3073 at 3078-3079 (paras. 21-22) (Deputy President McMahon); AAT Case No 8635 (1993) 26 ATR 1009 at 1009 and at 1011-1014 (Member Katz); and Northern Suburban Club Inc v Federal Commissioner of Taxation (1999) 42 ATR 1111 at 1113 (para. 7) (Senior Member Pascoe).

[F4]
Royal Australasian College of Surgeons v Federal Commissioner of Taxation (1943) 68 CLR 436 at 444, 446, 448, 450 and 452 (a case on s23(e) of the ITAA 1936).

[F5]
Cronulla Sutherland Leagues Club (FFC) at 95 per Lockhart J.

[F6]
ibid., at 116-117 per Beaumont J.

[F7]
Royal Australasian College of Surgeons at 452. There is some discussion in later judgements of the High Court of the relevance, if any, of subjective motives and intentions of the promoters of co-operative companies referred to in s117 of the ITAA 1936: see A & S Ruffy Pty Ltd v Federal Commissioner of Taxation (1958) 98 CLR 637 at 651 and Brookton Co-Operative Society Limited v Federal Commissioner of Taxation (1981) 147 CLR 441 at 455, 453, 463 and 467-468, which discussion was considered in Cronulla Sutherland Leagues Club (FC), at 98 per Lockhart J and at 116 per Beaumont J. The relevance, if any, of such matters appears to have been due to the fact that s117 required attention to be paid to whether a company "is established for the purpose of carrying on any business having as its primary object or objects one or more of the following...", rather than, as with para. (c) of Item 9.1, whether it possesses a particular character at a particular time.

[F8]
St Marys Rugby League Club Ltd v Commissioner of Taxation (1997) 36 ATR 281 at 287 (Hill J).

[F9]
Royal Australasian College of Surgeons, at 444, 447, 448, 450 and 451; Cronulla Sutherland Leagues Club (FFC), at 92 per Lockhart J, at 117 per Beaumont J and at 123 per Foster J.

[F10]
See Cronulla Sutherland Leagues Club (FFC), at 95 per Lockhart J.

[F11]
ibid.

[F12]
This was Foster J's approach in his dissenting judgement in Cronulla Sutherland Leagues Club (FFC). However, both Lockhart J, at 91, and Beaumont J, at 117, in rejecting that approach, referred to the observations of Rich J in Royal Australian College of Surgeons, at 447, to the effect that the fact that benefits may result for others (in that case, surgeons; in this scenario, another entity such as a football club) does not detract from the intrinsic character of the entity to be characterized.

[F13]
Cronulla Sutherland Leagues Club (FFC), at 98.

[F14]
ibid., at 117.

[F15]
ibid., at 98 and 117.

[F16]
Cronulla Sutherland Leagues Club (FFC), at 97 per Lockhart J.

[F22]
The calculation is based on current (2005) salary levels but the difference is unlikely to be material.

[F23]
23 No value attributed by Mr Cookson - in my view the cost would be offset by the benefit to the club.

[F24]
24 While the "usual charge out rate is $1,650.00", no cost is incurred unless the auditorium would otherwise be rented to a third party [I do not say that no benefit arises to the JFL];

[F25]
25 The cost is not material, but again, I assume the software is utilised by the Applicant in any event

[F26]
26 It is not explained why the cost increase by more than four times over the Relevant Period.

[F27]
27 See Terranora, at para 51.

[F28]
28 Letter from Pigott Stinson Ratner Thom to Douglas Meredith of 5 August 2005.

[F29]
29 At page 5 - I have not been provided with the supporting material [if any]. The document I have comprises only 13 pages]

[1]
The finding of Hill J (20 ATR at 1406) was: "The control of the applicant has always remained in the hands of persons interested in promoting the Football Club. All the directors of the applicant have since the formation of the present football club in 1963 been members of the club."

[2]
Cookson XXN on 28/2/06 agreeing that (1) The Applicant had an obligation under gaming laws to contribute a percentage of its gaming turnover to charities under "CDSE" (eg T13-143, T14-200) which could be satisfied in part by donating to its associated Football Club [being South Sydney District Junior Rugby Football League Ltd]. (2) At no time has there been any contractual or other obligation on the Applicant to donate funds to its associated Football Club. (3) In 2002 there was a contractual obligation to provide $1.5 million to the South Sydney District Rugby League Football Club (the "Rabbitohs"): see T11-90 and T12-129.


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