Edited version of private ruling

Authorisation Number: 1011856108105

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Ruling

Subject : Income tax exemption - Encouragement of a game or sport

Question:

Is the total ordinary income and statutory income of the Rulee exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis it is an entity described in item 9.1 of section 50-45 of the ITAA1997?

Answer:

Yes

This ruling applies for the following periods:

Year ended 30 June 2005

Year ended 30 June 2006

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Relevant Facts and circumstances:

The Rulee derives its income from being a landlord of a commercial property.

Purposes

The memorandum of Association states the purposes of the Rulee states are for the encouragement of sport

Non Profit Clause

The Rulee's constituent documents contain a suitable non profit clause.

Winding Up clause

The Rulee's constituent documents contain a suitable winding up/dissolution clause.

Activities

The Rulee provides periodic donations to grass roots sporting clubs.

Relevant legislative provisions:

Section 50-1 Income Tax Assessment Act 1997

Section 50-5 Income Tax Assessment Act 1997

Section 50-45 Income Tax Assessment Act 1997

Section 50-70 Income Tax Assessment Act 1997

Section 995-1 Income Tax Assessment Act 1997

Reasons for Decision

Summary

The total ordinary income and statutory income of the Rulee is exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as the Rulee is an entity described in item 9.1 of section 50-45 of the ITAA1997.

Detailed reasoning

Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states:

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

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

The tables referred to in section 50-1 of the ITAA 1997 are contained in sections 50-5 to 50-45 of the ITAA 1997. A society, association or club established for the encouragement of a game or sport is listed at item 9.1 (c) in the table in section 50-45 of the ITAA 1997. The society, association or club must meet the special condition detailed in section 50-70 of the ITAA 1997.

An entity is therefore exempt from income tax as a society, association or club established for the encouragement of a game or sport if it:

· is a society, association or club,

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

· satisfies the special conditions.

Society, association or club

The term 'society, association or club' is not defined in the ITAA 1997. The term is therefore construed according to the ordinary meaning of the words.

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

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

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

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

…

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

Taxation Determination TD 95/56 refers to the definition of 'association':

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

The members of the Rulee voluntarily associate together for a common purpose and interest. The Rulee is an 'association, society or club'.

Established for the encouragement of a game or sport

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

Game or sport

'Game' and 'sport' are not defined in the ITAA 1997 and are therefore given their ordinary meaning. Paragraph 38 of TR97/22 provides a non-exhaustive list of activities that are considered a 'sport' for the purposes of section 50-45 of the ITAA 1997.

The constituent documents of the Rulee contain references to sports generally. The donations provided by the Rulee are to grass roots sporting clubs.

It is accepted that the Rulee's support is directed at organisations associated with a game or sport.

Encouragement

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

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

Whilst TR 97/22 discusses these features in the context of determining the main or predominant purpose of a club, these features are also relevant when considering whether a club is encouraging a game or sport.

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

• the club conducts activities in the relevant year that are directly related to the game or sport.
• the sporting activities encouraged by the club are extensive;
• the club uses a significant proportion of its surplus funds in encouraging the game or sport; and
• the club's constituent documents emphasise that the club's main purpose is to encourage a game or sport and the club operates in accordance with those documents.

With reference to the highly persuasive features discussed in paragraph 15 of TR 97/22, the Rulee's constituent document emphasises the clubs main purpose as the encouragement of sport.

The Rulee's Memorandum of Association lists its purposes as encouraging and promoting predominantly sport.

That the Rulee encourages sport is further evidenced by way of the periodic donations it makes to grass roots sporting clubs.

Consideration of the Rulee's governing documents, together with the Rulee's activities leads to the conclusion that it is established for the encouragement of a game or sport.

Special condition

Section 50-70 of the ITAA 1997 states that an entity covered by item 9.1 is not exempt from income tax unless the entity is not carried on for the profit or gain of its members and :

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

it is a deductible gift recipient; or

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

Non-profit requirement

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

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

The constitution of the Rulee prevents distribution to members. The Rulee is a not carried on for the profit or gain of its individual members.

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

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

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

Conclusion

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

An entity is exempt from income tax as a society, association or club established for the encouragement of a game or sport pursuant to item 9.1(c) of the table in section 50-45 of the ITAA 1997 if it:

· is a society, association or club,

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

· satisfies the special condition.

The Rulee is a society, association or club and is established for the encouragement of a game or sport. In addition, it satisfies the special condition and is therefore exempt from income tax for the years ended 30 June 2005 until 30 June 2015.