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Edited version of your written advice
Authorisation Number: 1012719153867
Ruling
Subject: Exempt sporting clubs
Question 1
Is the Association exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 of the basis that it is a society, association or club established for the encouragement of a game or sport as described in section 50-45?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commences on:
The scheme has commenced
Relevant facts and circumstances
1. The Association is an incorporated association registered with the state office of Fair Trading.
2. The Association is incorporated under the Associations Incorporation Act 2009 and has adopted the Fair Trading model constitution.
3. The model constitution does not contain any non-profit or winding up clauses. However, the Association is bound by sections 40, 65 and 75 of the Associations Incorporation Act 2009 which prohibit members from receiving any profit or gain from the Association, both during operation and upon winding-up.
4. The object of the Association is to provide sporting competitions to the community, free training for local youths and to build the sport.
5. The Association is located in an Australian state.
6. The Association incurs its expenditure and pursues its objectives in Australia.
7. The Association is not a charity.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 50-1
Income Tax Assessment Act 1997 section 50-45
Reasons for decision
Summary
You are exempt from income tax on the basis that the Association is a non-profit society, association or club established for the encouragement of a game or sport as described in section 50-45 of Income Tax Assessment Act 1997.
Detailed reasoning
A society, association or club established for the encouragement of a game or sport is exempt from income tax under sections 50-1 and 50-45 of the Income Tax Assessment Act 1997. The requirements for exemption are discussed in detail in Taxation Ruling 97/22 Income tax: exempt sporting clubs and are summarised below.
Your club will be exempt from income tax if during the year of income it is an entity that:
• is a non-profit society, association or club
• is established for the encouragement of a game or sport
• is not a charity, and
• meets at least one of three tests.
Non-profit
A non-profit organisation is an organisation that is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up.
Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members.
We accept an organisation as non-profit if its constitution or governing documents prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up.
In limited circumstances, it may be accepted that an institution is not for private profit even if its constituent documents do not contain these clauses. Examples are where a corporation is formed by statute and its provisions make the not for private profit nature clear.
The organisation's actions must be consistent with this requirement.
Main purpose
The main purpose of your club must be encouragement of a game or sport. Any other purpose of the organisation must be incidental, ancillary or secondary to encouragement of the game or sport.
If your club's main purpose is providing social and recreational facilities and activities for its members, it will not be exempt. This is the case even if your club also gives money to encourage games or sports.
Three tests
To be a tax exempt sporting club, your club must also pass one of the following tests:
1. physical presence in Australia test
2. deductible gift recipient test, or
3. prescribed by law test.
Your club will meet the physical presence in Australia test if:
• it has a physical presence in Australia (which is greater than merely operating through an agent in Australia or holding property in Australia - a division in Australia would show the necessary physical presence), and
• to the extent that it has a physical presence in Australia, it incurs its expenditure and pursues its objectives principally in Australia. In determining this, there are special rules for offshore use of amounts you received as gifts or government grants.
Your situation
It is accepted that the Association is a non-profit organisation with the objective of encouraging sport. Although the constitution of the Association does not contain any non-profit or winding up clauses we accept that the Association has a non-profit character by operation of Law.
The Association meets the physical presence in Australia test as it has a physical presence in Australia and incurs its expenditure and pursues its objectives principally in Australia. The Association is not a charity.
The Association meets all the requirements and is exempt from income tax.