Edited version of your written advice

Authorisation Number: 1013007008325

Date of advice: 3 May 2016

Ruling

Subject: Income tax: exempt sporting club

Question 1

Is the Club exempt from income tax pursuant to section 50-45 of the Income Tax Assessment Act 1997 ('ITAA 1997')?

Answer

Yes

This ruling applies for the following periods:

1 July 20XX to 30 June 2018

The scheme commences on

1 July 20XX

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Relevant facts and circumstances

1. The Club was formed on or about July 20XX on the amalgamation of the Earlier Club 1 (EC1) and the Earlier Club 2 (EC2).

2. The EC1 had over 4000 members and was a various activities

3. The EC2 was formed before 1975 by local residents on gifted land. Slowly over the years due to the deterioration of the facilities the number of members of EC2 declined.

4. The constitution of the Club states its objects.

5. The Club's assets and income will be applied solely for the 'furtherance of the Clubs' purposes'.

6. The Club's constitution has winding up and non-profit clauses.

7. The activities of the Club include various sporting activities engaging over 400 participants each week/

8. The Club employs people specifically engaged in sports related activities

9. Since the amalgamation of the EC1 and EC2 improvements have been made to the sporting facilities.

10. The Club is exploring the opportunity of fielding junior sporting teams.

11. The Club provides bar, dining and gaming facilities for use by members and guests. .

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 50-1

Income Tax Assessment Act 1997 Section 50-45

Income Tax Assessment Act 1997 Section 50-70

ATO view documents

Taxation Ruling TR 97/22 Income tax: exempt sporting clubs

Reasons for decision

Under section 50-1 of ITAA 1997 an organisation's income is exempt from income tax if it is covered by one of the tables in subdivision 50-A in ITAA 1997. (Unless otherwise stated, all legislative references relate to the ITAA 1997).

Section 50-45 in subdivision 50-A includes 'a society, association or club established for the encouragement of a game or sport'.

Section 50-45 also requires that the 'society, association or club' must meet the special conditions in section 50-70 which in this case requires the club to be:

• not carried on for the profit or gain of its individual members, and

• have a physical presence in Australia and to incur its expenditure and pursue its objectives principally in Australia.

For the encouragement of a game or sport

It is essential that the encouragement of a game or sport is the main or dominant purpose of the club.

'Encouragement' means 'stimulation by assistance', according to the Macquarie Dictionary. As stated in paragraph 11 of Taxation Ruling TR 97/22 Income tax: exempt sporting clubs (TR 97/22) encouragement can occur directly by:

• forming, preparing and entering teams and competitors in competitions in the game or sport;

• co-ordinating activities;

• organising and conducting tournaments and the like;

• improving the abilities of participants;

• improving the standard of trainers and coaches;

• providing purchased or leased facilities for the activities of the game or sport for the use of club members and visitors; or

• encouraging increased and wider participation and improved performance.

'A game or sport' is not defined in section 50-45 so the words should be given their ordinary meaning. The Australian Sports Commission (ASC) provides useful guidelines as to what constitutes 'a sport'. The ASC defines a sport as 'a human activity capable of achieving a result requiring physical exertion and/or physical skill that, by its nature and organisation, is competitive and is generally accepted as being a sport'. The term 'a game or sport' has a broader meaning than 'a sport'. However common features of 'a game or sport' include a set of conventions, expectations and rules and the chance to be able to share the activity and entertainment that the game provides with other competitors.

The Club's activities include sporting activities.

The Club also provides dining, bar and gaming facilities to its members and guests.

To determine if 'encouragement of a game or sport' is the dominant purpose all of the club's features must be considered and weighed objectively.

Clause 15 of TR 97/22 states that highly persuasive features supporting a conclusion that the dominant purpose is to encourage a game or sport include:

• 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 the encouragement of 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.

The Club conducts weekly sporting competitions and activities involving in excess of 400 participants each week.

The Club employs less than 10 people that are directly involved in sports administration and maintenance of the sporting facilities. In addition to fielding weekly sporting teams the Club has engaged schools and guests in sporting activities. The Club has also proposed that it will explore the opportunity to field teams.

In the year ending 30 June 20YY the Club made capital improvements to the sporting facilities costing a certain amount which was a significant proportion of the Club's profit. The Club is planning further capital improvements to sporting facilities.

The Clubs' constitution emphasises the club's main purpose to be the encouragement of sport and the Club appears to operate in accordance with that document. The Club's constitution does not require the board to be controlled by people interested in sport, however the majority of the current board are participants in the Club's sporting teams and activities.

In conclusion while the Club does have extensive bar, dining and gaming facilities it is heavily engaged in encouraging sport, involving in excess of 430 participants each week, and has spent a significant portion of its profits on improving sporting facilities in the year ending 30 June 20YY. The Club is also planning to engage in further capital improvements to sporting facilities and fielding additional junior sporting teams. The Club's main purpose is the encouragement of sport.

Non-profit

The Club has satisfactory winding up and non-profit clauses and therefore satisfies the non-profit requirement.

In Australia

The Club only operates in Australia and therefore satisfies the requirement to have a physical presence in Australia and to incur its expenditure and pursue its objectives principally in Australia.

The Club satisfies all the requirements in section 50-45 to be a club established for the encouragement of a game or sport and is therefore exempt from income tax under section 50-1.