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Edited version of your written advice
Authorisation Number: 1051196236537
Date of advice: 8 March 2017
Ruling
Subject: Income Tax Exemption - Sporting Clubs
Question 1
Is the Club exempt from income tax under section 50-1 of Income Tax Assessment Act 1997 (ITAA 1997) 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 ITAA 1997 and the Special Conditions in section 50-70 of ITAA 1997?
Answer
The Club is exempt from income tax under section 50-1 of ITAA 1997 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 ITAA 1997 and the Special Conditions in section 50-70 of ITAA 1997.
This ruling applies for the following periods:
Year ended 30 June XXXX
Year ending 30 June XXXX
Year ending 30 June XXXX
Year ending 30 June XXXX
Year ending 30 June XXXX
The scheme commences on:
1 July XXXX
Relevant facts and circumstances
The Club has operated since inception with a sporting purpose.
The Club's objects are contained in the Memorandum of Association. They emphasise sport as the principal purpose.
The Club's Constitution does not permit profits to be distributed to members. The Club's prohibition of making distributions to members is contained in the Memorandum of Association and the Articles of Association. The Club's provision for dissolution is set out in the Memorandum of Association where no property shall be paid to or distributed amongst members of the Club.
The Club directly conducts and encourages sporting activities as well as through its Sport Sub Committees and:
● the Club directly fielded teams in competitions
● the Club has a sports co-ordinator for the purpose of sports promotions, advertising, corporate sports events and other sporting functions
● the Club has a Match and Tournament Committee to conduct all Club championship and tournament competitions and a Selection Committee to make selections for Club representative teams
● there is an Umpires Co-ordinator to allocate umpires for competitions
● a Coaching and Development Committee organises coaching for beginners and develops the skills of both members and potential members.
● the Club has provided financial information regarding the percentage of profit spent on sport in XXXX.
● the Club has provided information regarding the sporting backgrounds of its Directors.
The Club's facilities are co-located. The sporting facilities are immediately adjacent to the social facilities. The sporting facilities can be viewed from the Club's premises through large windows.
The Club is physically located in Australia and incurs its expenditure and pursues its objectives exclusively in Australia.
In XXXX-XX the Board determined to re-vitalise the Club, in particular to significantly expand its bowling activities. To this end the Club developed a number of strategies to implement its vision.
Important for the purposes of this Ruling, commencing in the XXXX year, the Club has developed and implemented a number of strategies to expand its sporting activities and the number of members participating in sport in the future. These plans are a determinative factor in the Club encouraging sport and in emphasizing the encouragement of sport as a main purpose of the Club. These future plans, for the period covered by the ruling, include as follows;
● a plan for growth provided along with a marketing campaign to encourage more participants to join the Club's sporting activities
● appointment of a sports co-ordinator dedicated to run sports promotions, advertising, corporate sports events and other sporting activities
● the Club is in the process of up grading its facilities, including those that provide sports infrastructure.
The Club has been accumulating funds and provided reasons regarding the intended use of the funds being accumulated. The Club views these purchases as predominantly a means of fulfilling its sporting purpose:
● the Club is seeking to purchase the freehold which it currently leases
● in the medium term the Club needs to renew its gaming entitlements and has a need to retain funds for this purpose
● the Club is renovating and updating its premises (both entertainment and sports venue which are co-located) to remain viable in a competitive market.
The Club undertakes to notify the Commissioner of any significant change in its governing documents and activities during the ruling period to enable the Commissioner to review the ruling.
The Ruling is issued commencing with the 2016 year. The future plans were a determinative factor that may not be applicable to the years prior to this.
Relevant legislative provisions
Income Tax Assessment Act 1997 (ITAA 1997) section 50-45
Item 9.1(c) of the table in section 50-45 of ITAA 1997
Special Conditions in section 50-70 of the ITAA 1997
Reasons for decision
To be exempt from income tax as a sporting club under section 50-1 of ITAA 1997 at Item 9.1(c) of section 50-45 and the Special Conditions at section 50-70, the Club must be a club for the encouragement of sport as its main purpose, not carried on for profit of individual members with a physical presence in Australia. It must incur its expenditure and pursue its objectives principally in Australia applying its income and assets solely for the purpose for which the entity is established, complying with the substantive requirements of its governing rules.
Section 50-45 contains a table which provides an exempt entity under item 9.1(c) of section 50-45 can include a society, association or club established for the encouragement of a game or sport. This is subject to special conditions in section 50-70 which require that:
1. an entity covered by item 9.1 is not exempt from tax unless the entity is not carried on for the purpose of profit or gain of its individual members and:
(a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or
2. The entity must:
(a) comply with all the substantive requirements in its governing rules, and
(b) apply its income and assets solely for the purpose for which the entity is established.
Taxation Ruling 97/22 Income Tax: exempt sporting clubs (TR 97/22) outlines the Commissioners position for a club to be exempt from income tax under section 50-45. It needs to satisfy three tests:
● it cannot be carried on for the purposes of profit or gain to its individual members
● it must be for the encouragement of a game or sport
● that encouragement must be the club's main purpose.
The non-profit requirement is evident in the Club's constituent documents which contains a prohibition against a distribution of profits and assets among members while the Club is functional and on its winding-up. These are found in the Memorandum of Association the Articles of Association. It is accepted the Club satisfies this requirement.
The Club's Objects in the Memorandum of Association emphasise sport as the main purpose including that “…the club is formed are principally, to promote and encourage sporting activities … plus any other sports or recreational activities which the club may deem expedient from time to time…”
Paragraph 11 of TR 97/22 includes activities the Commissioner considers constitute the “encouragement” of sport and include having teams for competitions, involvement in tournaments, improving abilities of participants or trainers and coaches, providing purchased or leased facilities for the sporting activities or for the use of club members and visitors or encouraging increased participation and improved performance. These can occur indirectly through marketing or by initiating or facilitating research and development.
It must be for the encouragement of a game or sport as the club's main purpose. Paragraph 15 TR 97/22 lists what the Commissioner considers to be highly persuasive features supporting a conclusion the main purpose of the club is to encourage a game or sport. Based on the supplied facts the Club satisfies at least the majority of these including:
● Conducting extensive activities that are directly related to the sport. Paragraph 38 of TR 97/22 provides a list of sports. It is accepted that the sporting purpose of the Club, is predominant. Although other purposes of the Club are evident such as a social side for members including gaming and eating facilities it is accepted that the main purpose of the Club is the encouragement of sport.
● The Club's constituent documents emphasise its main purpose is to encourage sport and the Club has presented evidence to the Commissioner of it operating in accordance with those documents.
The Club addressed these activities in its submission as detailed in the accompanying relevant facts and circumstances section.
It is considered the Club satisfies the requirements for income tax exemption.
As the Club is income tax exempt it does not need to pay income tax or lodge an income tax return, unless specifically asked to.
The Club undertaking to notify the Commissioner of any significant change in its governing documents and activities during the ruling period (to enable the Commissioner to review the ruling) is a factor in deciding to issue the ruling for the 5 year period requested.