Edited version of private advice

Authorisation Number: 1051745750388

Date of advice: 26 August 2020

Ruling

Subject: Income tax exempt status

Question

Is the Entity exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997)for the 2017 to 2020 income years on the basis that it falls under item 9.1(a) of the table in section 50-45 of ITAA 1997?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Relevant facts and circumstances

The Entity is registered with ASIC as an unlisted public company (non-profit) limited by guarantee in New South Wales.

The Entity is governed by a constitution and has five appointed directors.

The Entity was established to conduct greyhound racing and facilitated racing until the time its track was sold.

The contract of sale for the track was entered into in 2016 and greyhound racing continued to be facilitated at that track until December 2016. The decision to sell was due to the Entity not having sufficient funds to conduct renovations to the track. The decision was made instead to sell and use the funds to establish a new racing facility.

Numerous attempts have been made by the Entity over the 2017 to 2020 income years to secure land for the purpose of establishing a new racing facility, details of which were set out in the ruling application (as were details regarding the activities associated with those searches, including the undertaking of due diligence, the obtainment of valuations, the holding of meetings with racing authorities, the holding of board meetings to discuss specific options etc.).

As at 1 July 2020, the Entity continued to look for land.

Throughout the 2017 to 2020 income years, the Entity has:

·      continued to sponsor greyhound racing conducted at other clubs;

·      continued to hold general meetings and maintain its website; and

·      remained registered as a greyhound racing club.

The Entity is not an 'ACNC type of entity' as defined in subsection 995-1(1) of the ITAA 1997.

Purpose

The Constitution of the Entity sets out its objectives. They include:

(a)  To conduct greyhound racing subject to the conditions of the license issued by the Minister of Gaming and Racing.

(b)  All income and all property shall be used and applied solely towards the promotion of greyhound racing and no dividend shall be paid to any member.

(c)   To promote and conduct race meetings and a betting auditorium and a sports betting complex.

(d)  To subscribe to, become a member of and co-operate with any other association or organisation, whether incorporated or not, whose objects are altogether or in part similar to those of the Entity provided that the Entity shall not subscribe to or support with its funds any association or organisation which does not prohibit the distribution of its income and property among its members to an extent at least as great as that imposed on the Entity.

(e)  To purchase, take on lease or in exchange, hire or otherwise acquire any lands, buildings, easements or property, real and personal and any rights and privileges which may be requisite for the purposes of, or capable of being conveniently used in connection with, any of the objects of the Entity.

(f)    To do all such other things as are incidental or conducive to the attainment of the objects and the exercise of the powers of the Entity.

The Constitution provides a non-profit clause:

The income and property of [the Entity] whencesoever derived, shall be applied solely towards the promotion of the objects of [the Entity] as set forth in this Constitution; and no portion thereof shall be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise howsoever by way of profit, to the members of [the Entity].

Assumptions

1.    The Entity has complied with all the substantive requirements in its governing rules throughout the period covered by this ruling.

2.    Since 30 June 2020, the Entity has continued, and will continue, to actively search for new land on which it will develop a racing facility and resume the conduct of greyhound race meetings, and a significant portion of the surplus funds that the Entity has accumulated as at the date of this ruling will be used to acquire that land and develop the racing facility.

Relevant legislative provisions

Income tax Assessment Act 1997 Subdivision 50-A

Income tax Assessment Act 1997 section 50-1

Income tax Assessment Act 1997 section 50-45

Income tax Assessment Act 1997 section 50-70

Income tax Assessment Act 1997 subsection 50-70(1)

Income tax Assessment Act 1997 subsection 50-70(2)

Income tax Assessment Act 1997 paragraph 50-70(2)(a)

Income tax Assessment Act 1997 paragraph 50-70(2)(b)

Reasons for decision

Summary

The Entity satisfies the requirements to be a club established for the encouragement of animal racing as per item 9.1(a) of the table in section 50-45 of the ITAA 1997 and thereby qualifies for income tax exemption pursuant to section 50-1 of the ITAA 1997.

Detailed reasoning

Section 50-1 of the ITAA 1997 exempts from income tax the ordinary and statutory income of entities specified in Subdivision 50-A of the ITAA 1997.

To be exempt from income tax pursuant to item 9.1(a) of the table in section 50-45 of the ITAA 1997, an entity must:

a.    be a society, association or club

b.    be established for the encouragement of animal racing, and

c.     satisfy the special conditions in section 50-70 of the ITAA 1997.

Society, association or club

The words society, association and club are not defined in the ITAA 1997 and are therefore construed according to the ordinary meaning of the words. Society, association and club are accepted as referring to a voluntary organisation having members associated together for a common or shared purpose.

The Entity is a company limited by guarantee, whose members are people associated for common purposes and interests, as set out in its Constitution, and therefore meets the definition of a club.

Established for the encouragement of animal racing

Although describing the circumstances under which sporting organisations (including clubs) are regarded as being established for the encouragement of a game or sport, certain principles set out in Taxation Ruling TR 97/22 Income tax: exempt sporting clubs (TR 97/22) are also applicable to clubs established for the encouragement of animal racing. Animal racing includes greyhound racing.

For the purpose of item 9.1(a) of the table in section 50-45 of the ITAA 1997, it is essential that the encouragement of animal racing is the main or dominant purpose of the entity. Paragraph 11 of TR 97/22 states that the term 'encouragement' means 'stimulation by assistance', and can occur directly by:

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

·         co-ordinating activities;

·         organising and conducting tournaments and the like;

·         improving the ability 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, increasing and wider participation and improved performance;

·         and can occur indirectly:

·         through marketing; or

·         by initiating or facilitating research and development.

Paragraph 15 of TR 97/22 lists the following features as being highly persuasive in supporting a conclusion that the main purpose of an entity is to encourage 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 portion of its surplus funds in encouraging the game or sport ...; and

·         the club's constituent documents emphasise the club's main purpose is to encourage a game or sport and the club operates in accordance with those documents...

Relevant but less persuasive features are listed at paragraph 16 of TR 97/22 and include:

·         a high level of participation by members in the game or sport ...;

·         the members of the committee, or persons who control the direction of the club are predominantly participants in or concerned with the encouragement of the game or sport (as distinct from the day to day management of the club) ...;

·         voting rights in the club vest only in encouraging the game or sport, whether by personal participation or by encouraging participation by others ...; and

·         the club promotes itself to patrons and the public as one encouraging the game or sport, and its advertisements and publicity emphasise the game or sporting facilities provided ....

The Entity's constituent document (the Constitution) provides a thorough list of objectives and lists a wide range of activities that it undertakes to achieve those objectives. The activities undertaken by the Entity in the income years covered by this ruling predominantly have regard to the encouragement of greyhound racing.

Prior to the sale of the track those activities included the promotion and conduct of greyhound race meetings (i.e. the provision of a facility at which greyhound race meetings were co-ordinated, organised and held by the Entity) and other activities conducive to the promotion of greyhound racing.

Following the sale of the track those activities have predominantly involved actively looking to secure (through acquisition) new land on which the Entity can develop a racing facility and resume the conduct of greyhound race meetings, and other activities conducive to the promotion of greyhound racing (including sponsorship of greyhound racing conducted at other clubs).

As those activities directly relate to greyhound racing, are extensive, and consistent with the Entity's objects (as set out in its Constitution) to encourage greyhound racing, the main purpose of the Entity over the course of the ruling period was to encourage animal racing.

Neither the Entity's stated objectives, nor its operations and activities for the period in respect of which this ruling relates, support a purpose of advancing the common interests of its members.

Section 50-70 of the ITAA 1997- special conditions for item 9.1

The special condition in subsection 50-70(1) of the ITAA 1997 is satisfied where the entity:

·         cannot be carried on for the purpose of profit or gain of its individual members; and

·         has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia.

The Entity satisfies the special condition in subsection 50-70(1) of the ITAA 1997 as:

·         the Constitution to the Entity contains suitable non-profit and dissolution clauses which satisfy the requirement that the Entity is not carried on, as a club, for the purpose of profit or gain of its individual members; and

·         the Entity is located solely in Australia, pursues its objectives, undertakes its activities and incurs its expenditure in Australia.

The special condition in subsection 50-70(2) of the ITAA 1997 requires the entity to:

(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 TR 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt (TR 2015/1)provides guidance in respect of the conditions in subsection 50-70(2).

For the purposes of paragraph 50-70(2)(a) of the ITAA 1997:

·         paragraph 9 of TR 2015/1 provides that an entity's 'governing rules' are those rules that authorise the policy, actions and affairs of the entity; and

·         paragraphs 18 and 19 of TR 2015/1 explain that the substantive requirements in an entity's governing rules are those rules that define the rights and duties of the entity and include rules such as those that:

·         give effect to the object or purpose of the entity

·         relate to the non-profit status of the entity

·         set out the powers and duties of directors and officers of the entity

·         require financial statements to be prepared and retained

·         set out the criteria for admission as a member of an entity

·         require an entity to maintain a register of members, and

·         relate to the winding-up of the entity.

For the purposes of paragraph 50-70(2)(b) of the ITAA 1997, paragraphs 33 to 35 of TR 2015/1 provide that while an entity must exclusively or only apply its income and assets for its established purpose, the test will nevertheless be satisfied where the misapplication or misapplications are immaterial in amount or where there is a one-off misapplication or occasional, unrelated misapplications of part of the income or assets of the entity.

The Entity satisfies the special condition in subsection 50-70(2) of the ITAA 1997 as:

·      the Entity has, as assumed for the purposes of this ruling, complied with all the substantive requirements in its governing rules for the period covered by this ruling; and

·      there is no evidence to suggest that the Entity has not applied its income and assets solely for the purpose for which the Entity is established.