Edited version of private advice

Authorisation Number: 1051752482960

Date of advice: 17 September 2020

Ruling

Subject: Income tax exemption: sporting organisation

Question

Does the Taxpayer qualify for income tax exemption as a sporting organisation under section 50-45 Item 9.1(c) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Taxpayer is a not for profit organisation which has appropriate non-profit and dissolution clauses in its Constitution.

The Taxpayer promotes soccer, cultural and social activities but soccer is its main purpose.

The Taxpayer has a senior team and a reserves team which play on weekends in the local competition and hopes to establish junior teams in future.

The soccer season runs for approximately six to eight months.

The Taxpayer has its own soccer field with stands and lighting and is currently developing a second ground.

It holds events such as folk dancing and the hiring out of its hall to raise funds to enable its soccer activities.

Large expenses such as insurance, rates and electricity are due to soccer.

The sporting activities and facilities are extensive and dominate in comparison to the social and cultural activities and facilities. The main expenses of the Taxpayer relate to its soccer activities.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-45 Item 9.1(c)

Reasons for decision

Subdivision 50-A of the ITAA 1997 looks at various exempt (from income tax) entities.

Section 50-45 Item 9.1(c) of the ITAA 1997 exempts from income tax a society, association or club established for the encouragement of a game or sport.

TR 97/22 describes the circumstances in which a club is regarded as being established for the encouragement of a game or sport.

Paragraph 7 of TR 97/22 states that a club needs to satisfy three tests to be exempt from income tax under section 50-45 of the ITAA 1997. The tests are:

1. It cannot be carried on for the purposes of profit or gain to its individual members;

2. It must be for the encouragement of a game or sport; and

3. That encouragement must be the club's main purpose.

The Taxpayer's Statutory Rules contain a Non-Profit Clause which prohibits the distribution of its money and other property to its members. It also contains a Winding-Up Clause prohibiting the distribution of surplus money and other property to its members in the event of its dissolution. Its actions are also consistent with a prohibition from distributing its profits or assets to members. The non-profit requirement is satisfied.

Paragraph 11 of TR 97/22 states that encouragement of a game or sport 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; and can occur indirectly:

·         through marketing; or

·         by initiating or facilitating research and development.

Paragraph 12 of TR 97/22 states that there is no special definition as to what constitutes a game or sport for the purposes of section 50-45 of the ITAA 1997 and that the words should be given their ordinary meaning.

The Taxpayer has two soccer teams that are entered in local competitions. The SCC also maintains sporting facilities, two soccer fields and it is actively involved in organising games of soccer at their venue. They also fundraise for soccer. The Taxpayer has a purpose to promote soccer.

Paragraphs 13 and 14 of TR 97/22 state that to be exempt, the main purpose of the club must be the encouragement of the relevant game or sport and this can only be determined by objectively weighing all the club's features. The presence or absence of a feature may not conclusively determine that the club's main purpose is or is not the encouragement of a game or sport.

Paragraph 15 of TR 97/22 lists the highly persuasive features that support a conclusion that the club's main purpose is to encourage a game or sport. These are:

·         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.

Paragraph 16 of TR 97/22 also states relevant but less persuasive features to conclude that the club's main purpose is to encourage a game or sport. These are:

·         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 day to day management of the club);

·         voting rights in the club vest only in members involved 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.

Paragraph 41 of TR 97/22 states that to be eligible for the exemption, the club's main purpose must be to encourage a game or sport and that difficulties can arise where the club conducts other activities, particularly social or commercial activities.

Paragraph 42 of TR 97/22 states that where other activities are merely ancillary or incidental, or secondary, to the encouragement of the game or sport we accept that the main purpose may be that encouragement.

Paragraph 43 of TR 97/22 however, states that if the main purpose becomes the carrying out of those other activities, the club is not exempt. Nor is it exempt if it continues to be involved in a game or sport to a substantial degree but is equally involved with another purpose or purposes.

Paragraph 47 of TR 97/22 states that the determination of a club's main purpose in the relevant year of income is a matter of fact and degree.

Paragraph 49 of TR 97/22 states that in order to identify a club's activities, regard would normally be had to sources such as:

·         the club's constituent documents;

·         resolutions of the committee or of the persons controlling the direction of the club;

·         minutes of meetings of that committee or of those persons;

·         the club's business plans;

·         promotional material concerning the club's activities; and

·         published reports about the club, such as its annual report.

The objects in the Taxpayer's Constitution reflects multiple purposes; cultural, sporting and social. Through examination of the club's activities it can be determined if one of these purposes is the main purpose.

The Taxpayer has two soccer teams, both a senior and a reserves side, that train and play on a weekly basis in a local competition. It has a squad of 40-50 players and in the future hopes to develop junior sides.

The soccer season usually lasts from 6-8 months.

Most of the Taxpayer's expenses, such as insurance, rates and electricity, are directly related to soccer. The main soccer field has lights. There is also car parking facility. A second soccer field is currently being developed to game standard.

The Taxpayer hires out its hall and holds social events to raise funds to enable soccer to be played.

The Taxpayer has a purpose of promoting sport and a purpose of promoting social and cultural activities. However, the sporting activities and facilities are extensive and dominate in comparison to the social and cultural activities and facilities. The main expenses of the club also relate to its soccer activities.

The Taxpayer has been able to demonstrate that the promotion of soccer is its main purpose. Other activities such as folk dancing, the hiring out of its hall and social activities are minor in extent and purpose and often conducted to raise funds for the soccer purpose.

It is determined that the Taxpayer qualifies as a sporting organisation under section 50-45 Item 9.1(c) of the ITAA 1997 and therefore is exempt from income tax.