Edited version of private advice

Authorisation Number: 1052374523301

Date of advice: 15 May 2025

Ruling

Subject: Not-for-profit - exemption

Question 1

Is the Entity exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society, association or club established for the encouragement of a game or sport as described under item 9.1(c) of section 50-45 of the ITAA 1997?

Answer

No.

Question 2

If the answer to question 1 is no, will the receipts from the Entity members and the Club members relating to accommodation fees be mutual receipts and therefore considered non-assessable non-exempt (NANE) income under section 59-35 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Decline to rule.

This ruling applies for the following periods:

Income year ended 30 June 20XX

Income year ended 30 June 20XX

Income year ended 30 June 20XX

Income year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Background

The Entity is a non-distributing co-operative incorporated and limited by shares.

The Entity operates on the substituted accounting period.

The Entity is affiliated with the Club which is an incorporated not-for-profit association.

The Entity owns and operates accommodation facilities which are available members of the Entity, members of the Club as well as Temporary members, and small number of visiting guests.

A copy of the Entity's Rules has been provided. It is governed by its constituent Rules.

Constitution rules of the entity

The Rules include the following rules:

Objects - Rule X

Membership - Rule X

Non-for-profit status - Rule XX Disposal of surplus funds during a financial year

Dissolution clause - Rule XX Winding up

Activities

The Entity operates accommodation facilities including other equipment for its members.

Only the Entity, Club or Temporary members stay at the accommodation facilities.

The accommodation website can only be accessed by members who have a code and does not allow the general public access.

The availability of accommodation is not advertised outside the membership group.

The provision of accommodation to Temporary members is not a purpose of the Entity, with accommodation only offered to Temporary members after the Entity and Club members have had the opportunity to make bookings.

The Club is governed by its constitution.

Constitution of the club

Clause X - Objects

Clause X - Not for Profit

Clause X - Membership

Clause X - Fees

Clause X - Dissolution clause

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-15

Income Tax Assessment Act 1997 section 59-35

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-45

Income Tax Assessment Act 1997 section 50-47

Income Tax Assessment Act 1997 section 50-70

Income Tax Assessment Act 1997 section 995-1

Australian Charities and Non-for-profits Commission Act 2012 section 25-5

Charities Act 2013 section 12

Taxation Administration Act 1953 Schedule 1 paragraph 357-110(1)(a)

Question 1

Is the Entity exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society, association or club established for the encouragement of a game or sport as described under item 9.1(c) of section 50-45 of the ITAA 1997?

Summary

No, the Entity is not exempt from income tax under section 50-1 of the ITAA 1997 as it was not established for the encouragement of a game or sport as described under item 9.1(c) of section 50-45 of the ITAA 1997.

The main purpose of the Entity is to provide accommodation and hospitality for both members and non-members.

Therefore, it does not qualify as an exempt entity covered by item 9.1(c) of the table in section 50-45, of the ITAA 1997.

Detailed reasoning

A society, association or club which has been established for the encouragement of a game or sport under section 50-45 item 9.1(c) is exempt from income tax under section 50-1.

Section 50-1 states:

The total ordinary income and statutory income of the entities covered by the following tables is exempt from income tax. In some cases, the exemption is subject to special conditions.

The tables referred to in section 50-1 are contained in sections 50-5 to 50-45.

Additionally, section 50-47 provides a special condition for all entities covered by section 50-1, it states:

An entity that:

(a)          is covered by any item; and

(b)          is an ACNC type of entity;

is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for profits Commission Act 2012.

An entity is 'an ACNC type of entity' if it has a charitable purpose. An entity that does not have a charitable purpose, per the ATO Commissioner's view in Taxation Ruling TR 2011/4 Income tax and fringe benefits tax: charities, is not required to be registered with the Australian Charities and Not-for-profits Commission (ACNC) to be exempt from income tax.

Item 9.1(c) of the table in section 50-45 of the ITAA 1997 provides that a society, association or club established for the encouragement of a game or sport shall be an exempt entity, subject to special conditions in section 50-70 of the ITAA 1997.

An entity is therefore exempt from income tax as a society, association or club established for the encouragement of a game or sport under item 9.1(c) of the table in section 50-45 of the ITAA 1997 if:

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

•                     is established for the main purpose of the encouragement of a game or sport,

•                     satisfies the special conditions in sections 50-47 and 50-70 of the ITAA 1997.

Society, association or club

The term 'society, association or club' is not defined in the ITAA 1997. The term is therefore construed according to the ordinary meaning of the words. Based on the definitions provided in the Macquarie Dictionary a 'society, association or club' refers to a voluntary organisation of people associated together for a common or shared purpose. A society, association or club may be constituted as an unincorporated association or be formally recognised by incorporation.

Income tax exemption will not apply to a group of entities collectively. Each particular entity in the group must assess its own income tax exempt status.

The Rules outlines its purpose at clause X.

The Entity has a board of directors, and a class of members who are governed by the Rules. It is accepted that the Entity is a society, association or club for the purposes of section 50-45 of the ITAA 1997.

Although the Entity is affiliated with the Club under clause X of the Club's Constitution and presents to the public as part of the Club and its activities, each particular entity must assess its own income tax status.

The Entity is a not-for-profit entity as the Rules of the Entity prevent distribution to members both while it is operating (clause XX) and upon winding up and dissolution (clause XX).

Established for the encouragement of game or sport

TR 2022/2 describes the circumstances under which a society, association or club is considered to be established for the encouragement of a game or sport.

Game or sport

'Game' and 'sport' are not defined in the ITAA 1997 and are therefore given their ordinary meaning. Paragraph 17 of TR 2022/2 explains that characterisation of some activities as a game or sport is obvious and for others it can be demonstrated by evidence of a competitive element and by participants compliance with the conventions and rules of the activity.

The participants must intend that the activities they perform are the activities of a particular game or sport and that the intention and activities must be shared by the other participants.

TR 2022/2 at paragraph 19 also provides that:

A common feature of a game or sport is a set of conventions, expectations and rules. This contributes to the element of organisation that is commonly indicative of game or sport. While written or defined rules are not essential, the imposition of such rules and conventions in an organised group of participants can convert an otherwise ordinary leisure activity into a game or sport (for example, hunting, fishing and walking).

Paragraph 27 of TR 2022/2 provides a non-exhaustive list of activities that are considered a 'sport' for the purposes of section 50-45 of the ITAA 1997.

Paragraph 24 of TR 2022/2 explains that activities that could appear to be a game or sport may be merely a means to other ends. Where the activities are not organised in a sport or game-like way and some other purpose is predominant, the activity will not be a game or sport. For example., dancing can be organised in a game or sport-like way, but it is often a means of promoting sociability, participation and relaxation. In such cases, it does not constitute a game or sport.

Further in paragraph 25 of TR 2022/2 provides:

25. The fact that a game or sport is undertaken by club members or within a club does not mean that the club is established for the encouragement of that game or sport. The activity must be considered in the context of determining the club's main purpose. For example, a fishing competition can be a sport. However, a fishing competition conducted by a club may be a minor activity incidental to its main purpose, such as promoting sociability, communal activities or some other purpose.

This is illustrated in Example 2 at paragraph 26 of TR 2022/2 as follows:

26. The One That Got Away Club provides services and amenities for people who like to fish in the bay near the clubhouse and in surrounding watercourses. The services provided include weather and boating information, guest speakers and a bar and canteen which open daily. Members-only competitions are held once a month. While a fishing competition might of itself be a sport, it is conducted as a part of The One That Got Away Club's wider activities. As The One That Got Away Club was not formed for the main purpose of encouraging a game or sport, the fishing competition held is not a game or sport.

It is only those activities that have the features of a game or sport that can be considered for the purposes of item 9.1(c) of the table in section 50-45 of the ITAA 1997.

The encouragement of sport must be the main purpose

A society, association or club will only be exempt from income tax if it has as a main purpose the encouragement of a game or sport.

Paragraph 30 of TR 2022/2 provides guidance on the term 'encouragement'. 'Encouragement' is not a defined term and takes its ordinary meaning. The ordinary meaning of encouragement (or the act of encouraging) has been described as stimulating by assistance or approval, including through direct or indirect means.

Direct or indirect activities relevant in determining whether the main purpose of the entity is the encouragement of a game or sport are listed at paragraph 43 of TR 2022/2. These include:

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

•                     coordinating activities

•                     organising and conducting tournaments

•                     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

•                     encouraging increased and wider participation and improved performance

•                     marketing

•                     initiating or facilitating research and development, and

•                     facilitating the activities above by making a financial or in-kind contribution to an organisation that performs them.

The Entity supports the sporting events of the Club. These activities of the Entity indirectly encourage the sport.

Main purpose

For an entity to be established for the encouragement of a game or sport, the main purpose of the entity in the relevant income year must be the encouragement of a game or sport.

Paragraph 31 of TR 2022/2 states that determining the main purpose of an entity requires an objective evaluation of all material facts and circumstances. There is no set formula for weighing up the characteristics of an entity to determine its main purpose.

It is the main purpose of the entity in the year under examination rather than at the time of formation.

An entity with both a sporting and non-sporting purposes will not qualify for the games and sports exemption unless the non-sporting purpose is merely ancillary and incidental or secondary to its sporting purpose.

Paragraph 37 of TR 2022/2 lists factors that have been identified by courts and tribunals as relevant when considering purpose. These include:

•                     emphasis in the club's constituent documents that the main purpose is to encourage a game or sport

•                     extent of sporting activities

•                     the conduct of activities directly related to the game or sport

•                     a high level of member participation in the game or sport

•                     promotion of the organisation to patrons and the public as one that encourages a game or sport

•                     involvement of the committee of management in the promotion of sport

•                     the use of surplus funds for encouraging the game or sport

•                     the provision of financial and in-kind support for encouraging the game or sport.

The activities and purpose are further explained in paragraphs 38 to 42 of TR 2022/2:

38. The activities undertaken by a club are an important consideration in determining whether it qualifies for the games and sports exemption. However, activities considered in isolation do not demonstrate the purpose of a club.

39. Activities are commonly a means to an end. Activities can serve the purpose of encouraging a game or sport and other independent non-sporting purposes. All of the club's activities must be objectively weighed against the objects, history and control of the club to determine the main purpose for which it is established in a particular year.

40. An activity like the organisation of, or participation in, sporting competitions can be readily understood as advancing a purpose of encouraging a game or sport.

41. Where a club derives its revenue from commercial operations, the club needs to objectively determine the extent to which commercial operations are a means to the end of advancing the sporting purpose, or are advancing some other purpose.

42. A club can demonstrate a purpose of encouraging a game or sport where it provides financial and in-kind contributions to other organisations that directly conduct those activities. To demonstrate a main purpose of encouraging a game or sport, a club that does not directly conduct any games or sports will need to objectively show that the activities it carries out are a means to that end.

As the Entity has both a sporting and non-sporting purposes it will not qualify for the games and sports exemption unless the non-sporting purpose is merely ancillary and incidental or secondary to its sporting purpose.

The Entity's non-sporting purpose is not merely ancillary and incidental or secondary to its sporting purpose. The main activities of the Entity is a non-sporting purpose, but rather provide accommodation and facilities for its members and other groups to pursue various outdoor activities at their facilities or premises.

The above view is further confirmed by Taxation Ruling TR 2005/22 Income tax: companies controlled by exempt entities, which concerns the income tax exemption, under Division 50 of the ITAA 1997, of companies which are not carried on for the profit or gain of their individual members, and which are controlled by an entity or entities that are exempt from income tax under that Division.

Example 5 of TR 2005/22 states as follows:

Example 5

81A. A not-for-profit company is set up and controlled by four exempt sports clubs. Its constituent documents state that its objects are to promote and encourage the four sports, to provide a social and sporting club for members, and to provide funds to the four sports clubs.

81B. The company operates a club with bars, bistro and gaming machines to provide social amenities to club members and their guests. Club members may or may not be involved in the relevant sporting activities. It uses a significant proportion of its surplus funds in operating the club and to enhance the amenities for its members. It also distributes some of its surplus to support sporting purposes proposed by the sports clubs. It seeks exemption on the basis that it is a society association or club established for the encouragement of a game or sport (item 9.1(c) of section 50-45 of the ITAA 1997).

81C. The company has two purposes: one is the provision of a club for members and their guests and the other is the encouragement of sport. The fact that the company is controlled by the four sporting clubs is not determinative of whether the company's main purpose is the encouragement of a game or sport and therefore exempt under item 9.1(c) in section 50-45. It is necessary to examine all of the features of the company, including its objects and activities, in order to determine its purpose (see paragraphs 30-37 of Taxation Ruling TR 2011/4 in relation to 'Finding purpose'). The company's main purpose in this case is to provide members with club facilities, not to encourage a game or sport.

Relevantly, the example included in the draft of that ruling - Taxation Ruling TR 2005/D7 Income tax: companies controlled by exempt entities, which was replaced by the above example states as follows:

83. A non-profit company is set up and controlled by four exempt sports clubs. Its object is to promote the four sports. Its sole function is to operate a hotel with bars, bistro and gaming machines. Its surplus is distributed in support of sporting purposes proposed by the clubs.

84. The company's main purpose is not the 'encouragement of a game or sport', as required by item 9.1(c) in section 50-45. It does have features that are highly persuasive of sport, viz it 'uses a significant proportion of its surplus funds in encouraging the game or sport' and its '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'.[48] However, when weighed with the sole function of operating the hotel, its main purpose is not the required encouragement of a game or sport.

Accordingly, the Entity's main purpose, as a 'company set up by the income exempt entity' being the Club, is to provide accommodation to members and non-members of the Club, not to encourage a game or sport, as explained above.

Special conditions

Although the Entity has not satisfied the requirements of item 9.1 (c) of section 50-45 of the ITAA 1997, we have considered the special conditions below for completeness.

Section 50-47 of the ITAA 1997

Section 50-47 of the ITAA 1997 provides a special condition for all entities covered by section 50-1 of the ITAA 1997, it states:

An entity that:

(a) is covered by any item; and

(b) is an ACNC type of entity;

is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for profits Commission Act 2012.

Broadly, an entity that can be registered as a charity with the Australian Charities and Not-for profits Commission (ACNC) is an 'ACNC type of entity'. The Charities Act 2013 (CA) sets out the requirements to be a charity. Section 12 of the CA provides purposes that are a 'charitable purpose' and includes purposes such as advancing education and advancing health. The promotion of sport is not a charitable purpose.

Application to your circumstances

The Entity has two distinct purposes being encouragement of participation in a game or sport and providing provision that benefits members in following a recreational pursuit which is a non-charitable purpose. As such, the Entity is not capable of being a registered charity and is not an ACNC type of entity.

Section 50-47 of the ITAA 1997 does not apply to the Entity.

Section 50-70 of the ITAA 1997

Subsection 50-70(1) of the ITAA 1997 states that an entity covered by item 9.1 is not exempt from income tax unless the entity is not carried on for the profit or gain of its members (not-for-profit requirement) and:

•                     it has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia; or

•                     it is a deductible gift recipient; or

•                     it is prescribed by law in the income tax regulations and it is located outside Australia and is exempt from income tax in its country of residence.

Non-profit requirement

TR 2022/2 states the following about the non-profit requirement:

11. To qualify for the games and sport exemption, a club must be not-for-profit... The club must not be carried on for the purposes of individual members' profit or gain, either while the club is operating or on its winding up.

12. Club members may receive communal membership benefits, such as the use of the facilities, that are incidental to the club's objects. This will not prevent the club meeting the not-for-profit requirement. The club may also pay members reasonable remuneration for services they perform for the club.

13. Clubs can use various mechanisms to ensure they meet the not-for-profit requirement. 'Not-for-profit' clauses in governing documents are the most common way. These prevent the distribution of profits or assets for the benefit of particular persons while the club is operating and on winding up.

Application to your circumstances

The Entity's Constitution prevents distribution to members while the Entity is operating and on winding up. The Entity is not carried on for the profit or gain of its individual members.

There is nothing to indicate that the Entity does not operate in accordance with this prohibition.

The Entity satisfies the not-for-profit requirement.

Has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia

The Entity is a resident of, and is in, Australia. The Entity carries on its activities in Australia. It pursues its objectives and incurs its expenditure in Australia and therefore satisfied this requirement Taxation Ruling TR 2019/6 Income tax: the 'in Australia' requirement for certain deductible gift recipients and income tax exempt entities.

Subsection 50-70(2) of the ITAA 1997 provides that the Association must:

•                     comply with all the substantive requirements in its governing rules, and

•                     apply its income and assets solely for the purpose for which the entity is established.

Comply with substantive requirements in its governing rules

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) 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. 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.

Application to your circumstances

The Entity's governing documents include its Constitution. The Constitution sets out both substantive and procedural requirements about how the entity is to be operated. The objects and non-profits clauses about the use of assets, clauses governing the admission of members, and the board's composition are 'substantive' requirements.

Based on the supporting evidence and the above analysis, the Entity complies with the substantive requirements set out in its Constitution.

Applies its income and assets for its purpose

Paragraphs 33 to 35 of TR 2015/1 states that 'the income and assets condition require an entity to apply its income and assets 'solely' for the purpose for which the entity is established. This means that the entity must exclusively or only apply its income and assets for that purpose'.

Application to your circumstances

Based on the supporting evidence and the above analysis, the Entity applies its income and assets solely for the purpose for which it was established.

The Entity satisfies the special conditions in section 50-70 and section 50-47 of the ITAA 1997.

Conclusion

After reviewing the information provided about the Entity's features and operations, it is considered that the Entity has a dual purpose, and its substantial recreational activities are not minor or ancillary. The main purpose of a Entity is to provide accommodation and hospitality for both members and non-members, not encouraging a game or sport.

Therefore, the Entity does not meet the requirements to have its status as tax exempt for income tax under section 50-1 of the ITAA 1997.

Not-for-profit (NFP)

The basic premise of a NFP organisation is that it 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 NFP where its constituent 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. These documents should contain acceptable clauses showing the organisation's NFP character. The organisation's actions must be consistent with this requirement.

Application to your circumstances

The Rules of the Entity prevent distribution to members both while it is operating and upon winding up and dissolution.

Therefore, as the Entity's Rules prevent it from distributing profits or assets for the benefit of particular people, both while it is operating and when it winds up, it is considered a not for profit (NFP) taxable entity.

Question 2

If the answer to question 1 is no, will the receipts from the Entity members and the Club members relating to accommodation fees be mutual receipts and therefore considered non-assessable non-exempt (NANE) income under section 59-35 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

The Commissioner may decline to make a private ruling if the Commissioner considers that the correctness of a private ruling would depend on which assumptions were made about a future event or other matter (paragraph 357-110(1)(a) of Schedule 1 to the Taxation Administration Act 1953 (TAA)).

The ATO considers that, where possible, taxpayers should be provided with certainty in respect of prospective arrangements. However, in some circumstances, such as where the application of the law is particularly dependent on assumptions about future events or matters, a private ruling may not be an appropriate way for the Commissioner to provide the taxpayer with certainty (decision impact statement Commissioner of Taxation v Hacon Pty Ltd [2017] FCAFC 181.

Principle of Mutuality

Section 6-15(3) states that if an amount is non-assessable non-exempt income, it is not assessable income.

With reference to mutual receipts, section 59-35 states:

An amount of ordinary income of an entity is not assessable income and not exempt income if:

(a)           the amount would be a mutual receipt, but for:

(i)            the entity's constituent document preventing the entity from making any distribution, whether in money, property or otherwise, to its members; or

(ii)           the entity's constituent document providing for the entity to issue MCIs (within the meaning of the Corporations Act 2001) or to pay dividends in respect of MCIs; or

(iii)          the entity having issued one or more MCIs (within the meaning of the Corporations Act 2001) or having paid dividends in respect of one or more MCIs; and

(b)           apart from this section, the amount would be assessable income only because of section 6-5.

It follows that if the mutuality principle will apply to the receipts derived from mutual dealings between the Entity and its members, the mutual receipts will be non-assessable, non-exempt income of the Entity.

Whether a mutual association exists between persons depends upon the nature of their relationship, transactions and dealings. Case law demonstrates that no single criterion is likely to be decisive in determining if mutuality applies and not all factors will be present in all cases. Anderson J in Royal Automobile Club of Victoria (RACV) v. Federal Commissioner of Taxation 73 ATC 4153 (RACV) at 4157 (citing the view of Lord Wilberforce in Fletcher v. Income Tax Commissioner [1971] 3 All ER 1185 (Fletcher), at 1190) states:

Many criteria have been considered in the numerous cases where one or another criterion has been regarded as determining the issue [of mutuality]. Lord Wilberforce expressed the opinion that, except in the simplest cases, no single criterion was likely to be decisive.

By way of summary of the various legal principles established by case law surrounding the mutuality principle, the ATO's publication titled Mutuality and taxable income for not-for-profit guide on the ATO's website provides a summary of the typical characteristics of organisations that can access mutuality. The relevant content regarding membership in relation to application of the mutuality principle is discussed below.

Membership

In a mutual arrangement there must also be complete identity between contributors and participants as a class, not individually, in the surplus of the common funds. The members collectively contribute and collectively benefit from the common fund.

For the purpose of mutuality, we accept that a person is a member of an organisation where the person has:

•                     applied for membership (which may entail being nominated and paying the appropriate nomination fee)

•                     been accepted by the organisation (for example by the Board of Directors), and

•                     paid the appropriate membership subscription.

Once a person has applied for membership and has been accepted by the organisation as a member, they are bound by the organisation's constitution and any rules or by-laws of the organisation.

Members need not have voting rights, but those who do not must be eligible to the other rights and privileges of membership. This would include knowing that they are a member, receiving the appropriate membership identification (for example, a card or badge) and receiving the organisation's newsletters and publications.

Various terms are used to describe members - for example, temporary, honorary, social and reciprocal members. As the meanings of these terms can differ between organisations, the use of a particular term does not determine whether a person is a member or non-member for tax purposes.

The general principle is that temporary, honorary or social members who have not been through the above membership process are visitors for tax purposes. This also applies to reciprocal members - that is, members of another organisation sharing reciprocal arrangements.

Application to your circumstances

The correctness of the private ruling in this case will require making of assumptions on the mutual dealing between the Entity and its members for the required ruling period.

The mutuality principle was described succinctly by McTiernan J in Revesby Credit Union Cooperative Ltd v Federal Commissioner of Taxation (1965) 112 CLR 564 (Revesby Credit Union) at 574-575:

The principle of mutuality seems to me to be settled. Where a number of people contribute to a fund created and controlled by them for a common purpose any surplus paid to the contributors after the use of the fund for the common purpose is not income but is to be regarded as a mere repayment of the contributor's own money...Incorporation of the fund is not relevant...What is required is that the fund must have been created for the common purpose and owned or controlled wholly by the contributors. If it is owned or controlled by anyone else the principle cannot apply...Furthermore any contributions to the fund derived from sources other than the contributors' payments, such as interest from the investment of part of the fund, or income from a business activity conducted by the members, cannot be taken into account in computing the surplus...Also the cases establish that the principle cannot apply unless at any given point in time the contributors to the fund are identical with the beneficiaries of the distribution of the surplus.

As the governing documents of both the Entity and the Club have their own distinct members rules and clauses, with no overlap, only the Entity's members' mutual receipts would be applicable.

Therefore, the mutual receipts of the Entity's members accommodation and use of facilities would be subject to the mutuality principle only if these receipts are made in relation to a common purpose as exposed in the objects of the Entity contained in its governing documents. The mutual receipts of the Entity's members in relation to the common purpose remains currently unknown and requires change regarding proper recording and be reflected in the financial statements of the Entity.

Consequently, considering your current circumstances, assumptions would need to be made in relation to the establishment of the common fund, which must be created to correctly reflect the Entity's members' mutual receipts and be a correct reflex in their financial records.

As a result, the Commissioner considers that making a private ruling based on an assumption that would depend on a fact that may or may not occur, for instance, about a future event necessary to confirm the view that the income received by the Entity from the Entity's members can be subject to the mutuality principle leads to assumptions that these changes would happen in the future. These assumptions about future events are material to the outcome of the private ruling to the extent that the correctness of the ruling would depend on making these assumptions. As such, the Commissioner decides to decline to rule on this matter as per paragraph 357-110(1)(a) of Schedule 1 to the Taxation Administration Act 1953 (TAA).