To qualify for income tax exemption as a sporting organisation, your club must be non-profit.
An organisation is non-profit if it is not carried on for the profit or gain of its individual members. This applies for direct and indirect gains and both while the organisation is being carried on and on its winding up.
The income tax law does not prescribe a form of words that a non-profit company must have in its constituent documents. The following example clauses would be acceptable, as long as other clauses were not contrary to them. The organisation's activities must be consistent with the clauses.
Example: Non-profit clause
The assets and income of the organisation shall be applied solely in furtherance of its above-mentioned objects and no portion shall be distributed directly or indirectly to the members of the organisation except as bona fide compensation for services rendered or expenses incurred on behalf of the organisation.
Example: Dissolution clause
In the event of the organisation being dissolved, the amount that remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to another organisation with similar purposes which is not carried on for the profit or gain of its individual members.
The following do not prevent a club from being non-profit:
- benefits received by members communally as members, such as use of club's facilities
- benefits received by members incidental to the pursuit of a club's objects, such as sports uniforms, or
- payment of reasonable remuneration to members for services they provide to the club.
A non-profit organisation can still make a profit, but this profit must be used to carry out its purposes and must not be distributed to owners, members or other private people.
A society makes a $40,000 profit for the year. It uses the profit to reduce its debts and provide for its activities in the following year.