Where the separation of apportionable revenue and expenses is more involved, you may choose to use the Waratahs formula.
The Waratahs formula is a base formula for isolating member and non-member contributions to income of an organisation, and it simplifies the process for separating expenses that cannot be easily identified as either member or non-member.
The formula comes from case law and takes its name from a case involving the Waratahs Rugby Union Football Club and the Commissioner of Taxation. The formula is accepted as a reasonable basis for apportionment, particularly for registered and licensed clubs.
The Waratahs formula calculates the non-member percentage, which is then applied to the organisation's revenue and expenses to arrive at the assessable and deductible components.
The Waratahs formula is as follows:
(B x 75%) + C
(R x S x T) + A
A = total visitors for the year of income
B = members' guests for the year of income
C = A - B
R = the average number of subscribed members in the year of income
S = the average daily percentage of member attendance at the organisation
T = the number of trading days in the year of income
Organisations must calculate their non-member percentage for each year of income, as the variables in the formula can change.
The Waratahs formula requires a figure for daily member attendance at the organisation as well as a visitor total for the year of income.
The formula also requires that members' guests be differentiated from other visitors.
Some organisations are required by state licensing laws to maintain separate registers for members' guests and visitors. However, these laws may not require organisations to keep records of member attendance.
Determining (A) total visitors and (S) average daily percentage of members attendance
The formula relies on the accuracy of visitor and member registers, and survey results.
Visitor and member registers
Where an organisation is required by state licensing laws to maintain a register, total visitors can be determined by summation of the visitors, temporary and honorary members' books.
Likewise, the average daily percentage of member attendance can be determined by summation of the members' daily attendance books.
If an organisation does not have permanent door staff, a survey should be conducted.
Some registered clubs are allowed by state licensing laws to admit temporary members for an extended period of up to seven days, or up to 30 days with approval. Under these arrangements, when the person enters the club's premises for the first time they must sign the visitors' register. However, they do not have to sign in on subsequent visits. Where the club adopts this arrangement, it should count the temporary member as having been a visitor on each day of the period, unless the club records the person's actual attendance on the club's premises during this time.
If an organisation does not have records of total visitors and member attendance to include in the formula, it should conduct regular surveys of visitor and member attendance.
If an organisation is required to conduct surveys, we recommend a minimum of two one-week surveys be done each year.
Because organisations have to take into consideration their own circumstances with regard to the variables used in the formula, surveys are needed to determine members' attendance instead of making assumptions.
Two one-week survey periods are acceptable, provided they are administered diligently.
The surveys should be conducted during periods that are likely to be representative of average trading periods - for example during autumn and spring months. School holiday periods may or may not be indicative of normal trading periods.
During the survey period, registered clubs that admit temporary members for an extended period should count the temporary member as a visitor on each day the person actually attends the club's premises.
The survey results may then be annualised in order to estimate total visitor attendance as well as the average daily percentage of member attendance for the year of income.
Example: 'Clicker' count of members at door
When entering the Persimmon Club, visitors are required to sign the visitors' book and members are required to show their member card.
The club determines the total visitors for the year by summation of the visitors' book.
To determine the average daily percentage of member attendance, the club conducts two one-week surveys. During each survey period, the club arranges for staff to attend the door and use a 'clicker' to count the members as they enter the club.
End of example
Arranging for staff to attend the door and use a 'clicker' to count the members as they enter the club is one method of conducting surveys. However, other methods can be used provided diligence is applied.
Example: Survey questionnaires and membership swipe card reader
For the next survey period, the Persimmon Club leaves a number of survey questionnaires on its front counter. All people attending the club are encouraged to complete the survey. The survey questions cover a range of topics including the club's ambiance, food, drink, entertainment and pricing. One question in the survey is about the average daily percentage of members attending the club. The club uses the results from this question to determine the average daily percentage of member attendance.
In the following year, the club installs a membership swipe card reader. The club notifies its members that a survey will be conducted during the relevant period and asks that members ensure they swipe their membership card when they enter the club. To encourage members to register their attendance, the club runs lucky member draws during the survey period. The club uses the results from the swipe card reader to determine the average daily percentage of member attendance.
End of example
Determining (B) members' guests
Where an organisation is required by state licensing laws to maintain a register, the number of members' guests can be determined by summation of the register.
The Waratahs formula assumes that 75% of members' guests contribute to the organisation's assessable income. This is because the formula assumes that 25% of visitors do not spend money while in the organisation, because they are:
- members' spouses or friends whose expenses are paid by members
- people entertained by the organisation at the expense of the organisation.
Organisations should ensure that the 75% variable used in the formula is representative of their own circumstances.
Example: Calculation using Waratahs formula
The Vermilion Club has a total of 10,000 visitors (A) who attend the club during the income year and 4,000 of these are members' guests (B). Therefore, (C) equals 6,000 being (A) minus (B).
The membership at the beginning of the year was 1,000 and at the end of the year it was 1,400. Therefore, the average number of members for the year was 1,200 (R).
Surveys done during the year have given an average daily member attendance of 10% (S). The club is open for 363 days during the year (T). During this time it recorded bar sales of $52,000 and bar expenses of $22,000.
The club calculates the portion of non-member income and deductions as follows:
= (B x 75%) + C
(R x S x T) + A
= (4,000 x 75%) + 6,000
(1,200 x 10% x 363) + 10,000
The club then applies this percentage to its bar sales and bar expenses to arrive at the assessable income and deductible expenses components.
Assessable income component
= $52,000 x 16.80% = $8,736
Deductible expenses component
= $22,000 x 16.80% = $3,696
These amounts are then added to any other assessable income or deductible expenses.
End of example