|Table of Contents||Paragraph|
|What this draft Ruling is about|
|Society, association or club|
|Example 1 – not a society, association or club|
|Game or sport|
|Sporting or game-like activities|
|Example 2 – minor sporting activity incidental to club’s main purpose|
|Examples of games or sports|
|Main purpose established for the encouragement of a game or sport|
|Factors to be considered for determining main purpose|
|Activities and purpose|
|Surplus funds and purpose|
|Example 3 – surplus funds and purpose|
|Main purpose can change over time|
|Example 4 – change in purpose over time|
|Examples – main purpose is encouraging a game or sport|
|Example 5 – no secondary purpose – incidental fundraising activities|
|Example 6 – incidental or secondary purpose – clubhouse activities|
|Example 7 – incidental and ancillary to main purpose – significant non-member clubhouse use|
|Example 8 – multi-factorial – main purpose of encouraging a game or sport|
|Example 9 – multi-factorial – main purpose is not encouraging a game or sport|
|Date of effect|
|Appendix – Your comments|
| Relying on this draft RulingThis publication is a draft for public comment. It represents the Commissioner’s preliminary view on how a relevant provision could apply.|
If this draft Ruling applies to you and you rely on it reasonably and in good faith, you will not have to pay any interest or penalties in respect of the matters covered, if this draft Ruling turns out to be incorrect and you underpay your tax as a result. However, you may still have to pay the correct amount of tax.
1. This draft Ruling applies to societies, associations or clubs (referred to collectively as ‘clubs’) seeking to determine whether they are exempt from income tax under table item 9.1(c) of section 50-45 of the Income Tax Assessment Act 1997. In this Ruling, we call this the ‘games and sports exemption’.
4. As part of good governance practices, it is recommended that clubs self-review their entitlement to income tax exemption each year or when there is a major change in the structure or activities of the club. When conducting self-review, clubs should consider how the law explained in this Ruling applies to their circumstances. From 1 July 2023, clubs with an active Australian business number will need to complete an annual online self-review form.
5. This Ruling replaces Taxation Ruling TR 97/22 Income tax: exempt sporting clubs. This Ruling does not reflect a change in the Commissioner’s view on the application of the games and sports exemption; rather, it refreshes the view expressed in TR 97/22 to make it more contemporary. This Ruling also takes into account relevant case law that has occurred since TR 97/22 published.
6. The phrase ‘society, association or club’ refers to a voluntary organisation of people associated together for a common or shared purpose. This description is consistent with the Macquarie Dictionary definition of each word:
9. Neither Sporting Foundation, nor its trustee, qualify as a society, association or club as neither satisfies the description of a voluntary organisation of people that have associated together for a common or shared purpose.
10. To qualify for the games and sports exemption, a club must be not-for-profit (the ‘not-for-profit requirement’ in this Ruling). 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.
11. 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.
12. 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.
14. If a club is prohibited by statute from distributing profits or assets (for example, state or territory laws for incorporated associations) for the benefit of particular persons while the club is operating and on winding up, the club’s governing documents are taken to contain the appropriate not-for-profit clauses.
16. ‘Game’ and ‘sport’ are not defined terms and take their ordinary meaning, shaped by the statutory context in which they appear. Some activities are obviously games or sports; for example, netball or football. For other activities, characterisation as a game or sport can be demonstrated by evidence of a competitive element, and by participants’ compliance with the conventions and rules of the activity.
18. 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 a 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).
19. While competition is a very common feature of a game or sport, it is not essential or determinative. The presence of competition can be an important indicator where the activity is not obviously a game or sport.
22. Activities such as stamp and coin collecting, body building and train modelling are not games or sports. The activities that give rise to the desired results lack the features of competitions or rules and are not games or sports by their nature. Similarly, keeping guinea pigs or fish is not a game or sport. The activities of participants in car owner clubs are not participation in sports for similar reasons. Those participants’ focus is on their common interest in a type or make of motor vehicle and not on any sport or game-like activity.
23. 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.
24. 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 also 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.
25. 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 opens 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 club is not formed for the main purpose of encouraging a game or sport, the fishing competition held is not a game or sport.
29. For a club to be established for the encouragement of a game or sport, the main purpose of the club in the relevant income year must be the encouragement of a game or sport. ‘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.
30. Determining the main purpose of a club requires an objective evaluation of all material facts and circumstances. There is no set formula for weighing up the characteristics of a club to determine its main purpose.
31. The subjective motives or intentions of the founders or members of the club are relevant but do not necessarily determine the main purpose of the club. The stated purpose of a club is also significant but not decisive. Other important considerations include the activities and history of the club and how the club is controlled.
32. It is the main purpose of the club in the year under examination that is the relevant consideration. It is not enough to examine the purpose of a club at the time of formation (or in past years), as its main purpose may change from year to year.
34. A club can have both sporting and independent non-sporting purposes and still qualify for the games and sports exemption. For example, a club that provides secondary non-sporting related services or facilities to members will not automatically be disqualified for the games and sports exemption.
35. No one factor on its own will determine the main purpose of a club. A weighing of all the factors is needed. When considering the factors together, an objective conclusion must be reached that a club has a main purpose of encouraging a game or sport.
37. 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.
38. 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. 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.
41. 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.
43. The use of surplus funds from a club’s activities is also a factor to consider when determining the club’s main purpose. Surplus funds can serve both the purpose of encouraging a game or sport and other independent non-sporting purposes. When considering purpose, it is how the surplus funds are used, or retained for future use, in line with the objects, activities and other characteristics of the club that matters.
44. A club that uses surplus funds resulting from its activities, including commercial activities, to support the conduct of sporting activities does not necessarily have the main purpose of encouraging a game or sport. The extent of those activities generating surpluses, or the other ends they achieve, may result in the club’s main purpose being not about encouraging a game or sport.
45. Where a club uses surplus funds to undertake a commercial activity that does not directly provide services to any of its members, the undertaking of this commercial activity is likely to be a neutral factor.
46. Putting aside surpluses as a contingency fund for unexpected future events is also likely to be neutral when weighing up the factors to determine the main purpose of a club, provided the club can reasonably show the need for such a fund and at the time it is accumulated, the fund serves all the club’s purposes indifferently. When the club uses the contingency fund, consideration will need to be given to how that use impacts the main purpose of the club.
47. It is a matter of objectively weighing the facts and circumstances in each case to determine whether the club has a main purpose of encouraging a game or sport. Actions of a club to obtain and retain surplus funds, without further consideration of how surplus funds will serve the club’s purposes, is not determinative.
53. Local Club has been accumulating surplus funds for a number of years, and has a detailed business plan to develop land it acquired a number of years ago as a football oval for its junior football competition. The development plans received local council approval and the club is currently negotiating with contractors for the proposed works on the development.
54. Local Club has also put aside some of its surplus funds as a contingency for unexpected future events. Local Club can reasonably show the need for such a fund and that when accumulated, it serves Local Club’s purposes indifferently.
56. Given Local Club can show detailed plans to use its surplus funds to support the football games by building further playing fields, its retention of surplus funds is consistent with a conclusion that its main purpose is to encourage Australian Rules football.
57. The contingency fund is likely to be neutral when weighing up the factors to determine Local Club’s main purpose. This is because Local Club can reasonably show the need for a contingency fund and, at the time the fund is accumulated, it serves all Local Club’s purposes indifferently. If Local Club uses the contingency fund, it will need to consider how the use of the contingency fund impacts on its main purpose at that time.
58. If, instead of the facts in this Example, Local Club retains surplus funds with a plan to provide additional facilities for social members who do not participate in football, the significance of these plans would need to be considered objectively in light of the objects of Local Club (and its other activities) to ascertain whether there would be a material impact to its main purpose.
59. In all instances, any surplus funds retained by Local Club will just be one factor of many that must be objectively weighed up to determine its main purpose. Local Club should keep appropriate records (for example, meeting minutes for important decisions or a business plan which relates to surplus funds) so it can show its plans for surplus funds and how surplus funds will serve a main purpose of encouraging a game or sport.
60. The main purpose of a club can change over time, and there is an ongoing requirement to make an objective evaluation of all of the facts and circumstances that apply to that club to determine its main purpose.
61. Isolated events that happen in the life cycle of a club do not necessarily mean that the main purpose of the club has changed. However, when these events are significant, the club should consider how they might impact its main purpose.
64. For many years, Green Links provided a golf course as well as a clubhouse with social, gaming and entertainment facilities for its members and visitors. As time progressed, it became increasingly expensive to maintain the golf course. In 2021, the management committee decided to sell the golf course to a residential property developer.
65. While a substantial body of the club’s membership still maintain an interest in playing golf, they now play at other golf courses not associated with Green Links. After the golf course was sold in 2021, Green Links’ main activities centre on providing social facilities for its members but it also donates to other golf clubs in the region from time to time, when they have sufficient funds.
66. The determination of a club’s main purpose is periodic and a club’s main purpose may change from time to time. For the games and sports exemption to apply in an income year, Green Links must be established for the main purpose of the encouragement of a game or sport for that year. When it was set up in 1996, Green Links was established for the encouragement of golf and its activities were mainly centred on providing a golf course for members.
67. After it sold the golf course, its activities changed to such an extent that in 2021 it can no longer be said that Green Links is established for the main purpose of the encouragement of a game or sport. For 2021, Green Links will not qualify for the games and sports exemption.
68. Kids Soccer Club is a locally-based club that fields junior soccer teams in all Under-18 leagues in their region. Kids Soccer Club has junior members who are under 18, and adult members who are either the parents of the junior members, soccer coaches or former junior members.
69. Kids Soccer Club’s objects stated in its constitution are to promote junior soccer at all levels, to enter competitions and field teams at all junior levels. It is managed by a committee of members with an active involvement in advancing soccer in the region. It has a long history of entering competitions and has been successful over the years winning several premierships. To raise funds, Kids Soccer Club runs raffles, hosts fundraising dinners and receives sponsorship from local organisations.
72. Bowls Inc is a bowls club that owns and maintains a local bowling green. It has bowling members and social members. Bowling members can use the club’s green and participate in competitions with other bowls clubs. Social members can use the clubhouse and green when open to social members but are not entitled to enter competitions or access the green when reserved for bowling members or competition.
73. Bowls Inc has a clubhouse located on its bowling green. The clubhouse has a licensed bar, dining facilities and gaming machines. The clubhouse is open to non-members. Bowls Inc members regularly participate in competition and have been successful over the years. Bowls Inc’s objects stated in its constitution are to provide a bowling facility for members, enter and host competitions and provide social facilities for members. Bowls Inc is managed by members who actively play bowls.
75. The extent of the non-bowls activities (such as the operation of the clubhouse with a licensed bar, dining facilities and gaming machines) when objectively considered with all of its bowls activities support a conclusion that these activities are incidental and ancillary or secondary to its main purpose of encouraging a game or sport.
76. Golf Lincs is a golf club that owns and maintains a local golf course. The club has golfing members and social members. Golfing members can use the club’s course and participate in golf competitions with members of other clubs. Social members can use the clubhouse and green when open to social members but are not entitled to enter competitions or access the green when reserved for golfing members or competitions.
77. Golf Lincs has a clubhouse located on its golf course and a pro-shop that sells golfing equipment. The clubhouse has a licensed bar, dining facilities and gaming machines (clubhouse activities). The clubhouse is open to non-members and hosts a significant number of functions for non-members. Golf Lincs members regularly participate in competitions and have been successful over the years. Golf Lincs’ objects stated in its constitution are to provide a golf course for members, enter and host golfing competitions and provide social facilities for members. Golf Lincs is managed by members who actively play golf.
80. The operation of the clubhouse activities are incidental and ancillary or secondary to Golf Lincs’ main purpose of encouraging a game or sport. On the facts of this Example, the conduct of clubhouse activities that involves the provision of social amenities to members is not of an extent that would cause that purpose to be other than secondary to the main sporting purpose.
83. In the past, Multi-Club has fielded a senior football team and later, Multi-Club fielded three junior football teams which now operate separately from Multi-Club. Multi-Club has not fielded sporting teams in any competitions for a number of years.
84. Multi-Club has closely-affiliated sporting clubs to which it has a history of providing substantial financial and in-kind support. Its audited accounts and other documented evidence demonstrate that Multi-Club actively supports (both financially and in-kind) the following sporting clubs:
85. The management committee of Multi-Club is comprised of a diverse group of individuals with marketing, management and football knowledge. Some of the management committee members are current or former footballers and coaches. Contemporaneous emails show that the management committee has a deliberate, implemented policy of having representative members from the management committees of its affiliated sporting clubs.
88. Multi-Club’s clubhouse includes a licenced bar and bistro, meeting rooms, a gaming room, a function room, sports-betting machines, pool tables and video screens. It is also home to the club’s administration offices and to the administrative functions of the affiliated sporting clubs (which is provided free of charge).
90. An analysis of Multi-Club’s financial statements shows that member receipts always exceed expenditure relating to members and that more than 50% of its annual surplus funds from non-member sources is used to provide support to its affiliated sporting clubs.
96. An objective evaluation of the factors would lead to a conclusion that Multi-Club is established for the main purpose of the encouragement of a game or sport. Multi-Club should document how it has reached this conclusion and should re-evaluate whenever any material changes occur in its operations.
97. Supporters Club is a club that provides social facilities to members and supports football. It was established by a number of supporters and former players. Its objects are to provide a social facility for members and raise funds for local football clubs.
98. Supporters Club does not field any football teams, enter any competitions or directly participate in playing football. It conducts trading activities in a licenced bar, dining facility and gaming area. It is open to members, as well as the public. Supporters Club is managed by members who are former players or have an interest in football. It provides financial support to local football clubs through sponsorships and the provision of in-kind support on an inconsistent basis when its members’ needs are met.
99. For Supporters Club to qualify for the games and sports exemption, an objective conclusion must be made that it is established for the main purpose of the encouragement of a game or sport. This requires an objective weighing of all the factors that apply to Supporters Club.
103. This Ruling applies to years of income commencing both before and after its date of issue. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10 Public Rulings).
Commissioner of Taxation
7 October 2021
Please advise if you do not want your comments included in the edited version of the compendium.
|Due date:||5 November 2021|
|Contact officer:||John Churchill|
|Phone:||(03) 6221 0258|
You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
All further references to ‘this Ruling’ refer to the Ruling as it will read when finalised. Note that this Ruling will not take effect until finalised.
All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated.
Specifically, Commissioner of Taxation of the Commonwealth of Australia v Word Investments Limited  HCA 55 (Word Investments).
Douglas & Ors v Federal Commissioner of Taxation  FCA 724, 97 ATC 4722, at .
Macmillan Publishers Australia, The Macquarie Dictionary online, www.macquariedictionary.com.au , accessed 27 August 2021.
An unincorporated association usually shows that their group has associated for a common or shared purpose by adopting a constitution, set of rules or other governing document.
For instance, as an incorporated association under the various associations incorporation acts of the States and Territories (for example, the Associations Incorporation Act 2009 (NSW)) or as a company limited by guarantee under the Corporations Act 2001.
For example, Cremation Society of Australia Ltd v Commissioner of Land Tax (NSW)  2 NSWLR 704 and Repromed Pty Ltd v Lucas and Anor (2000) 76 SASR 575.
This includes where a club adopts the model rules for an incorporated association and these rules contain not-for-profit clauses.
For example, the club is an incorporated association and the state or territory law that applies to incorporated associations includes not-for-profit clauses.
Following the amendments in the Taxation Laws Amendment Act (No. 2) 1990, competition is not always a required element for the definition of a game or sport.
Notes on Clauses in the Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 2) 1990.
Adcock and Others v Wilson (Adcock)  1 All ER 1028, as per Widgery J, at .
For the purposes of section 50-45.
See paragraphs 17 to 20 of this Ruling.
See paragraphs 17 to 20 of this Ruling.
Cronulla Sutherland Leagues Club v. Commissioner of Taxation  FCA 108 (Cronulla Sutherland), per Lockhart J.
South Sydney Junior Rugby League Club Limited and Commissioner of Taxation  AATA 265 (South Sydney), at .
South Sydney, at .
Cronulla Sutherland, as per Lockhart J at 23 FCR 95-96.
Notes to Clauses of the Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 2) 1990; Cronulla Sutherland; South Sydney; North Suburban Club Inc and Commissioner of Taxation  AATA 463. An organisation will not be disqualified from the games and sports exemption where the non-sporting purpose is just a collateral or independent purpose. It must also be the main purpose: Cronulla Sutherland, as per Lockhart J; “The Waratahs” Rugby Union Football Club v Federal Commissioner of Taxation 79 ATC 4337 at , per Waddell J.
Terranora Lakes Country Club Limited v. Commissioner of Taxation  FCA 80 (Terranorra Lakes); Re Tweed Heads Bowls Club v FC of T 92 ATC 2087 (Tweed Heads); St Marys Rugby League Club Ltd v Commissioner of Taxation  FCA 581 (St Marys).
Terranorra Lakes; Tweed Heads; St Marys.
Terranorra Lakes; Tweed Heads; St Marys.
Case W114 89 ATC 891, at ; AAT Case 5452 (1989) 20 ATR 4125, at [4133;] Terranorra Lakes; Tweed Heads; St Marys.
Terranorra Lakes; Tweed Heads; St Marys.
AAT Case 8267 (1992) 24 ATR 1068; Tweed Heads; St Marys.
Cronulla Sutherland at 90 ATC 4226, 36 ATR 313; Terranorra Lakes; Tweed Heads; St Marys.
Word Investments; Terranora Lakes.
Word Investments; Inland Revenue Commissioners v Helen Slater Charitable Trust Ltd  Ch 49, per Oliver LJ at .
In Word Investments, the High Court found that there was only one purpose and commercial activities were a means to the end of serving that purpose. In Cronulla Sutherland, the majority of the Full Federal Court found that there were both sporting and non-sporting purposes, and that objectively the activities of the club involving members served a non-sporting end in themselves.
Cronulla Sutherland; St Marys.
Cronulla Sutherland, Lockhart J at 23 FCR 95-96, confirmed by Greenwood J in Study and Prevention of Psychological Diseases Foundation v Commissioner of Taxation  FCA 1117 at ,  and [181-182], citing Word Investments and Cronulla Sutherland.
Not previously issued as a draft
Business Line: PW
ITAA 1997 50-45
ITAA 1997 50-70
Corporations Act 2001
Taxation Laws Amendment Act (No. 2) 1990
Associations Incorporation Act 2009 (NSW)
5452 (1989) 20 ATR 4125
Adcock and Others v Wilson
 1 All ER 1028
W114 89 ATC 891
Commissioner of Taxation of the Commonwealth of Australia v Word Investments Limited
 HCA 55
236 CLR 204
83 ALJR 105
251 ALR 206
Cremation Society of Australia Ltd v Commissioner of Land Tax (NSW)
 2 NSWLR 704
Cronulla Sutherland Leagues Club v Commissioner of Taxation
 FCA 108
90 ATC 4215
21 AIR 300
23 FCR 82
Douglas & Ors v Federal Commissioner of Taxation
(1997) 77 FCR 112
97 ATC 4722
36 ATR 532
Inland Revenue Commissioners v Helen Slater Charitable Trust Ltd
 Ch 49
North Suburban Club Inc and Commissioner of Taxation
 AATA 463
(1999) 42 ATR 1111
99 ATC 2254
Re Tweed Heads Bowls Club v FC of T
92 ATC 2087
Repromed Pty Ltd v Lucas and Anor
(2000) 76 SASR 575
South Sydney Junior Rugby League Club Limited and Commissioner of Taxation
 AATA 265
(2006) 62 ATR 1123
2006 ATC 2150
St Marys Rugby League Club Ltd v Commissioner of Taxation
 FCA 581
1997 ATC 4528
36 ATR 281
Study and Prevention of Psychological Diseases Foundation v Commissioner of Taxation
 FCA 1117
330 ALR 1117
Terranora Lakes Country Club Limited v Commissioner of Taxation
 FCA 80
93 ATC 4078
25 ATR 294
The Waratahs’ Rugby Union Football Club v Federal Commissioner of Taxation
79 ATC 4337
Explanatory Memorandum to the Taxation Laws Amendment Bill (No 2) 1990
Macmillan Publishers Australia, The Macquarie Dictionary online, www.macquariedictionary.com.au