A sports club may be entitled to claim income tax exemption on the basis that it is an association with the main purpose of encouraging sport or a game.
To qualify, a club must:
- have the main purpose of the encouragement of a game or sport;
- be a not-for-profit; and
- meet other special conditions.
What are the benefits?
The benefits associated with this exemption include not lodging a tax return and not paying any income tax (including capital gains tax).
The ATO is reviewing the ruling
The ATO has released a draft ruling which will replace the existing ruling about the principles the ATO will apply when considering whether a sports club remains entitled to claim income tax exemption under section 50-45 of the Income Tax Assessment Act 1997.
New requirement from July 2023
As of July 1, 2023 all sporting clubs claiming tax exemption under the relevant section of the Tax Act will be required to complete an annual self-review on an ATO online portal to check compliance with the ruling. This emphasises that the purpose of a club may be seen to drift and needs to be checked annually to ensure ongoing compliance. This will provide a more accessible process for the ATO to check a club’s compliance.
Things to consider that might impact on eligibility for exemption
Does your Club continue to have the main purpose of encouraging sport or a game?
If your club is undertaking commercial activity such as providing facilities and services to members and non-members unrelated to the game or sport, that may impact the club’s entitlement. If your club is accumulating surpluses that may also impact the club’s entitlement. Records kept by the club to explain the purpose of accumulation and the proposed use of these funds are essential.
Are your members’ receiving inappropriate gain or benefit from their membership in the club?
Call to action
The ATO seeks feedback on the draft ruling by 5 November 2021.
If you would like to join with others to make a submission, please contact me
See Taxation Ruling - TR 2021/D6 for more information
Featured image by: BJ Pearce on unsplash.com