Legal development

New draft Ruling on games and sports income tax exemption

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    What you need to know

    • From 1 July 2023, clubs with an active ABN will be required to complete an annual online self-review form.
    • Certain DGRs will be eligible to apply for an extension of the transitional period to become registered as a charity.
    • Proposed amendments to the Land Tax Act 2005 (Vic) to operate from next year will require charitable institutions to use and occupy land in order to obtain an exemption from land tax, and will narrow the exemption for land leased for certain sporting, recreational or cultural activities to apply only to land owned by a charitable institution.

    What you need to do

    • Clubs should self-review their entitlement to the income tax exemption each year, or whenever there is a major change in a club's structure or activities.
    • DGRs should consider whether they reasonably require an extension to the transitional period.
    • Charities and non-charitable bodies currently leasing land for outdoor activities should review their land use arrangements to assess whether they are still eligible for the relevant land tax exemptions.

    TR 2021/D6

    What is the Ruling about? 

    The draft Ruling (available in full here: applies to societies, associations and clubs (clubs) that are seeking to determine if they qualify for the "games and sports" exemption under table item 9.1(c) of section 50-45 of the Income Tax Assessment Act 1997 (Tax Act). 

    The exemption is available for clubs that: 

    • are established for the main purpose of the encouragement of a game or sport;
    • are not carried on for the purposes of their individual members' profit or gain; and 
    • meet other special conditions. 

    The draft Ruling is open for comment, and comments are due by 5 November 2021. The draft Ruling replaces Taxation Ruling TR 97/22 Income Tax: exempting sporting clubs. While the old Ruling will be formally withdrawn, the Australian Tax Office (ATO) is of the view that the application of the game and sports exemption has not changed. Rather, the draft Ruling provides contemporary examples and takes into account case law updates delivered after the old Ruling was published.

    From 1 July 2021, clubs with ABNs will need to complete an annual online self-review form. In the meantime, the Ruling recommends that clubs self-review their entitlement to the exemption each year, or whenever there is a major change in either the club's structure or activities. 

    Society, association or club

    The draft Ruling states that the phrase "society, association or club" refers to a "voluntary organisation of people associated together for a common or shared purpose". These organisations may take the form of an unincorporated association or may be formally incorporated, but cannot be structured as a trust. 


    In order to qualify for the games and sports exemption, a club must not be carried on for the purposes of individual members' profit or gain. This requirement applies both when the club is in operation and when the club is being wound up. 

    Communal membership benefits that are available for members and that are incidental to the club's objects (for example, the use of facilities) will not prevent a club from satisfying the not-for-profit requirement.

    The draft Ruling provides example not-for-profit clauses for inclusion in a club's governance documents but notes that a club's actions must be consistent with such a clause. 

    Game or sport

    The draft Ruling notes that "game" and "sport" are not defined terms and that they therefore take their ordinary meaning. For activities that are not obviously games or sports, the draft Ruling states that evidence of a competitive element and compliance with the activity's conventions and rules will be instructive. 

    The draft Ruling notes that written or defined rules are not essential but that their imposition on an organised group of participants can transform what would otherwise be considered a leisure activity into a game or sport.

    What is essential is a common understanding shared by participants that the activities they are performing are the activities of a particular game or sport.

    The following activities may also be characterised as a game or sport: 

    • non-athletic activities (eg chess or bridge); 
    • activities undertaken with machines (eg motor racing); and 
    • non-competitive activities (eg mountaineering). 

    Sporting or game-like activities 

    The draft Ruling states that activities which have as their essential focus a thing, object or animal, or which are merely a means to some other end will not be games or sports. For example, activities such as stamp and coin collecting, body building and train modelling are not games or sports. Additionally, the activities of members of car owner clubs do not amount to participation in sports, as members' focus is on their common interest in a type or make of motor vehicle.

    Where activities are not organised in a sport or game-like way and where there exists some other predominant purpose, the activities will not amount to a game or sport. Dancing is given as an example of an activity that can be organised in a game-like or sport-like way, but that often has as its predominant purpose the promotion of sociability, participation and relaxation. 

    Examples of games or sports

    At paragraphs [26] and [27] of the draft Ruling, the Commissioner provides a non-exhaustive list of activities that would be considered a "sport" or a "game" respectively, provided that they satisfy the features of a game or sport. A non-exhaustive list of activities that would not be considered a game or sport is outlined at paragraph [28].

    Main purpose 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. The term "encouragement" takes its ordinary meaning, and refers to stimulating by assistance or approval (through both direct and indirect means). 

    In determining whether a club has the relevant main purpose, the following will be considered:

    • the subjective motives or intentions of the founders/members of the club; 
    • the stated purpose of the club; 
    • the activities and history of the club; and 
    • how the club is controlled. 

    As a club's main purpose may change from year to year, it is not enough to examine the purpose of the club as at the time of its formation or in previous years.

    Clubs with both sporting and non-sporting purposes will not qualify for the exemption unless the non-sporting purposes are ancillary and incidental to carrying out the sporting purpose or are secondary to the sporting purpose. 

    Determining main purpose

    The draft Ruling notes that courts have identified the following factors as being relevant to determining a club's main purpose:

    • emphasis in governing documents that the main purpose to encouragement of a game or sport; 
    • the extent of the sporting activities; 
    • the conduct of activities that are directly related to the game or sport; 
    • a high level of member participation in the game or sport; 
    • proportion of the organisation to patrons and the public as one that encourages a game or sport; 
    • involvement of the management committee in the promotion of sport; 
    • the use of surplus funds for encouraging the game or sport; and 
    • the provision of financial and in-kind support for encouraging the game or sport.

    Surplus funds and purpose

    A club's use of surplus funds is a relevant consideration in determining the club's main purpose. For example, a club that uses surplus funds to support the conduct of sporting activities will not necessarily have as its main purpose the encouragement of a game or sport. The extent of the activities that generate the surplus may indicate that the pursuit of those activities becomes a main purpose of itself. 

    Where a club puts aside surplus funds as a contingency, provided that the club can reasonably show the need for such a fund, the contingency will likely be a neutral consideration. Consideration must still be had to how any use of the contingency funds impacts the club's main purpose.

    Extension of timeframe for DGRs to become registered charities 

    From 14 December 2021, all non-government deductible gift recipients (DGR), with the exception of ancillary funds and DGRs that are specifically listed in the tax law, will be required to be, or to be operated by, a charity registered with the Australian Charities and Not-for-profits Commission (ACNC). Those DGRs that are not registered charities must take steps to become registered.

    Entities that are either a DGR or that have applied to become a DGR immediately before 14 December 2021 have the benefit of an automatic 12 month transitional period, which means that they have until 14 December 2022 to become a registered charity. Entities that require a longer transitional period can apply to the Commissioner for an extension of 3 years. 

    The Treasury Laws Amendment (2021 Measures No 2) (deductible Gift Recipients – Extended Application Date) Instrument 2021 (Instrument) prescribes both the criteria that must be met by a DGR that is seeking the extension, and the matters to which the Commissioner must have regard when considering whether to grant the extension.

    Under the Instrument, entities applying for the extension must, as at the time of the application:

    • have had no change in their circumstances that would affect their entitlement to DGR endorsement apart from the amendments made by Schedule 1 to the Treasury Laws Amendment (2021 Measures No 2) Act (the Act requiring DGRs to be registered as a charity); 
    • have never had an application for registration as a charity refused by the ACNC; and 
    • have never had their charitable registration involuntarily revoked by the ACNC. 

    Eligible entities must complete and submit an application form, which will be made available after 14 December 2021, to the Australian Tax Office before 14 December 2022. Entities that do not meet the eligibility criteria may nonetheless be eligible for the 12-month transitional period. 

    Under the Instrument, the Commissioner must have regard to the following matters when considering an application for extension of the transitional period: 

    • whether between 14 December 2021 and 14 December 2022 the applicant took reasonable steps both to become eligible for charitable registration and to apply to the ACNC for charitable registration, and, if the Commissioner of the ACNC required the applicant to give information or a document, to give that information or document;
    • whether it is reasonable possible that the applicant will be able to meet or satisfy the eligibility criteria for registration as a charity by the end of the 3-year extended transitional period; 
    • if the applicant believes it will be unlikely to meet the eligibility criteria for charitable registration by 14 December 2022, whether it is reasonable that the applicant be given additional time to wind-up and to distribute all remaining assets to another DGR recipient; and 
    • any views expressed by the Commissioner of the ACNC about the above matters. 

    Amendments to section 74(1)(a) of the Land Tax Act 2005 (Vic)

    The Victorian government is proposing to amend section 74(1)(a) of the Land Tax  Act 2005 (Vic) (LTA) to narrow the scope of the exemption from land tax available for charitable institutions under that section. 

    Currently, section 74(1)(a) provides that land will be exempt land and therefore exempt from land tax if the Commissioner determines that it is used by a charitable institution exclusively for charitable purposes. If passed, Part 10 of the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021 will amend section 74(1)(a) such that land must be "used and occupied" by the charitable institution in order to qualify for the exemption. 

    The amendments follow the decision of the Victorian Supreme Court in University of Melbourne v Commissioner of State Revenue [2021] VSC 156 that the word "used" for the purposes of section 74(1)(a) (as it is currently formulated) is not synonymous with the word "occupy".  In arriving at this conclusion, Justice Osborne acknowledged that an occupier of land must necessarily use land, but that a user of land need not occupy it. In this way, "use" for the purposes of subsection 74(1)(a) incorporates a wider meaning than the active physical use that is consistent with the concept of occupation. As such, an entity that leases land out to a tenant could still be held to be using that land, notwithstanding that the tenant could be said to be occupying the land. 

    The amendments, if passed, will narrow the scope of the exemption to require charitable institutions to both use and occupy the land for which an exemption is sought. For example, charities that lease out their properties to commercial tenants for the purpose of generating funds that are, in turn, applied solely for the charities' purposes, will no longer be eligible for the land tax exemption under section 74(1)(a).   

    The Bill is currently before the Victorian Legislative Assembly, and the second reading debate has been adjourned until 27 October 2021. 

    Section 71 of the LTA to be repealed

    The Victorian government also proposes to repeal section 71 of the LTA, which currently provides an exemption from land tax where land is vested in a person or body and is leased for certain outdoor activities for members of the public, and where the proceeds from the leasing are applied exclusively by the person or body for charitable purposes. 

    A new section 74(1)(c) will be inserted, which will exempt land that is owned by a charitable institution, that is leased for certain outdoor activities, and that is available for use by members of the public. The amendments, if passed, will mean that land currently vested in and leased out by persons or bodies that are not charitable institutions will no longer qualify for the exemption, irrespective of whether those persons or bodies dedicate the leasing proceeds exclusively to charitable purposes. 

    Authors: Geoff Mann, Partner; Bronwyn Kirkwood, Counsel; Elizabeth John, Graduate.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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