Sporting clubs: Income tax exemption & new ATO draft ruling – anything changing?


On 7 October 2021, the ATO issued draft ruling Taxation Ruling TR 2021/D6 Income tax: the games and sports exemption (‘the Draft Ruling’), which contains the Commissioner’s refreshed view on when an organisation will satisfy the requirements of the “games and sports exemption” (as set out in section 50-45 of the Income Tax Assessment Act 1997).

The Draft Ruling replaces Taxation Ruling TR 97/22 Income tax: exempt sporting clubs (‘TR 97/22’), which was withdrawn on 7 October 2021.

Importantly, the Draft Ruling states that it 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 and to also take into account relevant case law decided since the publication of TR 97/22.

Main purpose considerations

Similar to TR 97/22 the Draft Ruling provides a list of factors relevant when considering the main purpose of a club.

These factors are:

  • emphasis in the club’s constituent documents that the main purpose is to encourage a game or sport;
  • extent of sporting activities;
  • the conduct of activities directly related to the game or sport;
  • a high level of member participation in the game or sport;
  • promotion of the organisation to patrons and the public as one that encourages a game or sport;
  • involvement of the committee of management 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.

In addition to these factors the Draft Ruling also contains a list of direct or indirect activities that can indicate the encouragement of a game of sport:

  • forming, preparing and entering teams and competitors in competitions in the game or sport;
  • coordinating activities;
  • organising and conducting tournaments;
  • improving the abilities of participants;
  • improving the standard of trainers and coaches;
  • providing purchased or leased facilities for the activities of the game or sport for the use of club members and visitors;
  • encouraging increased and wider participation and improved performance;
  • marketing;
  • initiating or facilitating research and development, and
  • facilitating the activities above by making a financial or in-kind contribution to an organisation that performs them.

Whilst the rest of the Draft Ruling is largely consistent with TR 97/22, there are two key areas where the ATO has included additional commentary. The additional commentary is largely in relation to case law decided subsequent to when TR 97/22 was published.

A Sporting or Social Club – are you really income tax exempt?

The first area deals with circumstances where a club’s activities are increasingly directed towards providing social benefits to members.

Two contrasting examples in the Draft Ruling which discuss this issue are example 8 and example 9.

Example 8 provides comfort for clubs in that a clubs activities can be directed towards social benefits for members and still have a main purpose of encouraging a game or sport, provided that the majority of the club’s activities are directed towards the encouragement of a sport or game.

In contrast, example 9 (replicated below) outlines circumstances where the clubs social activities are taken to characterise its main purpose. In these circumstances the encouragement of a sport or game is not the main purpose and income tax exemption is not available.

Example 9 – multi-factorial – main purpose is not encouraging a game or sport

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.

100. Factors that work in favour of the conclusion that Supporters Club’s main purpose is the encouragement of a game or sport include:

· an emphasis in its objects that it will raise funds for local football clubs
· the provision of financial and in-kind support to local football clubs, and
· its management is by former players and people with an interest in football.

101. Factors that work against the conclusion that Supporters Club’s main purpose is the encouragement of a game or sport include:

· an emphasis in its objects to provide a social facility for members
· funding and in-kind support are only provided on an inconsistent basis with its members taking priority
· no direct involvement in fielding football teams, entering competitions or direct participation in playing football, and
· the relative size and extent of social facilities provided for the benefit of its members compared to the financial and in-kind support provided to local football clubs.

102. An objective evaluation of the factors would lead to a conclusion that Supporters Club is not established for the main purpose of the encouragement of a game or sport

In example 9 it is apparent that the support (financial or otherwise) provided to local sporting clubs (on an ad-hoc basis) is ancillary compared to the activities that are directed towards providing social/recreational benefits to members.

The ATO position evidenced by example 9 will be a concern for many organisations that self assess income tax exemption under section 50-45 but where the nature of what the organisation does has shifted away from the encouragement of sport.

It is critical governing bodies of such organisations proactively manage the issue of whether tax exemption is available.

The ATO’s new annual reporting requirements for self assessing income tax exempt organisations such as sports clubs will compel such consideration.

However we advocate it should already be occurring. Our September 2021 article flagged the impending changes.

Accumulating Surplus Funds – does this suggest a change in purpose?

The second key area where the Draft Ruling includes expanded commentary deals with the situation where a club accumulates a significant asset base or builds up surpluses which brings into question whether the asset base or surplus is directed towards the encouragement of sport.

At paragraph 40 the Draft Ruling identifies that clubs need to objectively determine the extent to which commercial operations are a means to advancing the sporting purpose or some other purpose. Typically, it would be expected that such commercial activities would be carried on with a view to providing surplus funds. At paragraph 43, the Draft Ruling identifies that the use of surplus funds from a club’s activities is also a factor to consider when determining the club’s main purpose.

The amassing of surpluses of itself is not a factor in determining whether the main purpose of a club is the encouragement of a sport or game, rather the relevant factor is the use to which those surpluses are to be put by the club.

In this regard example 3 of the Draft Ruling outlines two alternative sets of circumstances whereby the surplus funds are accumulated by a local football club. The first set of circumstances involves a club accumulating surpluses with a view to building further playing fields for use by the club. In example 3, the fact that the club has detailed plans to support how these funds will be used for that purpose, the accumulation of surplus funds for the construction of the playing fields is consistent with a main purpose of encouraging a football.

In the alternative set of circumstances described in example 3, the club retains surplus funds with a plan to provide additional facilities for social members who do not participate in football. In this case the club needs to objectively consider whether the significance of these plans for the facilities has a material impact on the clubs main purpose.


We reiterate that the Draft Ruling is expressly stated as not representing a change in ATO view.

However the Draft Ruling is certainly a ‘reminder’ for sporting organisations that have significant social, non-sporting and/or commercial activities or a profile of accumulating assets/surplus. These organisations need to continually re-assess whether such activities are a means to an end (being the encouragement of the sport) or a distinct stand alone purpose and at risk of being viewed as a main non-income tax exempt purpose.

This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. It is not intended to be, nor should it be relied upon as, a substitute for professional advice. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use.