Written by Victor Hamit

Are Sporting Clubs of sufficient benefit to the community to be charitable and therefore exempt from Payroll Tax?

This is a question expected to be answered by the Supreme Court of New South Wales in early 2011. The case involves Northern NSW Football Ltd (NNFL) and the New South Wales Chief Commissioner of State Revenue (Commissioner) over a claim by NNFL for exemption from Payroll Tax and some other NSW Duties. The NSW Payroll Tax provisions are similar to Victoria. NNFL has amongst its objects the promotion, fostering, management and prevention of discrimination in the game of soccer.

The NNFL was exempt from Payroll Tax from 2004 to 2007 on advice from the Commissioner. The exemption was withdrawn by the Commissioner with effect from 1 July 2007.

NNFL appealed the Commissioner’s decision to withdraw the exemption to the Administrative Decisions Tribunal (NSW) and was successful in reinstating its exempt status [Northern NSW Football Ltd v Chief Commissioner of State Revenue [2009] NSWADT 113]. The Commissioner then appealed to an Appeal Panel and was successful in having his determination reconfirmed [Chief Commissioner of State Revenue v Northern NSW Football Ltd (RD) [2010] NSWADTAP 28]. NNFL has appealed to the Supreme Court of NSW.

In essence, the decision turned on whether NNFL was charitable for the purposes of Australian law and therefore the Payroll Tax Act (NSW). Australian Law recognises four categories of charitable purposes, namely:

the advancement of education, the advancement of religion, the relief of poverty and other purposes beneficial to the community. NNFL argues that its purposes were beneficial to the community in principally promoting good health and well being.

NSW and Victorian State Revenue Authorities have rigidly relied on an 1895 English case that “a gift for the encouragement of a mere sport” is not charitable. That case decided that a trophy donated as a prize for a yacht race was not charitable. Arguably the State Revenue Authorities have broadened the principle and too rigidly applied the decision. The State Revenue Authorities argue that sport cannot be a charitable purpose. The decision has been criticised by Australian academic writers and not followed by the Canadian Courts. It has been observed that in 1895 yacht racing was the domain of the wealthy and that many views of society had evolved over the past 100 years.

If the NSW Supreme Court finds NNFL charitable for Payroll Tax purposes then it is expected that the same principles would apply not only to the Victorian Payroll Tax Act, but also the Victorian Duties Act. Such a finding may provide relief to Victorian sporting clubs from payroll tax and stamp duty on the acquisition of land.

The Income Tax Assessment Act 1997 (ITAA1997) also grants exempt income tax status to organisations with a charitable purpose as well as clubs with a main purpose of encouraging sport.

The position of sporting clubs differs under the ITAA1997 where income tax exempt status is granted specifically to clubs with a main purpose of sport. There is no similar specific exemption in the Victorian Payroll Tax Act or Victorian Duties Act. Currently, a club needs to establish that its purposes are beneficial to the community, and therefore charitable in order to be exempt from payroll tax or stamp duty. It is possible that some clubs may qualify whereas others may not, depending on their individual circumstances.

The decision of the NSW Supreme Court will be awaited with great interest by sporting clubs across the country. Clubs in Victoria will also be keenly interested in the attitude of the Victorian State Revenue Office should NNFL succeed in the NSW Supreme Court.

Article Published: Club Connect – April 2011


Victor Hamit
Wentworth Lawyers
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