TERRANORA LAKES COUNTRY CLUB LIMITED v FC of T
Judges:Hill J
Court:
Federal Court
Hill J
The sole issue in the present appeal brought by Terranora Lakes Country Club Limited (``the club'') against its assessment for income tax for the year of income ended 30 June 1988, is whether in that year the income of the applicant is exempt pursuant to the provisions of s. 23(g) of the Income Tax
ATC 4079
``The following income shall be exempt from income tax:-
- ...
- (g) the income of a society, association or club which is not carried on for the purposes of profit or gain to its individual members and is-
- ...
- (iii) a society, association or club established for the encouragement or promotion of an athletic game or athletic sport in which human beings are the sole participants...''
It is not in dispute that the applicant is a society, association or club not carried on for the purpose of profit or gain to its individual members. At issue is the familiar question whether the applicant is established in the year of income for the relevant purpose as set out in s. 23(g)(iii) of the Act, or rather is what is commonly referred to as a members' club or a social club. Neither the relevant law nor the facts are in dispute. The question at issue is the application of the relevant law to those facts.
The relevant law has been set out by the Full Court of this Court in
Cronulla Sutherland Leagues Club Ltd v FC of T 90 ATC 4215; (1990) 23 FCR 82. That case, which surveyed the law to that time and qualified the approach which had been taken by Waddell J of the Supreme Court of New South Wales in
``The Waratahs'' Rugby Union Football Club Ltd v FC of T 79 ATC 4337; (1979) 37 FLR 413, has now authoritatively laid down the test to be applied. It is whether the applicant has as its main object or purpose the encouragement or promotion of athletic game or athletic sport in which human beings are the sole participants. As Lockhart J said (at ATC 4225; FCR 95):
``It may have other objects or purposes which are merely incidental or ancillary thereto or which are secondary and even unrelated to the main object or purpose without disqualifying the body from the exemption. But if it has two co-ordinate objects, one of which is outside the exemption, the exemption cannot apply because it would be impossible to say that one object is the main or predominant object.''
A similar approach was adopted by Beaumont J (at ATC 4243-4244; FCR 117) and Foster J (at ATC 4248; FCR 123), although his Honour dissented in the result. Ultimately, the question is what the true character and nature of the applicant is and, as Lockhart J points out in Cronulla Sutherland Leagues Club (at ATC 4225; FCR 95), that question of characterisation is to be determined having regard to the objects, purposes and activities of the taxpayer.
The club owns two areas. The first, at Bilambil Heights, having an area of approximately 75.93 ha upon which are located the clubhouse, playing fields and a time share resort, is located at Terranora in the Tweed Heads Shire. This property, hereafter referred to as ``the main club'', is approximately twelve kilometres south of the Queensland border and about the same distance south west of Tweed Heads. The other property, of approximately 73.9 hectares, is at Bilambil Heights, approximately one kilometre to the south east of the main club and is known as the Bilambil Sports Ground and the Bilambil Sporting Complex.
It seems that the club had its origin as an attraction to prospective purchasers to purchase land. Purchasers of blocks from the developers, Alfred Grant and Brigalow Development Corporation Pty Limited, became shareholders in the company that had initially a lease from the developers of the site which it now owns. The development appears not to have been particularly successful. By 1963 there were few residences built and Brigalow Development Corporation went into receivership.
The club was officially opened on 28 August 1959 as an unincorporated body. It was incorporated on 14 July 1964 as a company limited by guarantee.
The Memorandum of Association of the applicant lists the purposes and objects for which the club is established as follows:
- ``(a) To promote the games of golf, bowls, tennis and other sports, games and pas- times, indoor and outdoor, as the Club may deem expedient.
- (b) To purchase, lease or otherwise acquire land with all accessories necessary for golf links, bowling greens, tennis courts and other such grounds to be used for recreation purposes.
- (c)...
ATC 4080
- (d) To construct, establish, provide, maintain and conduct such golf links, bowling greens, tennis courts, playing areas and grounds as the Club may determine and to construct, provide, establish, furnish and maintain Club houses, pavilions and other buildings and conveniences in connection therewith...''
These objects were generally read out to new members at the time they were welcomed to the club.
Initially, the applicant had a small clubhouse, a tennis court, a nine-hole golf course, a squash court, a swimming pool and a bowling green. The club obtained a liquor licence in March 1965, that year being also the year in which the first eight poker machines installed in the club were purchased.
In the year of income, the facilities on the main club site included the clubhouse building, an eighteen-hole golf course, three bowling greens, three clay target shooting ranges, one fifty metres by eighteen metres in-ground swimming pool, five tennis courts with separate clubhouse, small tennis pro-shop, toilets and change rooms, and storage area. Additionally, there had been built on the site the first stage of a time-share resort, which will be referred to later.
The clubhouse, on its ground floor, comprises members' lounge and bar, members' and ladies' golf club locker rooms, toilets and showers, a games room area comprising billiard table and darts area, a junior games room and a meeting room. On the first floor, in addition to an open patio and a TAB agency, there is a poker machine area for approximately 200 machines, an auditorium and bar with a seating capacity of 450, a bistro and bar with a seating capacity of 200, and an a la carte restaurant with a seating capacity of 70. In addition, there is a lounge area with a seating capacity of 180, and a squash court.
On the smaller area, the Bilambil Sports Ground, there is a clubhouse comprising a bar and lounge area, sports storage area and barbecue area with a seating capacity of 60-70. The clubhouse is surrounded by three hockey/ touch football fields, four tennis courts, a turf cricket wicket, a synthetic cricket wicket and oval, and a football field.
The applicant promotes various sports. So far as this promotion is to its members, it consists of internal clubs which are operated by the applicant. These clubs are: a cricket club, a clay target shooting club (referred to as ``the gun club''), a hockey club, a tennis club, a junior golf club, a ladies' bowls club, a ladies' golf club, a men's bowls club, a members' golf club, a touch football club, a veterans' golf club, a softball club, a bluewater boat club and an equestrian club. In addition, snooker, darts and squash facilities are located in the main club room. However, snooker, darts, squash and swimming are not seriously promoted by the club as sports. It is conceded by the respondent that all of the clubs I have mentioned, other than the clay target shooting and the bluewater boat club, involve the promotion of sport. There is a subsidiary argument in the case as to whether the clay target shooting club and the bluewater boat club involve the promotion of sport of which human beings are the sole participants.
Each of the internal sports clubs is separately governed by its own constitution. As a practical, although not a legal, matter, only members of the applicant can be members of the internal sports clubs. There are separate fees payable to belong to the internal clubs, which are treated as under the umbrella of the applicants for the purpose of general administration, although each of the internal clubs has its own committee.
The activities of these internal clubs are impressive. The internal bowls clubs are members of the Royal Queensland Bowls Association and Gold Coast District Bowls Association and members participate in district competitions. Golf championships are held on the golf course and members of the golf club participate in competitions both at home and away. The hockey club participates in district competitions, as does the cricket club and the softball club. Tennis club teams participate in competitions conducted by the Tweed District Tennis Association and there is a coaching programme conducted. Members of the clay target shooting club participate in national shooting titles, and the touch football club has a number of teams competing in South Coast Championships. Promising junior athletes are supported with travel sponsorship and represented Australia in the World Junior Track and Field Championships in Athens in 1986. Highlights of the year of income included: the selection of a tennis club member to represent
ATC 4081
Australia in the Young Cup, the winning by a club member of the Gold Coast Open Men's Singles and various wins in pennant competitions, the participation by the club's ``A'' grade cricket team in the Tweed District finals, the win by a member of that team of the Tweed District Cricketer of the Year award, the participation by 34 touch football teams in the club's summer touch football competition, and 32 teams in the winter competition, the holding of 11 monthly fishing competitions, and competition by members of the deep sea fishing club in the Ballina Bluewaters Fishing competition.The club is administered by a series of committees responsible for various activities. Thus, for example, in the relevant income tax year there was a building and planning committee responsible for refurbishment of the clubhouse, a greens committee responsible for the golf course, a committee administering the Bilambil Sports Complex Centre, a finance committee, a members' golf committee, a ladies' golf committee, a veterans' golf committee, a junior golf club, a men's bowls committee, a ladies' bowls committee, a clay target shooting club committee, a tennis club committee, a cricket committee, a hockey committee, a touch football committee, a softball committee, and the Tweed bluewater boat club committee. There was also a sports council, comprising the president of each sports club, a representative of the secretary/manager and two directors of the Board. One of the aims of the sports council was to arrange and promote sporting activities within the club and with clubs outside the club. The internal sports clubs maintain a degree of autonomy. The applicant is responsible for capital development, capital costs, including maintenance costs and the costs of constructing and maintaining tennis courts and the clubhouse. On the other hand, income of the sports clubs comprises match fees, competition fees, proceeds of fund raising functions, and sponsorship income.
In the 1988 year of income, there were 136 employees of the club, approximately half of whom were permanent and half of whom were casual. These employees worked in the following areas: administration/reception - 17, poker machines - 11, bar areas - 26, Bilambil Sports Complex - 3, catering - 42, children's lounge - 2, cleaning - 10, maintenance - 2, grounds maintenance - 2, bowls - 3, golf course - 13, promotions - 5. This allocation among departments is, of course, somewhat arbitrary, and indeed each department is not wholly exclusive of the other. Thus, as was pressed upon me, a golf player, upon completing 18 holes of golf, may have a drink or order a meal. Arguably, his food and drink are related as much to the sporting activity of golf as to the recreational activity of eating. Similarly, many of the areas in the clubhouse, although apparently recreational and classified as lounges, are used, at various times, for sporting related activities such as committee meetings, presentation of prizes and the like. It is unnecessary to determine the correctness of the argument.
Mr Seymour, the present Secretary/Manager of the applicant, deposed to the activities conducted at the club in a typical week. Thus, for example, on a Monday, approximately 180 people would participate in golf and tennis, being both club and non-club members. On the same day, there is a raffle type promotion referred to as ``Treasure Day'' for members and guests in the club auditorium. Sometimes special entertainment is featured. In the evening, there is bingo for members and guests. On a Tuesday, there is golf for men and women, including a ladies' golf competition and Mr Seymour estimates that approximately 140 people participate in golf, 70 people participate in tennis in the men's and ladies' tennis, including the ladies' tennis club competition, and 60 participate in the men's bowls competition. That evening, there is hockey training in season, cricket practice under lights in season, and a softball competition, although these activities do not, of course, proceed at the same time. During the day, there is a poker machine promotion for members and guests, and at night, bingo.
On Wednesday, 230 people participate in golf and 60 in bowls. In the evening, there is ladies' and men's tennis, in which 40 participate, and a touch football competition in which 250 participate. Social activities during the day include a poker machine promotion and a ``Double Deal'' raffle at night.
On Thursday, 170 people participate in golf, 10 in bowls and 40 in a mixed tournament of tennis. At night, there is bowls, cricket, hockey and tennis. Social activities include again a poker machine promotion, bingo and movies.
ATC 4082
On Friday, 140 people participate in golf and 10 in bowls. There is entertainment for members and guests in the day time, and a members' raffle and dancing at night. Weekend sporting activities attract a larger number of people and include golf, bowls, clay target shooting, cricket, hockey and tennis. In addition, there was, during the 1988 year, an equestrian competition day, attracting 20 people each Sunday. Social activities on the weekend include a champagne breakfast, a poker machine promotion, entertainment in the auditorium with dancing at night, and a family concert for members and guests on Sunday.
The attraction the club has for persons living as far away as Brisbane was made apparent by the evidence. Numerous buses arrive at regular intervals during the morning carrying visitors to the club, many of whom are elderly pensioners. Presumably these visitors are attracted, or were attracted in the year of income, by the poker machines not then available in Queensland. The evidence indicates that of the approximately 1,000 visitors per day to the club, 65-70% of them arrive by bus. In addition to the poker machines, the visitors enjoy the special social promotions in the club.
In the year of income, there were 4,076 ordinary members of the club, 226 junior members and 130 social members. A social member is entitled to utilise all the facilities of the club, sporting or recreational, but is not entitled to vote or become an office bearer of the club. The sporting clubs had, during the year of income, membership as follows:
Golf Club 1,426
Ladies' Golf Club 253
Veterans' Golf Club 242
Gun Club 70
Men's Bowls Club 200
Ladies' Bowls Club 133
Tennis Club 260
Cricket Club 107
Hockey Club 57
Touch Football Club 39
Softball 19
Bluewater Boat Club 48
-----
Total 2,854
Of course, some members are members of more than one sporting club.
The sporting facilities of the club may be used by members and non-members. However, only members of the club or accredited members of other clubs or sporting teams are permitted to play bowls, hockey, cricket, softball and touch football. The membership fee for the internal sporting club is relatively nominal, but members are required to pay an additional amount per game. Thus, a member of the golf club pays an annual membership fee of $50. While any member of the applicant club may play on the golf course, such a member will pay $18 per game. A member of the golf club, on the other hand, will pay only $9 per game, although such a member pays an annual green fee of $155.
The club employs a professional golf coach and a professional tennis coach, available to provide tuition to members of the golf and tennis clubs respectively. Tennis coaching is also provided to junior members at a relatively nominal cost. The applicant has an annual award of Junior Sports Person of the Year, for which all junior members of the club's internal sports clubs are eligible. There is also an award of Junior Sports Achiever of the Month, promoted by a local radio station, and the applicant invites schools and other organisations within the district to nominate junior sports persons. Contributions are made by the internal sports clubs, from time to time, to assist juniors to participate in sporting events.
The applicant promotes its activities in two ways. So far as sporting events are concerned, there is ad hoc advertising. There is also published a yearly programme of sporting activities. In addition, each internal sports club promotes its facilities and events to its members via a regular newsletter. The cricket club, bluewater boat club and tennis club publish independent newsletters, with the remaining clubs contributing to the club newsletter. The recreational activities of the club, such as its gambling, dining and entertaining activities, are promoted by glossy brochures. A brochure in evidence ``Take me to the Top'', while not from the year of income but said to be similar to that in use during the year of income, gave considerable prominence to entertainment and food, although not to the exclusion of sport. In one panel of advertising, the brochure said:
``Stretching beyond the Gold Coast beaches the Pacific Ocean forms Terranora's eastern horizon. To the south and west is the deeper blue of the Great Dividing Range.
ATC 4083
Every fairway, bowling green, and tennis court is a vantage point. Terranora Lakes Country Club & Resort is at the top.
Unlike the single interest clubs down at sea level, Terranora provides choices as broad as the views. Pursue one of 14 different sports from beginner to accomplished levels. Dining can be the main event of your time here, or a brief pause between the dancing and entertainment.
Come for the day, the evening or stay for a holiday in our first class resort. The only thing Terranora Lakes Country Club and Resort has in common with other licensed clubs is the surprisingly low cost of enjoying yourself.''
In 1987, faced with the likelihood that Queensland would permit the use of poker machines, the applicant resolved to proceed with a joint venture to develop a time share complex on the main property of the applicant. The basis of the joint venture was that the club would provide land for a forty year lease period for the construction of a time share development in which the applicant would have a 51 percent interest and which would revert to the applicant at the end of the lease. Development was to be made, at least initially, in three stages, with each involving some 16 units. Construction of the first stage of development commenced in September- October 1987, and was officially opened on 26 March 1988. The precise details of the structure of the operation of the time share resort are not significant for the purposes of the present decision. Suffice it to say that there is a management company in which the applicant owns a 75 percent interest, and a sales company in which the applicant has a 51 percent interest. There is also a unit trust. The building of stage two of the resort commenced in 1990 and the units involved in this stage were available for occupation in December 1990 and January 1991. To date, 1,700 time shares have been sold out of a total of 2,448 available. Mr Seymour says that time share owners staying at the resort have contributed significantly to the revenues of the applicant, and have generally been active in the various sports promoted by the club.
In 1991, the applicant entered the ``Club of the Year'' awards, which are given in four categories. The club won the ``Encouragement of Sport'' award in its group in that year.
Mr Vella, a chartered accountant and partner in the firm of Horwath & Horwath, instructed by the respondent Commissioner, prepared an analysis of the applicant's accounts for a number of years, seeking to classify revenue, expenditure, assets and liabilities according to whether each related to sport, social amenities or activities not clearly able to be categorised as one or the other. His report frankly recognised the difficulty of allocating particular items of revenue or expense to one category or another. On the assumptions made by Mr Vella, the allocation of income and expenditure for the years 1983 to 1991 appears in the following table.
+-----------------------------------------------------------------------------------+
| | PROFIT & LOSS ALLOCATION AMOUNTS ($0,000) |
|-----------------------------------------------------------------------------------|
| | 1983 | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| INCOME | | | | | | | | | |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Social | 5,265 | 5,226 | 5,994 | 7,151 | 7,577 | 8,010 | 9,400 | 10,914 | 13,365 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Sport | 121 | 269 | 345 | 452 | 531 | 589 | 679 | 852 | 949 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Other | 201 | 186 | 140 | 216 | 103 | 158 | 149 | 178 | 227 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| TOTAL | | | | | | | | | |
| INCOME | 5,587 | 5,681 | 6,479 | 7,819 | 8,211 | 8,757 | 10,228 | 11,944 | 14,541 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| EXPEND-| | | | | | | | | |
| ITURE | | | | | | | | | |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Social | 4,672 | 4,755 | 5,175 | 6,149 | 6,715 | 7,289 | 8,367 | 9,4481 | 1,300 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Sport | 859 | 951 | 1,038 | 1,225 | 1,394 | 1,541 | 1,739 | 1,953 | 2,324 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Other | 39 | 40 | 45 | 54 | 61 | 68 | 78 | 151 | 114 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| TOTAL | | | | | | | | | |
| EXPEND-| | | | | | | | | |
| ITURE | 5,570 | 5,746 | 6,258 | 7,428 | 8,170 | 8,898 | 10,184 | 11,552 | 13,738 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| NET | | | | | | | | | |
| PROFIT | | | | | | | | | |
| (LOSS) | 17 | (65) | 221 | 391 | 41 | (141) | 44 | 392 | 803 |
+-----------------------------------------------------------------------------------+
ATC 4084
It may be noted that in the years in question, the club subsidised sport to the following amounts:
+-----------------------------------------------------------------------------------------------+
| 1983 | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 |
|---------|---------|---------|---------|---------|---------|-----------|-----------|-----------|
| 738,000 | 682,000 | 693,000 | 773,000 | 863,000 | 952,000 | 1,060,000 | 1,101,000 | 1,375,000 |
+-----------------------------------------------------------------------------------------------+
Not surprisingly, the report emphasised that the major source of revenue for the applicant lay with its poker machine, bar trading, catering and other social functions. Compared to these items, the revenue from sport was relatively marginal. A table prepared by Mr Vella, setting out the proportions of the major sources of revenue, is as follows:
+-----------------------------------------------------------------------------------+
| | MAJOR SOURCES OF REVENUE -- PROPORTIONS |
|-----------------------------------------------------------------------------------|
| | 1983 | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 |
| | % | % | % | % | % | % | % | % | % |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| SOCIAL:| | | | | | | | | |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Poker | | | | | | | | | |
| machine| 57.6 | 57.8 | 59.8 | 58.9 | 57.9 | 58.1 | 59.5 | 62.6 | 64.3 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Bar | | | | | | | | | |
| Trading| 17.4 | 15.8 | 14.5 | 13.7 | 14.1 | 13.7 | 12.7 | 12.0 | 11.3 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
|Catering| 17.9 | 17.9 | 17.8 | 18.4 | 19.3 | 18.5 | 17.0 | 15.6 | 15.1 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Other | | | | | | | | | |
| social | 1.3 | 0.5 | 0.4 | 0.6 | 1.0 | 1.1 | 2.8 | 1.2 | 1.3 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| TOTAL | 94.2 | 92.0 | 92.5 | 91.6 | 92.3 | 91.4 | 92.0 | 91.4 | 92.0 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| SPORT: | | | | | | | | | |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Golf | 0.5 | 1.2 | 1.1 | 1.2 | 1.6 | 1.9 | 2.1 | 2.5 | 2.2 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
|Bilambil| 0.1 | 1.9 | 2.6 | 3.0 | 3.3 | 3.1 | 2.9 | 2.6 | 2.5 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
|Sporting| | | | | | | | | |
|Facili- | | | | | | | | | |
|ties | 1.3 | 1.4 | 1.3 | 1.2 | 1.2 | 1.1 | 1.2 | 1.2 | 1.3 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Bowls | 0.2 | 0.2 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Other | | | | | | | | | |
| Sport | 0.1 | 0.1 | 0.2 | 0.2 | 0.3 | 0.6 | 0.4 | 0.7 | 0.5 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| TOTAL | | | | | | | | | |
| SPORT | 2.2 | 4.8 | 5.3 | 5.7 | 6.5 | 6.8 | 6.7 | 7.1 | 6.6 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| OTHER: | | | | | | | | | |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
|Interest| 0.8 | 0.8 | 0.8 | 1.6 | 0.3 | 0.4 | 0.2 | 0.4 | 0.1 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Entry | | | | | | | | | |
| Fees | 0.3 | 0.2 | 0.2 | 0.1 | 0.2 | 0.5 | 0.5 | 0.5 | 0.4 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
|Subscrip| | | | | | | | | |
|tions | 1.9 | 1.4 | 0.9 | 0.7 | 0.6 | 0.5 | 0.4 | 0.5 | 0.5 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Other | 0.6 | 0.8 | 0.3 | 0.3 | 0.1 | 0.4 | 0.2 | 0.1 | 0.4 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| TOTAL | | | | | | | | | |
| OTHER | 3.6 | 3.2 | 2.2 | 2.7 | 1.2 | 1.8 | 1.3 | 1.5 | 1.4 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| TOTAL | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 |
+-----------------------------------------------------------------------------------+
The proportion of the major items of expenditure, as shown in the report, appears in the following table.
+-----------------------------------------------------------------------------------+
| | MAJOR ITEMS OF EXPENDITURE -- PROPORTIONS |
|-----------------------------------------------------------------------------------|
| | 1983 | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 |
| | % | % | % | % | % | % | % | % | % |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| SOCIAL:| | | | | | | | | |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Poker | | | | | | | | | |
|machine | 22.6 | 23.4 | 23.9 | 23.3 | 21.6 | 21.6 | 22.9 | 24.7 | 24.8 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
| Bar | | | | | | | | | |
| Trading| 15.1 | 13.4 | 12.3 | 11.9 | 11.6 | 11.7 | 10.9 | 10.1 | 9.9 |
|--------|-------|-------|-------|-------|-------|-------|--------|--------|--------|
|Catering| 18.9 | 19.0 | 18.4 | 19.3 | 19.2 | 18.0 | 16.3 | 15.2 | 14.6 |
The assumptions upon which the report is based assume, contrary to the submissions of the applicant, that all dining room, bar, auditorium and poker machine revenue represents the proceeds of social activity, other than the bar proceeds at the Bilambil Sporting Complex. Mr Vella expresses the view, which with respect seems axiomatic, that the best indicator of scale of activity is gross income rather than net income, and remarks that net revenue is affected by pricing policies of the applicant which permit members of the club to receive a ten percent discount on purchases of food and drink. This reduces the net revenue from these items more significantly than it reduces the gross revenue.
In his report, Mr Vella also attempts an allocation of assets and liabilities as between sporting and non-sporting activities. I do not find this allocation particularly useful, especially as freehold land is not included in the calculation, yet the facilities which comprise virtually the whole of the freehold land, such as the golf course, tennis courts, bowling greens and football fields, are virtually totally sport oriented. Of more significance is the analysis undertaken by Mr Vella of the non-member usage. In 1987, 390,750 persons visited the club; in 1988 the number was 385,178. There were, in 1987, 3,975 members and in 1988, 4,432 members. The average number of members of the various sporting clubs during the 1988 financial year was as follows:
+---------------------------------------------------------------------------------------+
| | TOTAL | GOLF | TENNIS | BOWLS | HOCKEY | CRICKET | SOFTBALL | TOUCH | OTHER |
| | | | | | | | | FOOT- | |
| | | | | | | | | BALL | |
|---------|-------|------|--------|-------|--------|---------|----------|-------|-------|
| 30.6.88 | 2,854 | 1,921| 250 | 333 | 57 | 107 | 19 | 39 | 118 |
|---------|-------|------|--------|-------|--------|---------|----------|-------|-------|
| 30.6.87 | 2,479 | 1,566| 214 | 330 | 89 | 110 | 17 | 45 | 108 |
|---------|-------|------|--------|-------|--------|---------|----------|-------|-------|
| Average | 2,667 | 1,744| 232 | 332 | 73 | 109 | 18 | 42 | 113 |
+---------------------------------------------------------------------------------------+
While the evidence makes clear that a number of visitors in the year of income used the sporting facilities, it is also self-evident that the great majority of visitors each day came for the social rather than the sporting activities. Indeed, the Commissioner's case placed especial emphasis upon this fact. In addition, the Commissioner pointed to the following matters:
- • The fact that the objects of the club extended not only to the promotion of sport but also to the promotion of ``games'' and ``pastimes''.
ATC 4086
- • The conclusion, derived from the number of non- members using the club, that the club carried on a very substantial business as a social club independently of any support it gave sport.
- • That the expenditure on social activities greatly exceeded that applicable to sporting activities.
- • That the club derived 58.1% of its income in the year of income (ie in excess of $5,000,000) from poker machine revenue, 13.7% ($1,200,000) from bar trading and 18.5% ($1,600,000) from catering.
- • That the club had embarked upon a very major development in the year of income for the purpose of acquiring an interest in a leisure or holiday resort constructed upon its own land.
- • That the bulk of visitors and a substantial proportion of club members did not use the sporting facilities.
- • That the club's promotion was heavily directed towards gambling, dining, entertainment and accommodation facilities.
In making these submissions, counsel for the Commissioner conceded that the activities of the club in the year of income were significantly related to various athletic games or sports falling within the exemption. However, it was submitted that these activities were subordinate to the club's main object or purpose in the year of income, namely, the provision of social amenities or facilities for members and non-members through its licensed club and its interest in a leisure or holiday resort. Two extracts, the first from the Chairman's Report in the 1984 Annual Report of the club and the second from the Finance Report in the 1988 Annual Report, were said accurately to describe and thus characterise the club:
``Whilst we must always retain the club atmosphere I am sure members will appreciate that Terranora Lakes Country Club is today a big business and must be conducted as such.
Unfortunately, we cannot depend entirely on those few loyal members who regularly patronize the Club. The Club's survival, amongst other things, really depends on attracting large numbers of people through our doors.''
``There are two definite factors in maintaining the company's future. The first of these is to attract patrons to the club, and the second factor is that this requires the expenditure of a significant amount of money on advertising, promotion and entertainment.''
Counsel for the club sought to counter the emphasis placed by the Commissioner on the number of visitors, including those bussed to the club premises from Queensland, and the non-participation of those visitors in sporting activities, by emphasising that the gambling, entertainment, dining and other social activities were but a means of attracting persons to the club, members or non-members alike, persons who would spend money to enable the club to devote that money to the promotion of its sporting activities. The fact that the club was ``big business'' requiring advertising and promotion to be profitable does not deny the status of the club as being one established for the relevant s. 23(g)(iii) purpose.
The club's argument is not dissimilar to that advanced by the taxpayer in Cronulla Sutherland. The club in that case made substantial grants and gave other assistance to the rugby league football club associated with it. Nevertheless, I held at first instance (
Cronulla-Sutherland Leagues Club Limited v FC of T 89 ATC 4936) that, having regard to all the facts, it was the social activities of the club which characterised it as not being a club falling within the exemption. While some of the comments I made must now be read in the light of the Full Federal Court's qualification of the test propounded by Waddell J in ``The Waratahs'' Rugby Union Football Club Ltd v FC of T 79 ATC 4337; (1979) 37 FLR 413, my conclusion was accepted by a majority of the Full Court on appeal, notwithstanding the adoption of a test more favourable to the taxpayer.
Clearly, each case will depend upon its own facts. If the social activities have become an end in themselves, as was the case in Cronulla Sutherland, it will be necessary to see whether that end has become the predominant purpose for which the club is established in the year of income. However, in the present case, I have reached the conclusion that, while the social activities (by which I include the gambling, entertainment, dining and accommodation activities) were very extensive and could clearly be seen as an end, or perhaps as ends in themselves, those activities were, I am satisfied,
ATC 4087
pursued as a means of financing the extensive sporting activities conducted by the club. Thus, I am of the view that, having regard to the activities of the club as conducted in the year of income, the club was, in that year, one established for the purpose of the promotion of athletic sport and not one established for the purpose of carrying on a business, or businesses of gambling, provision of entertainment, selling of time share units or the provision of food.In reaching this conclusion I have taken into account a number of matters which were the subject of argument before me. I would comment shortly upon them.
The relevance of subjective motivation
The words ``established for'' clearly enough look to the purpose for which the club is established in the year of income. There is no doubt that the purpose is to be found, at least principally, in the activities which the club carries on in that year. In Cronulla Sutherland, (at first instance, at 4956-4957) I discussed the various views that had been expressed in similar contexts as to the relevance of the purpose of the promoters at the time of original establishment. As that discussion revealed, the comments made in the case law to that time were inconclusive on the issue. But on the facts of Cronulla Sutherland, even if the subjective purpose of the promoters was taken into account (that purpose being the support of the football club), the activities of the club in the circumstances stamped the club as one outside the provisions of s. 23(g)(iii). On appeal, Lockhart J also left the question open, although the emphasis which his Honour placed upon the operation of the sub-section in the year of income, rather than in the past, would of necessity throw doubt upon the relevance of subjective motivation at the time of incorporation. Beaumont and Foster JJ, on the other hand, appear (at ATC 4243 and 4247-4248; FCR 116 and 122 respectively) to have accepted that evidence of intention or purpose at the time of incorporation could be relevant.
No real question arises in the present case as to that issue. Rather, it was submitted by counsel for the club that the subjective purpose of the directors of the club in or around the year of income was relevant to the purpose for which the club was established in the year of income. In an attempt to prove that subjective purpose, evidence of two kinds was led. The first was evidence of Mr Seymour as to his ``perception'' of the purpose for which the club was established. In my view, even if subjective purpose be relevant, Mr Seymour's perception is wholly irrelevant. His perception could be distorted and erroneous. For that reason, I rejected this evidence.
Evidence was advanced as well from a Mr Cook, who at various times had been Secretary, a Director and President of the club, as to his objective for the club at the time he was on the Board. This evidence may be in a slightly different category. I am presently inclined to the view that evidence of the purpose of the governing authority of the club might be relevant to the purpose for which the club was established in a particular year of income. However, evidence of a particular director, or for that matter Secretary or even President, as to his personal objective tells, in truth, nothing about the purpose of the abstract entity, the club itself. Such evidence differs from the evidence admitted in
Allied Pastoral Holdings Pty Ltd v FC of T 83 ATC 4015 of contemporaneous discussions which revealed intention or evidence of the state of mind of directors who voted for the acquisition of certain land. Although I admitted this latter evidence, I do not think, on reflection, that it is, in the present case, of any assistance.
The significance of the reference to ``games'' and ``pastimes''
To the extent that much assistance is to be gleaned from the statement of objects in the memorandum of association, I do not think that much significance should be placed upon the reference to ``games'' and ``pastimes''. Whatever those words cover (and they could certainly cover on the facts of the present case, darts, snooker, squash or swimming), they do not seem, in the context in which they appear, particularly apt to describe dining, poker machine playing etc. But even if they do, the question is still at the end whether the encouragement and promotion of athletic sport is the main or predominant object. On the facts of the present case, the other activities carried on by the club, although vital to the financial survival of the club, were neither predominant to the sporting activity nor equal in importance to it in their own right. They accordingly do not disqualify the club from obtaining the exemption.
ATC 4088
Whether clay-pigeon shooting and fishing are athletic sports
Counsel for the Commissioner did not deal specifically with this matter in his written or, for that matter, oral submissions. He accepted, I think correctly, that the outcome of the case would not be affected by the ultimate determination of this issue. Even if these activities were not relevantly sports falling within the language of s. 23(g)(iii), it could hardly be said that the club had as its predominant object the encouragement or promotion of these activities. Likewise, the exclusion of these activities as activities to be taken into account as sporting, for the purposes of s. 23(g)(iii), would not affect my conclusion that, having regard to the remaining sporting activities, the club had as its predominant purpose the encouragement or promotion of athletic games or sports.
However, I should not be thought in so saying to have acceded to the submission, otherwise somewhat faintly made, that these activities did not qualify as athletic sports. It could hardly be said that either shooting or fishing was not a sport. Interestingly, the Macquarie Dictionary illustrates both shooting and fishing as activities which are sports. In both, human beings are the sole participants. It seems somewhat artificial to classify fish as participants in fishing or clay pigeons as participants in clay pigeon shooting. The distinction which the legislation drew is a distinction between sports where humans participated with animals and those where only humans participated.
The argument presumably was that both fishing and clay pigeon shooting lacked the necessary element of athleticism to fall within the language of s. 23(g)(iii). Clearly, shooting involves considerable coordination between hand and eye. The evidence discloses that competition shoots are held at a number of levels and that the club's training programme is affiliated with the Australian Institute of Sport. To participate, a shooter needs to be reasonably physically fit and mentally alert. Training is undertaken to improve the shooter's skill and prowess. No doubt, deep sea fishing is less physically demanding. However, it too is the subject of competitions, from local competition level to international competition level, for which prizes are awarded. It does, so the evidence discloses, require an interplay of senses with physical ability and stamina.
According to the Shorter Oxford English Dictionary (3rd ed) the word ``athlete'' derived from the Latin ``athleta'' or the Greek word meaning ``contend for a prize''. The word appears first to have been used to describe the competitors in the physical exercises which formed part of the public games in ancient Greece and ancient Rome. Nowadays, athleticism is accepted as involving muscularity, robustness, physical strength, or speed. The mere fact that a participant in an activity or sport needs to be fit does not necessitate the conclusion that the activity is thereby an athletic sport. Generally, in the context in which the word here appears, it is used in contradistinction to motor sport, albeit that to be successful in motor sport, fitness would be essential.
I think in the present context that clay pigeon shooting should clearly be seen to be an athletic sport. I have more difficulty with deep sea fishing. As presently advised, I think it would fall outside the exemption as lacking the necessary athleticism.
Conclusion
It follows, in my view, that the application should succeed and accordingly that the objection should have been allowed. The matter should be remitted to the Commissioner to amend the assessment in accordance with law. The Commissioner should pay the applicant's costs.
THE COURT ORDERS THAT:
1. Appeal allowed.
2. Objection decision of the respondent set aside and in lieu thereof it is ordered that the applicant's objection to the assessment of income tax for the year of income ended 30 June 1988 be allowed.
3. Matter to be remitted to the Commissioner to amend the assessment of income tax for the said year of income in accordance with law.
4. Respondent to pay the applicant's costs.
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