Income tax for sporting bodies by PwC

[jasonplimmer]

Income tax for sporting bodies and other not for profit groups (Part 1 of 2)
Vincent Sue and Jason Plimmer - PricewaterhouseCoopers

As a starting point for any discussion on income tax, it is important to realise that all organisations are subject to income tax on any income that they derive unless a specific tax exemption applies to their organisation. In this two part series on income tax we will firstly cover the main income tax exemption for sporting bodies (Part 1) and then extend the discussion to cover the income tax regimes that may apply where a not for profit organisation is not eligible for this specific tax exemption (Part 2).

We consider that those involved with the running of a sporting body need to consider carefully the application of income tax to their organisation and the basis behind that treatment. New Zealand’s income tax legislation is based around a self assessment regime, where the taxpayer (and its officers) has the responsibility for taking the correct tax position. If the position taken is wrong, then the taxpayer (and the officers) is exposed to potentially significant amounts of interest and penalties which is in addition to paying the outstanding tax.

Most sporting bodies should be eligible for the specific exemption from income tax on the basis that they promote an amateur game or sport. If the exemption applies then all of the income derived by the organisation is exempt from income tax.

For an organisation to be eligible for this exemption, all of the following requirements must be satisfied:

• the organisation must be a club, society or association that was established mainly to promote an amateur game or sport;
• the game or sport is conducted for the recreation or entertainment of the general public; and
• none of the profits derived by the organisation can be used for the financial gain of anyone associated with the organisation

These criteria require that the organisation’s main purpose is the promotion of an amateur sport. It may have other purposes, including the organisation of professional events or teams, but these other purposes must be subsidiary to the main purpose of promoting the amateur version of the game. An organisation’s purposes are generally detailed in its constitution or similar document. However, an organisation’s actual practices and activities must also be consistent with those stated purposes.

The second requirement focuses on the whether the general public are able to access the sport or game being promoted. For most sporting clubs and associations this requirement should be satisfied. However, you should consider the extent to which there are any limitations on, or impediments for, anyone who wants to take part.

Finally, it is also critical that no one is able to gain financially from the organisation. This provision is generally interpreted to allow for ordinary arrangements between an organisation and its members that involve a market payment for services or the reimbursement of costs incurred by a member on behalf of the organisation. In contrast, organisations which allow a member to influence the level of the member’s benefit will not qualify for the tax exemption.

If a sporting body satisfies the above criteria, it will be eligible for the promotion of amateur sport tax exemption, and all of its income will be exempt from income tax. In Part 2 of this series on income tax, we will provide an overview of a number of other income tax regimes that may apply to not for profit organisations that are not eligible for this particular exemption from income tax.

In considering your organisation’s income tax position please note that the correct tax position is dependent on an organisation’s actual situation and circumstances. Our comments are of a general nature and should not be relied on or used as a substitute for professional advice.

Vincent Sue and Jason Plimmer
PricewaterhouseCoopers
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