Legal requirements for tax exemption
Reflect the connection between theoretical accounting research and professional practice of accounting.
An organisation for the objective of the exemption of income tax as a tax exempt sporting club involves a corporation, unincorporated association, a partnership or a trust. The current issue deals with the exemption of income tax in the various non- profit entities like the sporting clubs and the gaming organizations (Heeger 2017). According to the law, the exemption of income tax does not put on to a group of busineseses collectively known as ‘the club’. Each particular entity in the group must assess its own income tax exempt status. A critical review of a news article related to the large incomes earned by some of the Australian football leagues, while retaining tax-free status, and while requesting that the state governments fund the building and upgrades of the stadium facilities using taxpayer’s money (Storm and Nielsen 2015).
In the article by Eryk Bagshaw that deals with the tax exemption of the various sports company especially the football leagues who utilizes the state government funds and the tax payer’s money for the development of the stadium facilities. The AFL and the NRL are earning a huge sum of money by not paying the tax amount (Ilzetzki 2015). The concessions given to the Sports Company has led to the increase in the operating surpluses that resulted in the AFL increase its profit by 63% to $330 million in the year 2016 and NRL they have doubled the profit with $133 million over the same period(Kleven, Kreiner and Saez 2016).
As per the law, The Tax -free status given to the sporting clubs only if it is a non-profit society and is recognised for the purpose of encouragement of sport or a game (Storm and Nielsen 2015). Moreover, if the sports company meets the DGR test as prescribed by the law and has its presence in Australia then only they are allowed to be given a tax free status. In addition to that the company has to comply with all the substantive requirements of the governing rules including those related to its object and purpose and those relating to its NFP status. However, the has to only utilize the income and assets generated by the tax exemption mainly for the reason for which it is formed that is for organizing the sport(Farquhar, Machold, and Ahmed 2014).
Since the clubs are organised for pleasure and recreation. The government exempts these clubs from paying the federal income tax. Moreover the clubs are solely dependent on the membership dues and the donations that are given by the public. However in the present scenario the issue rises in the when there come as a petition signed by more than 100,000 people puts pressure on the NSW government to abandon a multi-billion dollar plan to replace stadiums that already exist and invest the money in schools and hospitals (Parker Guthrie & Linacre 2011). According to them the sum of money that is saved by the clubs is utilized in an inefficient manner hence must be used for public benefit and not for reestablishment of the stadium that is not needed (Chaffee, 2015).The taxpayers are also expected to drain out millions of dollars in the election commitments to upgrade sporting facilities at Etihad Stadium and other venues, despite fans being frustrated by years of ticket price hikes going into administrators funds.
Issue of utilisation of funds
According to the Public interest theory which is an economic concept that deals with welfare of the public and estimates the amount of money that is invested for the interest of the public (Farquhar, Machold, and Ahmed 2014). Since the sporting clubs like AFL and the NRL are earning a huge sum of money by not paying the tax amount, as per the public theory that amount must be utilized for the benefits of public like investing them in the schools and hospitals(Matthew 2017). Moreover the money generated from the increase in the price of the ticket are utilised for the internal administration and no benefits are given to the public (Svensson and Hambrick 2016). In case the tax free are given to the clubs the money can easily be utilised for the development of the schools and hospitals but they are used inappropriately for the internal developments that are not needed. If the tax tree status is removed the tax amount that the government would obtain from the companies can easily be utilised for the developments concerning the public interest.
Since the clubs are non-profit organisations, in case they need to renovate or develop the stadium building, they can easily seek help from the government for funds, As per the capture theory, that are the processes by which the regulatory agencies regulates the industry must ensure that the tax exempted money is utilised efficiently and acts according to the interest of the public (Svensson and Hambrick 2016). There is no accountability of the funds that are generated with the sale of the tickets and moreover there is no tax levied on the income, the sports clubs must operates as per the capture theory and the tax free status should be removed and ask for funds from the government for the developments of the facilities in the stadium.
As per the economic theory the advantages of the tax free status for the Australian Sporting clubs is that is creates a correlation between the revenues and the expenditure in the budget (Nielsen and Storm 2016). Although the benefit theory has to face some difficulty that limits the scope of the government activities. The government can neither support nor can take steps to stabilize the economy. There is a huge sum of money that is being underutilized.
As per Kleven, Kreiner and Saez (2016) the main purpose of the clubs irrespective of its division must encourage a sport or a game. Any other purpose of the organization need to be ancillary, incidental or secondary to encouragement of the game or sport. If the main purpose of the club is providing social and recreational facilities and activities for its members, it will not be exempted (Beckett and Dalrymple 2017). Therefore both the small scale and the large sporting club needs to pay the tax and utilize the money only for generating the game and not for any other purpose. According the capture theory, since the money generated by the large sum is more and the excess sum generated can be utilized for the public interest they should not exempted be from tax (Williams 2016). However the small clubs whose motive is to only generate the sport and is not able to obtain huge membership funds must be exempted with the tax in this context size of the club is considered for tax evaluation(Farquhar, Machold, and Ahmed 2014).
Public interest theory
Conclusion
Since the clubs are non-profit organisations, in case they need to renovate or develop the stadium building, they can easily seek help from the government for funds. The main purpose of the club irrespective of its division must encourage a sport or a game. Any other objective of the organization must be ancillary, incidental or secondary for encouraging of the game or sport. The current discussion deals with the exemption of income tax in the various non- profit entities like the sporting clubs and the gaming organizations. There is no accountability of the funds that are generated with the sale of the tickets and moreover there is no tax levied on the income, the sports clubs must operates as per the capture theory and the tax free status should be removed and ask for funds from the government for the developments of the facilities in the stadium
References
Beckett, R.C. and Dalrymple, J., 2017, December. Business Model Value Capture: an Activity Theory Perspective. In ISPIM Innovation Symposium (pp. 1-13). The International Society for Professional Innovation Management (ISPIM).
Chaffee, E.C., 2015. Collaboration Theory: A Theory of the Charitable Tax-Exempt Nonprofit Corporation. UCDL Rev., 49, p.1719.
Farquhar, S., Machold, S. and Ahmed, P.K., 2014. Theorising director task performance over time: insights from capture theory. International Journal of Business Governance and Ethics, 9(2), pp.155-169.
Heeger, P.J., 2017. A critical analysis of the taxation applicable to South African sports organisations (Doctoral dissertation, University of Cape Town).
Ilzetzki, E., 2015. A positive theory of tax reform.
Kleven, H.J., Kreiner, C.T. and Saez, E., 2016. Why can modern governments tax so much? An agency model of firms as fiscal intermediaries. Economica, 83(330), pp.219-246.
Matthew, B.T., 2017. Financial management in the sport industry. Taylor & Francis.
Nielsen, K. and Storm, R.K., 2016. Profits, Championships and Budget Constraints in European Professional Sport. When Sport Meets Business: Capabilities, Challenges, Critiques, p.153.
Nielsen, K. and Storm, R.K., 2017. Profit maximization, win optimization and soft budget constraints in professional team sports.
Parker, L, Guthrie, J & Linacre, S 2011, The relationship between academic accounting research and professional practice, Accounting, Auditing & Accountability Journal, vol. 24, no. 1, pp. 5-14.
Storm, R.K. and Nielsen, K., 2015. Soft Budget Constraints in European and US leagues–similarities and differences. Disequilibrium Sport Economics: Competitive Imbalance and Budget Constraints”. Edward Elgar, Book series:“New Horizons in the Economics of Sport, pp.151-174.
Storm, R.K. and Nielsen, K., 2016. Soft Budget Constraints in European and US leagues–similarities and differences. Disequilibrium Sport Economics: Competitive Imbalance and Budget Constraints”. Edward Elgar, Book series:“New Horizons in the Economics of Sport, pp.151-174.
Svensson, P.G. and Hambrick, M.E., 2016. “Pick and choose our battles”–Understanding organizational capacity in a sport for development and peace organization. Sport management review, 19(2), pp.120-132.
Williams, D.P., 2016. Taking a knee: An analysis of the NFL’s decision to relinquish its § 501 (c)(6) federal tax exemption. Journal of Legal Aspects of Sport, 26(2), pp.127-143
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