Not-for-profit organisations support a range of needs and activities, such as financial disadvantage, health and education.

Governments support these entities through various measures, notably exemption from income tax and other taxes^[1].

Some of Australia’s major professional sports – such as the Australian Football League (AFL) and its clubs, the National Rugby League (NRL) and its clubs and Cricket Australia – are treated as not-for-profits. This means they do not pay income tax.

Not-for-profits and charities

The not-for-profit sector in Australia consists of about 600,000 organisations, 59,000 of which contributed $43 billion to Australia’s economy^[2] in 2010 (2010 is the most recent available data).

Some not-for-profit organisations receive special designation as charities and must have a charitable purpose that benefits the public.

A charity is not permitted to distribute profits to its members and must be registered with the Australian Charities and Not-for-profits Commission^[3].

The Australian Taxation Office (ATO) is aware of more than 200,000 entities that receive one or more tax concessions. But only 61,010 are registered charities.

Professinal sports and tax

Within the regulation of not-for-profits exists professional sport.

Sports receive an exemption from income tax if, under section 50-45 of the Income Tax Assessment Act 1997^[4], a club or association encourages or promotes a game or sport.

In addition, the organisation must not conduct business for the purpose of profit for members.

The sports exemption does not differentiate between professional and community (or amateur) sport, as is the case in New Zealand, where charities and taxation law limit a sports charity to an amateur organisation.

Therefore, major Australian professional sports are considered not-for-profits and do not pay income tax.

None of these entities are registered charities.

This raises questions of fairness: these organisations receive revenue that ranges from tens of millions of dollars in the case of clubs to hundreds of millions and even billions for leagues.

When the sports exemption was introduced in the 1950s, it was designed to assist small community clubs. This might include the local golf club that operates on a public course and has operating revenue of $10,000, or the local tennis or football club with similar revenues.

The big business of pro sports

In recent years, the revenues of professional sport have ballooned^[5], primarily due to lucrative broadcasting deals.

For example, in 2023, the AFL had revenues of $1.06 billion^[6] and recently announced its 2024 profit of $45.4 million^[7], putting it in Australia’s 30 largest charities by income.

In 2023, the revenues of the AFL’s clubs ranged from $50.4-$105.7 million.

The NRL earned $744.9 million^[8] in revenue in 2024.

Also, the AFL and NRL receive a percentage of the income of betting agencies, reportedly^[9] $30 million a year for the AFL and $50 million for the NRL.

Half of the NRL clubs are sponsored by betting companies and three NRL stadiums are named after betting agencies.

Some non-Victorian AFL clubs, such as Brisbane and Greater Western Sydney, have gambling sponsorships, but Victorian clubs have signed up to the Victorian Responsible Gambling Foundation’s “Love the Game, Not the Odds^[10]” program.

This reliance on sports betting^[11] revenues raises issues as to the public benefit of these organisations and whether they should receive tax exemptions.

Read more: Will the government's online gambling advertising legislation ever eventuate? Don't bet on it^[12]

The issue of unrelated business income

The issue of unrelated business income (the income a not-for-profit earns from commercial activities not related to its charitable purpose), especially from gambling and poker machines, raises concerns.

North Melbourne was the first Victorian AFL club to sell its poker machines in 2008^[13]. In 2016, it was the only club without pokies.

Collingwood sold its machines in 2018 and Hawthorn sold its two poker machine venues in 2022. But Carlton, Essendon, Richmond and St Kilda earned a collective $40 million^[14] from poker machines in 2022/2023.

The profits of poker machines by Victorian AFL clubs can be distinguished from sports clubs in New South Wales, where not less than 0.75%^[15] of poker machine profits must be distributed to charities under community development and support expenditure.

Poker machine venues are a considerable source of revenue in the NRL. In 2021, rugby league received $9.8 million^[16] from regional licensed clubs – $7.28 million to grassroots rugby and $2.52 million to NRL clubs.

Metropolitan venues gave $29.67 million^[17] to rugby league - $17.09 million to grassroots rugby and $12.58 million to NRL clubs.

A possible solution

Unrelated business income tax (UBIT) is a tax on the unrelated business income of not-for-profits. Related business income for a not-for-profit is membership fees and services directly related to the members such as restaurants or meals.

However, the major source of unrelated business income for sports are sponsorship and income from gambling companies and poker machines.

A UBIT has a long history in the United States and was proposed by the Gillard government in 2011^[18], only to be postponed in 2013 and eventually abandoned^[19] by the Abbott government in 2014.

In the context of professional sport, a UBIT would fairly treat leagues and clubs, which increasingly engage in commercial activities outside their charitable activities, with a public benefit without removing the tax exemption.

For example, a UBIT would tax the profits of clubs with poker machines. It would also tax some of Australia’s most profitable professional sports clubs and leagues for revenue not related to promoting the sports.

It would also help distinguish between “real” not-for-profits and professional sports.

In doing so, it would also create a fair regulatory environment for the operation of for-profit and not-for-profit businesses.

References

1. ^{^} exemption from income tax and other taxes (www.ato.gov.au)
2. ^{^} $43 billion to Australia’s economy (www.pc.gov.au)
3. ^{^} Australian Charities and Not-for-profits Commission (www.acnc.gov.au)
4. ^{^} of the Income Tax Assessment Act 1997 (www5.austlii.edu.au)
5. ^{^} have ballooned (ministryofsport.com)
6. ^{^} revenues of $1.06 billion (resources.afl.com.au)
7. ^{^} 2024 profit of $45.4 million (www.afl.com.au)
8. ^{^} $744.9 million (www.sportcal.com)
9. ^{^} reportedly (grattan.edu.au)
10. ^{^} Love the Game, Not the Odds (lovethegame.vic.gov.au)
11. ^{^} reliance on sports betting (theconversation.com)
12. ^{^} Will the government's online gambling advertising legislation ever eventuate? Don't bet on it (theconversation.com)
13. ^{^} sell its poker machines in 2008 (www.theguardian.com)
14. ^{^} earned a collective $40 million (www.theguardian.com)
15. ^{^} not less than 0.75% (www.liquorandgaming.nsw.gov.au)
16. ^{^} rugby league received $9.8 million (www.smh.com.au)
17. ^{^} gave $29.67 million (www.smh.com.au)
18. ^{^} the Gillard government in 2011 (ministers.treasury.gov.au)
19. ^{^} eventually abandoned (ministers.finance.gov.au)