Member ownership v Private ownership

[Ned_Flanders]

I think one of the things that has blurred the lines on the profit/not for profit issue in Victoria is the footy clubs and their poker machines

To achieve the reduced tax status a club can get, one of the things they have to do is provide some "community benefit" from the program

The press did an expose on this, and confirmed it was a massive rort.

One club was claiming its training facilities gave a community benefit as it helped the team do better, which was good for the community. Others have very small programs, which contributed a fraction of the profits earned

Then you have the govt subsidised facilities. The facilities were heavily subsidised on the basis of providing community access to them. Now a few clubs have done this extremely well, but some have again rorted the system. One club guaranteed community access to its training facility when not in use - and they then proceeded to book it for club use pretty much 24/7

They may not be for profit entities, but they are not acting or contributing back the way some of the arrangements they work in expect them to

 

[Tas]

Firstly, I don't think WCE is there 'solely for the purpose to make money', but regardless, the ATO looks at the end result.

That was the sole intention of the owners. Both WA and SA teams were created to provide income to the owners, SANFL was taking money form PA even when they were not profitable and ran them into the ground.

Sure, WCE makes profits, but they do so to hand them to entities that are themselves 'not for profit' (WAFC, and through them WAFL and other football in WA), so the end result is that the only entities that benefit from the money earned are NFPs.

They don't operate in the best interest of their members is my point, they operate in a manner which makes the most money, even with the new stadium they have deliberately not built a larger stadium that exceeds current demand because it would hurt their ability to fleece the supporters. Given the size of their profits irrespective how bad the team plays you would think that they would lower the prices to make it more affordable. They don't, because the supporters come dead last in their decision making process. Collingwood lowered their membership cost to make it more affordable and they have been making less than the Eagles.

Yes, there is a bit of a potential loophole where people and companies get paid out of such money for services rendered and said services may or may not be correctly valued, but the *potential* for using that loophole extends far, far beyond WCE. (to be clear, I have no reason to believe WCE or it's associated entities exploit this).

Definitely, they are a small fry issue compared to the general lay of the land, I just find it ironic the ATO had an issue with our structure given the share structure didn't give a dividend and was never going to and the share holders had no claim over the assets of the club, they just held the voting rights and the club wasn't one that was basically breaking even most years and wasn't really a money making venture. If our club was on the verge of losing our non-profit status then I was just suggesting that other clubs are barely "clubs" by the definition where members have literally no say in decisions, no rights and are more or less season ticket holders rather than members of entities designed and intended to make money for the license owner.

 

[Tas]

I think you're confused as to how the law works.

West Coast are a not for profit entity whose main objective is the pursuit of a game or sport. Therefore they are income tax exempt. That's what the law says. If you don't like it, campaign your local MP to change the law. Your beef seems to be mainly that they are profitable. And BHP would not be income tax exempt if they were bought by West Coast - they're not an organisation whose main objective is a game or sport (or any other exemption category). West Coast would probably lose their exemption as well.

That wasn't the intent of the club, WCE was created to facilitate an investment by the WAFC into the AFL who paid for a license and the club is there to make money for the WAFC. That by intent is an investment to make money, even it competes amidst non-profit clubs.

I am not sure the legality of the non-profit structure, I think the members need to have voting powers for it to be a non-profit entity, which was I think what the ATO had an issue about for us, I am not sure the WA or SA clubs or Swans (who are owned by the AFL now) have any kind of power at all.

The Broncos are not a non-profit entity and have no such exemption. I assume they pay tax on their profits - have a look at their financials, there'd probably be a tax expense item in there.

According to their last annual report they released they are a non-profit entity and claimed tax exemption, according to both the club and the auditors. They made a $5m loss last year so it didn't really matter, but they had been profitable before.

I also think you're a tad confused about how offshore tax havens work. You can't just set one up and pay no tax. BHP (for example), paid $8.7 billion in Australian tax last year. That's $8,700,000,000.
Sometimes the use of tax havens actually increases the amount of Australian tax you pay. You invest in a managed fund through the Caymans for instance - you're still taxed on the income here. But because it wasn't taxed over there, you won't get a credit for any foreign tax paid so you pay 100% of the tax in Australia. You invest through a country that taxes it there, you'll end up paying the same amount of tax overall but less of it in Australia.

I'm an accountant, I know how tax havens work. BHP uses safe havens, they have been under fire this year for using Singapore as a tax haven but it is fairly benign compared to some other companies, as you have suggested, they still pay a fair chunk of tax. What I am saying is that many do not pay what they should be paying and it robs Australia, it robs from every citizen.

According to the Tax Justice Network, 57% of all ASX 200 companies have subsidiaries in tax havens. Tax minimisation is legal, tax avoidance is illegal. James Hardie and Westfield Retail Trust paid 0% tax. Rupert Murdoch's 21st Century Fox paid 1% tax. This isn't minimisation, it is avoidance. Using a tax haven is avoidance, not minimisation. It is a criminal offense and if found guilty you face jail time. I am not sure why these people who do it are prepared to go to jail for share holders.

One of these days a government will be elected which is going to audit all these companies, they need to start sending a few of them to jail and give the companies 12 months to lodge amended returns before the rest of them are thrown in jail as well.

 

[bigleague]

According to their last annual report they released they are a non-profit entity and claimed tax exemption, according to both the club and the auditors. They made a $5m loss last year so it didn't really matter, but they had been profitable before.

I think you may be looking at the leagues club, not the listed football club, which paid around half a million in tax in 2014. The two are entirely separate entities, one is owned by members and the other by shareholders, they have lease & some other commercial agreements, like a $400k sponsorship of the NRL club, but that's about it.

 

[Tas]

I think you may be looking at the leagues club, not the listed football club, which paid around half a million in tax in 2014. The two are entirely separate entities, one is owned by members and the other by shareholders, they have lease & some other commercial agreements, like a $400k sponsorship of the NRL club, but that's about it.

I might have, I don't know much about the Broncos or their setup. If there are two separate entities and there is a member based club and a different entity that isn't the football club that is listed on the ASX then that isn't a private ownership structure of the football club itself. You can't be both a for profit company and a not for profit club at the same time.

When we talk about private structure then that means of the club itself and members are not really members of a club because they don't have the same rights and powers that a club member has in accordance with the laws, they are just season ticket holders who have access to games, ie NFL teams. It comes down to who has control and power of the club overall. Theoretically, members have the ultimate power at clubs. Share holders/owners do for profit based entities.

 

[telsor]

That was the sole intention of the owners. Both WA and SA teams were created to provide income to the owners, SANFL was taking money form PA even when they were not profitable and ran them into the ground.



They don't operate in the best interest of their members is my point, they operate in a manner which makes the most money, even with the new stadium they have deliberately not built a larger stadium that exceeds current demand because it would hurt their ability to fleece the supporters. Given the size of their profits irrespective how bad the team plays you would think that they would lower the prices to make it more affordable. They don't, because the supporters come dead last in their decision making process. Collingwood lowered their membership cost to make it more affordable and they have been making less than the Eagles.

All clubs balance revenue against members, and the price is set by supply and demand...It's not like WCE had much say in the size of the new stadium (after all, even their owners, the WAFC are just one bidder for running it, so clearly they don't have THAT much influence)

Definitely, they are a small fry issue compared to the general lay of the land, I just find it ironic the ATO had an issue with our structure given the share structure didn't give a dividend and was never going to and the share holders had no claim over the assets of the club, they just held the voting rights and the club wasn't one that was basically breaking even most years and wasn't really a money making venture. If our club was on the verge of losing our non-profit status then I was just suggesting that other clubs are barely "clubs" by the definition where members have literally no say in decisions, no rights and are more or less season ticket holders rather than members of entities designed and intended to make money for the license owner.

And here we get to the root cause of your issue...how North was treated.....The big difference though, If North had ever paid a dividend, would it have (only) gone to not for profit organisations? If it would have gone to line shareholders pockets, then the ATO will start treating them as a profit making (AKA, taxable) entity.

 

[bigleague]

I might have, I don't know much about the Broncos or their setup. If there are two separate entities and there is a member based club and a different entity that isn't the football club that is listed on the ASX then that isn't a private ownership structure of the football club itself. You can't be both a for profit company and a not for profit club at the same time.

When we talk about private structure then that means of the club itself and members are not really members of a club because they don't have the same rights and powers that a club member has in accordance with the laws, they are just season ticket holders who have access to games, ie NFL teams. It comes down to who has control and power of the club overall. Theoretically, members have the ultimate power at clubs. Share holders/owners do for profit based entities.

You are getting your wires crossed, the Broncos NRL club is privately owned.

Brisbane Broncos Limited (BBL:ASX) = NRL Football Club that exists for the benefit of its shareholders, majority owned by News Corp.
Brisbane Broncos Leagues Club Limited = NFP Members club that exists to support Rugby League, namely the Broncos.

 

[Kwality]

There is nothing wrong with non-profit organisations making money, it largely comes down to what the focus of the entity is, if it's to cater for members or to make money to return a dividend for the owners.

& when a non profit owns a company?

 

[Kwality]

That was the sole intention of the owners. Both WA and SA teams were created to provide income to the owners, SANFL was taking money form PA even when they were not profitable and ran them into the ground.
They don't operate in the best interest of their members is my point ..

Yep, the WAFC own the Eagles not the members, is that your real problem?
http://www.wafootball.com.au/wafc/organisational-chart
Check out how WA footy is organised.

You compare Collingwood* with pokie palaces with the Eagles? Are you arguing the Eagles overcharge members? How much of your claimed reduction in Pies memberships do you put down to addicts feeding their pensions into the pokies?
* Note to Pies fans: I have no argument with how the Pies run their club, simply challenging Tas & his poorly researched criticism of the Eagles ownership structure.

Have you looked at the money the Eagles pump back into WA footy ?

 

[Tas]

You are getting your wires crossed, the Broncos NRL club is privately owned.

Brisbane Broncos Limited (BBL:ASX) = NRL Football Club that exists for the benefit of its shareholders, majority owned by News Corp.
Brisbane Broncos Leagues Club Limited = NFP Members club that exists to support Rugby League, namely the Broncos.

"Consolidation of Brisbane Broncos Rugby League Club Limited
As disclosed in Note 24(a)(ii), the Group consolidates the results and position of Brisbane Broncos Rugby League Club Limited (“BBRLC”). BBRLC is a company limited by guarantee and has no share capital. Through operating and other arrangements, the Group has the ability to control BBRLC. The Group holds power over BBRLC through these agreements and is exposed to and has rights over the returns from BBRLC. All Board members of BBRLC are directors of the Group and the Group’s approval is required for all operational and financial decisions by BBRLC. Based on these facts and circumstances, management determined that, in substance, the Group controls BBRLC with no non-controlling interests."

I can't find the BBRLC constitution but that structure on that which I quoted which is from the BBL annual report implies that it's the parent company which controls the football club and owns it's assets. This seems very similar, if worse, than the structure we had which the ATO found the club to be at risk of losing it's tax exemption NFP status had we decided not to restructure.

Again, without looking at the legal documents it would be hard to determine, but there were idiot lawyers and accountants who also approved our old structure, while something might seem legal, I am not sure it has the spirit or intent of the legislation at heart and you don't really know until the ATO comes investigating and make a ruling.

If this structure is fine, I would love to know what the difference is between this and our old one in which they said was not okay.

 

[bigleague]

"Consolidation of Brisbane Broncos Rugby League Club Limited
As disclosed in Note 24(a)(ii), the Group consolidates the results and position of Brisbane Broncos Rugby League Club Limited (“BBRLC”). BBRLC is a company limited by guarantee and has no share capital. Through operating and other arrangements, the Group has the ability to control BBRLC. The Group holds power over BBRLC through these agreements and is exposed to and has rights over the returns from BBRLC. All Board members of BBRLC are directors of the Group and the Group’s approval is required for all operational and financial decisions by BBRLC. Based on these facts and circumstances, management determined that, in substance, the Group controls BBRLC with no non-controlling interests."

I can't find the BBRLC constitution but that structure on that which I quoted which is from the BBL annual report implies that it's the parent company which controls the football club and owns it's assets. This seems very similar, if worse, than the structure we had which the ATO found the club to be at risk of losing it's tax exemption NFP status had we decided not to restructure.

Again, without looking at the legal documents it would be hard to determine, but there were idiot lawyers and accountants who also approved our old structure, while something might seem legal, I am not sure it has the spirit or intent of the legislation at heart and you don't really know until the ATO comes investigating and make a ruling.

If this structure is fine, I would love to know what the difference is between this and our old one in which they said was not okay.

Brisbane Broncos Rugby League Club Limited is a subsidiary of BBL, Brisbane Broncos Leagues Club Limited is not.

(b) Related Parties

(i) Brisbane Broncos Limited
The Club has a number of transactions with Brisbane Broncos Limited. One of the objectives of the Club, under its constitution, is to support the game of rugby league specifically through Brisbane Broncos Rugby Leagues Club Ltd (“Broncos Football Club”) a controlled entity of Brisbane Broncos Limited. In relation to the bi-annual election of the Club’s directors the Broncos Rugby League Club Ltd may nominate, for election, two nominees for each of the positions of President, Vice President, and Honorary Treasurer. It also may nominate eight nominees for the six of the other positions as Director. The directors utilised the facilities of the Club during the year within a normal employee/customer relationship on terms and conditions no more favourable that those which is reasonable to expect would have been adopted if dealing with them at arm’s length in the same circumstances.

http://broncosleagues.com.au/wp-content/uploads/MTM12237-BLC-ANNUAL-REPORT-20140-web.pdf

 

[Kwality]

"Consolidation of Brisbane Broncos Rugby League Club Limited
As disclosed in Note 24(a)(ii), the Group consolidates the results and position of Brisbane Broncos Rugby League Club Limited (“BBRLC”). BBRLC is a company limited by guarantee and has no share capital. Through operating and other arrangements, the Group has the ability to control BBRLC. The Group holds power over BBRLC through these agreements and is exposed to and has rights over the returns from BBRLC. All Board members of BBRLC are directors of the Group and the Group’s approval is required for all operational and financial decisions by BBRLC. Based on these facts and circumstances, management determined that, in substance, the Group controls BBRLC with no non-controlling interests."

I can't find the BBRLC constitution but that structure on that which I quoted which is from the BBL annual report implies that it's the parent company which controls the football club and owns it's assets. This seems very similar, if worse, than the structure we had which the ATO found the club to be at risk of losing it's tax exemption NFP status had we decided not to restructure.

Again, without looking at the legal documents it would be hard to determine, but there were idiot lawyers and accountants who also approved our old structure, while something might seem legal, I am not sure it has the spirit or intent of the legislation at heart and you don't really know until the ATO comes investigating and make a ruling.

If this structure is fine, I would love to know what the difference is between this and our old one in which they said was not okay.

The core of your poorly researched suggestions about the WA & SA clubs ? At least you have acknowledged the cred* of your claims re the Broncos.

* accountants aren't lawyers even though ...

From above:
This seems very similar, if worse, than the structure we had which the ATO found the club to be at risk of losing it's tax exemption NFP status had we decided not to restructure.

Just poor legal/tax advice at North. Why do you try (poorly) to dress up your problem with your own club with bog ignorant claims about other club structures that you clearly do not understand - fortunately Carl di Lena is on board, don't lose him.

 

[Rob]

That wasn't the intent of the club, WCE was created to facilitate an investment by the WAFC into the AFL who paid for a license and the club is there to make money for the WAFC. That by intent is an investment to make money, even it competes amidst non-profit clubs.

Nah - learn the history of Indian Pacific Limited. Initially they were privately owned (and would not have been tax exempt). They effectively went broke, The WAFC took over and despite that IPL maintained a small private ownership component until the mid 90's I believe when the WAC bought them out.

I am not sure the legality of the non-profit structure, I think the members need to have voting powers for it to be a non-profit entity, which was I think what the ATO had an issue about for us, I am not sure the WA or SA clubs or Swans (who are owned by the AFL now) have any kind of power at all.

Broadly it's down to where the profits go. If they go (or can go) to private interests, then it's not a non profit.
A privately owned company could in theory be a non profit, but there would need to be pretty clear unambiguous statements in the company's constitution that the shareholders will never receive any distributions.

West Coast's (and Fremantle's) non profit structure is because they are wholly owned by a non profit - the WAFC. They have no shareholders and all profits remain within the game.

According to their last annual report they released they are a non-profit entity and claimed tax exemption, according to both the club and the auditors. They made a $5m loss last year so it didn't really matter, but they had been profitable before.

As appears to have been stated, you're not looking at the rugby league club. I checked their last annual report, and they did indeed pay tax as well as pay franked dividends.

I'm an accountant, I know how tax havens work. BHP uses safe havens, they have been under fire this year for using Singapore as a tax haven but it is fairly benign compared to some other companies, as you have suggested, they still pay a fair chunk of tax. What I am saying is that many do not pay what they should be paying and it robs Australia, it robs from every citizen.

According to the Tax Justice Network, 57% of all ASX 200 companies have subsidiaries in tax havens. Tax minimisation is legal, tax avoidance is illegal. James Hardie and Westfield Retail Trust paid 0% tax. Rupert Murdoch's 21st Century Fox paid 1% tax. This isn't minimisation, it is avoidance. Using a tax haven is avoidance, not minimisation. It is a criminal offense and if found guilty you face jail time. I am not sure why these people who do it are prepared to go to jail for share holders.

One of these days a government will be elected which is going to audit all these companies, they need to start sending a few of them to jail and give the companies 12 months to lodge amended returns before the rest of them are thrown in jail as well.

Audit them? What law are they breaking? It's not that easy to apply successful Part IVA (which I assume is what you're suggesting be used) to a fairly standard commercial transaction (refer to the recent News Limited case as an example of that). As far as criminal charges go, good luck with that. It's not a crime to establish a subsidiary in a tax haven. If you're fraudulently creating documents or transactions, then there might be a show. But then you have to prove that a person actually did it beyond reasonable doubt. In the accounting world, that's incredibly difficult.

I think what you really want is a change in the law. Which isn't all that easy either. If it was, then (mainly Western) governments around the world would have done so already. You could perhaps enact a law denying a deduction for payments to entities registered in certain countries, but that's also going to catch an awful lot of genuine business related payments. It wouldn't stop BHP setting up a marketing hub in Singapore either (unless you include Singapore on the list, which would be suicide for Australian commerce).

BTW, Westfield Retail Trust doesn't pay tax because it's a trust - they generally don't pay tax in their own right because all their net income is distributed to beneficiaries who then pay tax. I'm a bit doubtful that you're actually an accountant if you don't know that.

 

[The Darkman]

I have a question. If a for profit entity is owned by a not for profit entity, and the subsidiary company pays a dividend, say $20million to the parent company, does the parent company record income of $20million/0.7 with a tax credit of around 0.3/0.7 x $20million? If it does, how does it obtain that tax credit from the ATO?

 

[Rob]

I have a question. If a for profit entity is owned by a not for profit entity, and the subsidiary company pays a dividend, say $20million to the parent company, does the parent company record income of $20million/0.7 with a tax credit of around 0.3/0.7 x $20million? If it does, how does it obtain that tax credit from the ATO?

A few things you probably need to clarify - an entity that is wholly owned by a not for profit is almost certainly a not for profit entity by definition. However, not for profit doesn't necessarily mean exempt from income tax.

In relation to imputation credits, most non profits (even those exempt from income tax) can't get a refund of those. Only charities and other deductible gift recipients can. Football clubs couldn't.

 

[The Darkman]

A few things you probably need to clarify - an entity that is wholly owned by a not for profit is almost certainly a not for profit entity by definition. However, not for profit doesn't necessarily mean exempt from income tax.

In relation to imputation credits, most non profits (even those exempt from income tax) can't get a refund of those. Only charities and other deductible gift recipients can. Football clubs couldn't.

I see your point. The not for profit entity purchased the for profit entity for a price in excess of the accounting capital value. The 'adopted' entity continued trade for a few years until its assets were merged into the parent entity. I see your point on imputation credits not being eligible for recouping from the ATO as I don't think insurance companies can would be eligible.

Cheers.