ACC5216 Accounting Theory: Examining AFL Tax Exemptions

This report explores the relationship between accounting research and professional practice, focusing on tax exemptions for sports leagues, particularly the Australian Football League (AFL) and National Rugby League (NRL). It critically reviews a news article discussing the tax-free status of these leagues despite their substantial revenues and requests for public funding for stadium development. The report examines the legal basis for tax exemptions, including the requirement that organizations be non-profit and dedicated to promoting sports. It further applies the public interest theory and capture theory to argue that the tax savings should benefit the public, such as through investments in schools and hospitals, rather than solely funding internal developments. The report concludes that while smaller sporting clubs may warrant tax exemptions, larger leagues like the AFL should be subject to taxation to ensure funds are used for the broader public good, potentially seeking government funding for stadium renovations as needed. Desklib provides this document along with other study tools for students.

Running head: ACCOUNTING THEORY
Accounting Theory
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Abstract
The objective of the report is to reflect the connection between theoretical accounting
research and professional practice of accounting. The discussion takes the arrangement of an
editorial review and argument. The report acknowledges that accounting academic research is
important to the higher education system, careers and publishers. However, its effect on
teaching, professional practice, and the professions and society is a trending issue that is
debated. The editorial offers scope for accounting academics to engage with the society and
profession as to the impact of their research, an important issue in higher education, not only
in Australia, but globally. The main purpose of the paper provides important commentary on
the relationship between accounting research and practice as represented in academic
journals, for that a real life case study has been taken of the tax exempted income of the
football league’s and its implementation that is stated in the article by Eryk Bagshaw that
deals with the issue of amount of tax that is exempted from their income and what they do
with the same.

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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Conclusion..................................................................................................................................3
Reference....................................................................................................................................4

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Introduction
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).
Discussion
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

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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.
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

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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

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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).
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.

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Reference
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.

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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–
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pp.151-174.
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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
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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