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The South African Rugby Union and the South African Revenue Services are involved in a legal dispute amounting to ZAR155-million.

SARU on Wednesday reported a pre-tax profit of ZAR28.5-million for 2009, when it released its financial results on Wednesday.

However, the media release on the financial statements included an alarming footnote.

"The notes to the financial statements include a contingent liability of ZAR155-million for additional tax assessments raised by SARS, relating to payments made by SA Rugby (Pty) Ltd to SARU between 2003 and 2008, to fund amateur rugby activities, as contractually required," the SARU media release said.

"This matter is the subject of a dispute with SARS, based on interpretations of certain provisions of the Income Tax Act, and SARU remains confident that the matter will be favourably resolved in the near future."

Although SARU downplayed the gravity of the financial dispute with the revenue services, the amount is not to be scoffed at and can have serious consequences for the union.

SARU said its gross income for 2009, including its share of the profit from the British & Irish Lions tour, increased by 15 percent to ZAR501-million, while operating expenditure of ZAR477-million was restricted to a 1.3 percent increase on 2008. 

The statement said profit was lower than originally forecast, due to the "worldwide recession" which impacted on SARU's adjusted share of the net revenues from the tour by the British & Irish Lions.

"The demand for hospitality packages and match tickets was, understandably, not as strong as had been forecast," said Basil Haddad, SARU's Chief Financial Officer.

"But we achieved an acceptable financial result overall and our financial position remains healthy."

Increased administration and governance expenses, particularly on legal and other professional fees related to the amalgamation of SARU and SA Rugby (Pty) Ltd and certain tax issues, contributed to the expense increase.

However, Haddad said: "The amalgamation is likely to provide a platform for maximising revenues and making meaningful cost savings. The funding of professional and amateur sport is a challenge for sports federations around the world, and maximising commercial opportunities for rugby is now essential."

Haddad said that although 2010 was the last of a five-year broadcasting cycle, during which revenues have remained flat, he expected SARU to make a modest operating profit in 2010, due mainly to a grant of £1m from the IRB Trust and revenues from additional overseas matches.