Last year additional eligibility and registration conditions were introduced for registered charities and certain other entities seeking income tax exemptions under section 50-50 of the Income Tax Assessment Act 1997 (Cth) (“ITAA 97”).
For exempt entities to remain income tax exempt, they must operate consistently with their substantive governing rules and purposes, including those rules for applying their income and assets solely for the purpose for which they were established. If the entity substantially ignores its rules (for example, by passing income to members) the income tax exemption can be lost. This should come as no surprise.
A registered charity operating inconsistently with its substantive governing rules and purposes may also cease to be a charity under the Charities Act 2013 (Cth). As a consequence, notification obligations will be triggered under both the Australian Charities and Not-for-profits Commission Act 2012 (Cth) and the ITAA 97 and the entity will ultimately cease to be entitled to endorsement as an income tax exempt entity.
Registered charities must be vigilant in complying with their governing rules.