Non-Profit News Service No. 0252 - Revocation of endorsement as a tax concession charity
Recently we conducted reviews that showed some questionable arrangements for charitable funds.
To be endorsed, a charitable fund must be applied for the purposes for which it was established. This means it must operate in a way that is consistent with its charitable purpose.
Indications that a fund may not be applied for its charitable purposes include:
investment that benefits private entities
excessive accumulation of investment income
making distributions for non-charitable purposes.
If an endorsed charitable fund is not applied for its charitable purposes, we may revoke its endorsement to access income tax exemption.
Example
A recent review of a charitable fund found that the trustee of the fund:
didn't make any distributions to charities for the period of the review
made substantial loans to entities associated with the founder and the trustee, including borrowing funds which were on-loaned to these entities
didn't call on substantial amounts of unpaid trust distributions from trusts associated with the founder and the trustee
didn't seek interest on these unpaid distributions.
The arrangement effectively provided a financial benefit to particular non-charitable entities associated with the founder and the trustee.
We decided that the fund had not been applied for the charitable purposes it was established. We revoked the fund’s endorsement to access income tax exemption for the period under review – this was three years starting from the date of the notice of revocation.
The trustee of the charitable fund had to lodge income tax returns and pay income tax for these years.
What you need to do
Review your organisation’s entitlement to endorsement.
Tell us in writing if you stop being entitled to endorsement.
Avoid tax problems through good governance.
The following may help you work out if you are entitled to endorsement:
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