Charity Accumulation: Interrogating the Conventional View on Tax Restraints

Charities have the potential to obtain income tax exemption by becoming endorsed by the Commissioner of Taxation. The view traditionally adopted by the Commissioner, and accepted by many advisers, is that the endorsement conditions require the relatively direct and active use of funds. Such a test can constrain accumulation of income and assets by charities. This article interrogates the conventional view and finds that there is a stronger legal basis for construing the conditions as focusing on whether a charity’s funds have been administered by the charity controllers in accordance with the charity’s rules and the law. This alternative construction raises a number of questions about regulatory duplication, the potential lack of regulation of the time of benefit provision and the way this timing issue might be addressed.