Private ruling: Not for profit - special conditions
Date of advice: 27 March 2026
Published: 29 June 2026
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Upon execution of the proposed amendments to Entity A's constitution, will they continue to satisfy the special conditions under subsection 50-50(2) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: 1. Entity A is a registered charity with Australian Charities and Not-for-profits Commission (ACNC) for the following purposes: • Advancing education; and • Advancing social or public welfare. 2. Entity A's registration with ACNC provides that the charity helps early childhood who are under the age of 6. 3. Entity A's activities with ACNC are listed as: • Education for babies up to kindergarten aged children, • Preparing children for school, and • Childcare. 4. Entity B is the sole member of Entity A. 5. Entity B's registration with ACNC provides the charity helps families and children aged 6-14 years old. 6. Entity B's activities with ACNC are listed as being an independent co-educational College that caters for students from prep to year 12. 7. You provided us with the current constitution for Entity A. 8. You provided us with the proposed amended constitution for Entity A. 9. You provided us with the current constitution for Entity B.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 50-B | Income Tax Assessment Act 1997 section 50-5 | Income Tax Assessment Act 1997 subsection 50-50(2) | Income Tax Assessment Act 1997 paragraph 50-50(2)(a) | Income Tax Assessment Act 1997 paragraph 50-50(2)(b)

Reasons for decision: Summary: The proposed amendments to Entity A's constitution does not provide the Commissioner with confidence that subsection 50-50(2) of the ITAA 1997 would continue to be met. This view if formed by the fact that the proposed amendments to the constitution have proposed inclusion to distribute income and property to its members thereby may be in breach to their substantive requirements and would fail to satisfy special conditions under section 50-50(2) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: All legislative references in these reasons for decision are to the ITAA 1997 unless otherwise stated. | Detailed Reasoning - Subsection 50-50(2): Subsection 50-50(2) states: (2) The entity must: (a) comply with all the substantive requirements in its governing rules; and (b) apply its income and assets solely for the purpose for which the entity is established. | Detailed Reasoning - Comply with all the substantive requirements in its governing rules: Paragraph 50-50(2)(a) requires that an entity covered by item 1.1 in the table in section 50-5 must comply with all the substantive requirements in its governing rules. Paragraphs 18 and 19 of Taxation Ruling TR 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt (TR 2015/1) explain that an entity's substantive requirements are those rules that define the rights and duties of the entity, such as those that: • give effect to the object or purpose of the entity • relate to the non-profit status of the entity • set out the powers and duties of directors and officers of the entity • require financial statements to be prepared and retained • set out the criteria for admission as a member of an entity • require an entity to maintain a register of members, and • relate to the winding-up of the entity. Example 6 in TR 2015/1, together with Appendix 3, discuss making an approved change to the substantive requirements, and the effect of corrective action taken by entities in relation to breaches of the governing rules condition. Subdivision 50-B sets out that to be entitled to endorsement an entity must meet the special conditions relevant to item 1.1 of section 50-5, including the governing rules condition and the income and assets condition. | Detailed Reasoning - Apply its income and assets solely for the purpose for which the entity is established: Paragraph 50-50(2)(b) requires that an entity covered by item 1.1 in the table in section 50-5 must apply its income and assets solely for the purpose for which the entity is established. In relation to the term 'solely', paragraphs 34 and 35 of TR 2015/1 explain that a strict standard of compliance is required under the 'solely' test. Nevertheless, the Commissioner accepts that the income and assets condition will still be satisfied where: • the misapplication or misapplications are immaterial in amount, and • there is a one-off misapplication or occasional, unrelated misapplications of part of the income or assets of an entity for a purpose other than the purpose for which the entity is established. The governing rules condition and the income and assets condition are independent special conditions that must be satisfied by the entity. While an entity is in breach of either or both of the special conditions, its ordinary and statutory income will not be exempt from income tax (paragraphs 37 and 38 of TR 2015/1). Paragraphs 189 and 190 of Appendix 3 of TR 2015/1 explain that where corrective action is taken, a breach of an entity's substantial rules or a misapplication of income or assets is still taken to have occurred, even though the effects of the breach or misapplication have been reversed. An entity will become taxable during the period after a breach up to the date corrective action is undertaken. The proposed amendments to Entity A's constitution does not provide the Commissioner with confidence that subsection 50-50(2) would continue to be met. This view is formed by the fact that the proposed amendments to the constitution have proposed inclusion to distribute income and property to its members thereby may be in breach to their substantive requirements and would fail to satisfy special conditions under section 50-50(2).