Australia's biggest RSL club, Rooty Hill, was entitled to almost $1 million in poker machine tax rebates last year despite directing grants worth hundreds of thousands of dollars to organisations associated with its directors.

The practice has exposed a loophole in the NSW government-administered ClubGrants scheme which allows large clubs to claim a tax rebate of 1.85 per cent of their pokie profits above $1 million.

Large clubs are allowed to claim a tax rebate of 1.85 per cent of their pokie profits above $1 million. Credit:John Woudstra

The scheme is championed by the clubs movement as evidence of how much its members give back to the community and used to deflect criticism of the hundreds of millions of dollars they make in poker machine profits.

But Fairfax Media can reveal that Rooty Hill RSL last year ignored a key recommendation in the guidelines designed to ensure the neediest community groups benefit.