Not-for-Profits and Charities
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Establishing a non-for-profit organisation or charity requires the correct corporate structure to ensure compliance with financial and operational requirements.
Every non-profit organisation needs a governing instrument.
Deductible gift recipients may obtain a tax exemption status granted by the Australian Taxation Office.
Non-Profit Corporate Structure
In Australia, not-for-profit organisations are usually established as one of the following:
an Australian public company (limited by guarantee) – this is the most common type of company structure used by charities and other not-for-profit organisations which operate across Australia;
a Australian private company (limited by shares) – this can be used where, for example, a business is wholly owned by a charity which has a similar charitable purpose;
an incorporated association – a separate legal entity that can only operate under the state/territory that it was registered in, which can later be registered under the Corporations Act so that it can carry on business in other states/territories and becomes an Australian registered body; or
a trust – this could be a fixed or discretionary trust.
Incorporated and Unincorporated Organisation
An incorporated organisation has a separate legal identity; an unincorporated organisation does not.
This means that in an incorporated organisation, the members of the governing body i.e. the directors, have limited liability. However, this does not mean that the directors are protected in every way. Directors have particular duties, and if they are negligent or dishonest, the limitation of liability is removed and the directors may find themselves personally liable for their actions.
If you choose to incorporate your organisation, you should note that there are fees payable to incorporate your organisation, and there are certain obligations, including:
maintaining a public liability insurance policy;
lodging an annual statement and paying the lodgement fee; and
having a public officer over the age of 18 (and a resident of NSW if you are incorporating in NSW).
An unincorporated organisation has no separate legal identity, which means that:
members may be exposed to unlimited liability;
members make and implement decisions for the total membership of the organisation;
member are ultimately responsible for any debts or obligations owed by the organisation; and
members will be entering into contracts personally and if they are sued, they will be liable to pay damages.
In simple situations e.g. where the organisation is set up for a limited time or local purpose, an unincorporated organisation may be sufficient.
Difference between a Not-for-profit and a Registered Charity
Not-for-profit: A not-for-profit organisation does not operate for the profit, personal gain or other benefit of particular people. It can provide direct or indirect benefits:
direct benefits include distributing money or gifts; and
indirect benefits include a member receiving assistance from the organisation that is not consistent with its purpose.
Staff or responsible persons (e.g. board or committee members or trustees) can be paid for their work, but not paid an unreasonable amount.
Not-for-profits can make profit. This profit made must be applied for the organisation's purpose. Organisations can retain profits, instead of applying it towards their purpose, if there is for a genuine reason for this related to its purpose, e.g. retaining money to start a new project, build new infrastructure or accumulate a reserve so the organisation remains sustainable.
Registered charity: Charities can apply to be registered with the Australian Charities and Not-for-profits Commission (ACNC). The requirements and benefits of being registered with the ACNC are set out below.
Deductible Gift Recipient
An entity or fund that can receive income tax-deductible gifts and contributions is called a deductible gift recipient (DGR). This is a tax exemption status granted by the Australian Taxation Office. Members of the public who donate to an organisation with DGR status can claim tax deductions on their donation. The organisation can provide a tax deductible receipt.
To be endorsed with DGR status, you must maintain a gift fund. This means that:
all gifts and deductible contributions for the principal purpose of the organisation are made to it;
any money received by the organisation, because of such gifts and contributions, is credited to it;
it does not receive any other money or property;
the fund is used only for the principal purpose of the organisation.
The difference between a not-for-profit and a registered charity grants different direct and indirect benefits.
Fundraising (licensing and compliance) is governed by both Commonwealth and State legislation. You must ensure that you obtain a license and comply with the Corporations Act 2001 (Cth) and applicable State laws.
Governing Instrument
Regardless of how you set up your not-for-profit organisation, it needs to have a governing instrument. For a public or private company this is a Company Constitution. For an incorporated association this may be a Memorandum and Articles of Association. For a trust this will be in the form of a Deed.
The governing instrument needs to cover the following:
the objects of your organisation;
the powers of your organisation i.e. how it will achieve its objects;
a non-distribution of profits provision which states that funds of your organisation cannot be distributed to the members;
management of the organisation including who will run your organisation and how it will be run;
internal arrangements for meetings, voting, looking after funds, etc.;
an amendment provision on how the instrument can be altered; and
a dissolution provision dealing with what happens to the organisation in the event it is wound up.
Ongoing Obligations for Charities
If your charity is registered with the ACNC, it is required to:
remain not-for-profit and pursue a charitable purpose;
notify ACNC of changes;
keep financial records – net wealth and performance;
keep operations records – explain the activities of the charity;
submit an Annual Information Statement – due within 6 months at the end of the reporting period;
comply with governance standards (check ACNC website for updates); and
comply with all applicable laws/regulations.
Frequently Asked Questions about Setting Up a Non-Profit or Charity
Q: Who will form the governing body for your organisation?
A: All organisations are required to have at least 3 members on the governing board of the organisation. For private/public companies, this means that at least 3 members must be a director, and there must also be a secretary.
Q: Do I need an ASIC registration?
Q: What is a PBI?
A: A PBI is a sub-type of a charitable organisation with its main purpose being to relieve poverty and/or distress.
Q: What is a HPC?
A: Your organisation may be a HPC if it is a charitable institution which promotes the prevention or control of disease in human beings, and this promotion activity is the organisation's principal activity.
Q: What is a religious charity?
A: The Charities Act 2013 (Cth) sets out 12 charitable purposes, which include:
advancing health;
advancing education;
advancing social or public welfare;
advancing religion;
advancing culture;
promoting reconciliation, mutual respect and tolerance between groups of individuals that are in Australia;
promoting or protecting human rights;
advancing the security or safety of Australia or the Australian public;
preventing or relieving the suffering of animals;
advancing the natural environment;
promoting or opposing a change to any matter established by law, policy or practice in the Commonwealth, a state, a territory or another country, (where that change furthers or opposes one or more of the purposes above); and
other similar purposes 'beneficial to the general public' (a general category).
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