Charities and not for profits

Any money earned, fundraised, raised through donations or the like by the NFP must either be used in pursuing or advancing the NFP’s purposes, keeping the NFP running and/or donated to other similar NFPs/charities.

Many, but not all, NFP organisations can also be registered as a charity and/or for deductible gift recipient status.

There can be a lot to think about when starting up a charity, from building a business plan, to seeking financial support and seeking the support of the community.  One of the first matters to think about when setting up a NFP or charity is the legal structure.

The structure of your NFP will really depend on your individual circumstances and the purposes you are trying to achieve.  It is important to determine the structure as early on as possible, as this will affect how the charity or NFP will operate and what restrictions or obligations will be placed on the NFP or charity.

How Coulter Legal can assist

Our lawyers have extensive experience in assisting clients to set up and operate charities and NFPs, to ensure that the NFP or charity can be operating for the benefit of the community in a timely and efficient manner.

The services we provide include:

1. Assisting to determine the best legal structure for the establishment of a charity or NFP;

2. Giving advice on charity registration and DGR endorsement and any other relevant matters;

3. Establishing the legal structure and making applications for registration to the relevant entities, including Australian Charities and Not for Profit Commission (ACNC) and Australian Taxation Office (ATO); and

4. Providing advice and assistance in relation to the continued operation of the charity or NFP, including in relation to obligations under relevant legislation, and in respect of any changes to purposes or activities of the charity or NFP.

The structure of a not for profit or charity

The three most common NFP or charity structures are as follows:

1. Public company limited by guarantee;

2. Incorporated association; and

3. Trust.

Public company limited by guarantee

A public company limited by guarantee is a public company that is designed for not for profit organisations.  In order to be incorporated by ASIC, amongst other requirements, a public company limited by guarantee must have at least three (3) directors.

Under this structure, the liability of the company’s members is limited to the amount that the members undertake to contribute to the property of the company if it is wound up, which is indicated in the constitution of the company and is typically a nominal amount around $10.00 per member.

This structure is more costly to establish and run than a trust or incorporated association, and the obligations upon a public company limited by guarantee are more onerous.  However, the strict legal requirements of this structure can potentially instil greater confidence in potential donors.

Incorporated association

In Victoria, incorporated associations are governed by Consumer Affairs Victoria.  Incorporated associations are often utilised by clubs and sporting and community groups.  It should be noted incorporated associations can only operate in the state they are incorporated in, unless they register with ASIC to obtain an Australian Registered Body Number.

They are relatively simple and inexpensive to register, particularly where the association intended to adopt the Model Rules as set out in the Associations Incorporation Reform Act 2012 (Vic).  In addition, the ongoing obligations are less onerous than that of a company.

Trust

The final common type of structure for NFPs and charities is a trust.  To establish a trust, a trust deed must be prepared and adopted and a trustee appointed.  For charitable trusts, we most often recommend a corporate trustee rather than an individual.

Unlike a company or incorporated association, there are no registration requirements for a trust, and fewer reporting obligations.

Why should my not for profit be registered as a charity?

Registering your NFP as a charity can have a number of benefits, including the following:

1. Your organisation will be searchable on the Charity Register of the ACNC helping you to better connect with donors, volunteers and investors;

2. Financial transparency through the ACNC reporting requirements means that investors and donors may have greater comfort that their donations are going where they are needed.  This may mean they are more likely to become involved with you; and

3. Your organisation will have access to the charity tax concessions, including:

(a) Income tax exemptions;

(b) Refunds on franking credits;

(c) Goods and services tax concessions; and

(d) Fringe benefits tax rebates.

How can a not for profit be registered as a charity?

Charity registration takes place via the ACNC, who review all applications for registration against their requirements and the requirements at law.

To be registered as a charity, your organisation’s purpose must fall within one of 14 charity sub types, being the 12 charitable purposes as set out in the Charities Act 2013 (Cth) and two additional categories, being ‘Public Benevolent Institution’ and ‘Health Promotion Charity’.

The charity sub types cover a broad range of purposes, including but not limited to advancing health, education, religion, culture, social/public welfare, human rights and the natural environment.

The easiest way to show that your organisation’s charitable purposes fall within one or more of the charity sub types is to clearly set out the purposes of the organisation within your governing document.  A well drafted purposes clause ensures that your charitable purpose is clear to the ACNC, as well as donors and investors.

Registration as a charity means that some of the organisation’s reporting obligations are to the ACNC and not to ASIC, including submission of the charity’s annual information statement, and annual financial report (if required).

What is deductible gift recipient status and should my charity be endorsed?

Endorsement as a deductible gift recipient (DGR) allows an organisation to receive tax deductible gifts and contributions.  The main benefit of being DGR endorsed is that the public may be more willing to make donations to your cause, knowing that they are tax deductible.

Registration as a charity and endorsement as a DGR are two separate processes with separate requirements, undertaken by different organisations.

While an organisation indicates in their ACNC application whether they are seeking to also be endorsed for DGR status, it is the ATO who undertake the assessment and grants the endorsement, not the ACNC.

There are approximately 50 DGR endorsement categories.  These are set out in the Income Tax Assessment Act 1997 (Cth) and in a simplified form on the ATO website.  An organisation’s purpose or purposes must fall into one of these categories to be endorsed as a DGR.  An organisation with multiple purposes, one of which meets one of the categories can be partially endorsed for DGR, but only contributions made for that specific purpose are tax deductible.

The broad endorsement categories are health, education, research, welfare and rights, defence, environment, the family, international affairs, sports and recreation, cultural organisations, fire and emergency services and ancillary funds.  These categories are far narrower than the charity sub types, and as such a large number of organisations which are registered as charities cannot be endorsed for DGR.