The terminology used in relation to community organisations can be confusing.
“Not-for-profit” and “non-profit” are terms used in relation to organisations in which any profit made must be used to benefit or further the aims of the organisation. These terms do not mean the organisation cannot make a profit (i.e. a surplus); all groups need to at least break-even or make a small profit to remain solvent (i.e. viable).
Instead, “not-for-profit” refers to a restriction on what the profit can be used for; namely, the profit cannot be distributed to certain people, including to the organisation’s members, directors, or their associates. In other words, the difference between a business (for profit) and a not-for-profit organisation is what happens with the profit they make.
More information is available from the Australian Taxation Office (ATO) (see www.ato.gov.au/Non-profit/Getting-started/What-type-of-NFP-is-your-organisation-/).
All charities have to be not-for-profit organisations, but not all not-for-profit organisations are charities. There are around 600,000 not-for-profit groups in Australia but only about 10 per cent of these satisfy the legal definition of a charity. Of these, about 56,000 charities are registered with the Australian Charities and Not-for-profit Commission (ACNC).
“Charity” and “charitable purposes” are defined in the Charities Act 2013 (Cth) (“Charities Act”). These terms are also defined in state legislation, local government laws and in the common law.
It is important to know if your group is a charity or not because it affects whether the group needs to register with the ACNC to access charity tax concessions and other benefits (see “Tax concessions”).
A not-for-profit organisation’s rules (sometimes called a “constitution”) govern the internal affairs of the organisation. This is a written document covering how the organisation operates – including an organisation’s purpose, membership, meetings, governance, use of funds and winding-up. Some legal structures, like incorporated associations, have minimum legislative requirements that must be dealt with in an organisation’s rules.