Registering as a charity
What is a charity?
According to the Charities Act, a charity:
• is not-for-profit;
• has purposes that are charitable and for the public benefit (i.e. if achieving the purpose would benefit the public generally or a sufficient section of the public);
• does not have any disqualifying purpose;
• is not an individual, political party or government entity.
The Charities Act is relevant for Commonwealth law purposes. There may be slightly different definitions for state law purposes.
The Australian Charities and Not-for-profits Commission (ACNC) regulates charities and is responsible for determining whether an organisation’s purposes are charitable and for the public benefit.
A list of charitable purposes is set out in the Charities Act; these include advancing health, education, social and public welfare, religion, culture; promoting reconciliation, mutual respect and tolerance between groups of individuals in Australia; promoting and protecting human rights; advancing the security and safety of Australia or the Australian public; preventing or relieving the suffering of animals; and advancing the natural environment. A purpose that is analogous (i.e. corresponds to) to one of the charitable purposes listed in the Charities Act may also be considered to be a charitable purpose. A purpose of promoting or opposing a change to the law, or to a policy or practice (i.e. advocacy), where that promotion or opposition furthers one of the charitable purposes listed in the Charities Act, is itself a charitable purpose.
The ACNC registers charities in Australia. Registering as a charity is free and carries no annual fees. Registration as a charity is required to access federal government charity tax concessions and other benefits (discussed further below). To register as a charity, an organisation must have an Australian Business Number (ABN) (see “Australian Business Number”).
If eligible, another advantage of registering as a charity is increased public trust in an organisation as it will be listed on a public register of charities maintained by the ACNC. Through the register, the public (including potential donors, members and volunteers) can access information about an organisation, including its annual filings, where it operates, who is on the governing body, and if the organisation is up-to-date with its reporting obligations. As noted above, if a company limited by guarantee registers with the ACNC, many of its obligations under the Corporations Act are “switched off” and replaced by obligations under the ACNC legislation and the governance standards.
Charities are required to report to the ACNC each year. The type of reports that must be submitted vary according to the size of the charity:
• small charities (annual revenue of less than $250 000): annual information statement and (optionally) annual financial report;
• medium charities (annual revenue of more than $250 000 but less than $1 million): annual information statement and a financial report that is either reviewed or audited;
• large charities (annual revenue of $1 million or more): annual information statement and audited annual financial report.
For more information about reporting requirements, see the ACNC’s website (www.acnc.gov.au/reporting).
Charities also need to notify the ACNC when certain things change, such as the organisation’s name, address, governing documents (e.g. the constitution), or when the “responsible persons” (e.g. board members) in the organisation change.
Charities also have obligations regarding record-keeping and compliance with governance standards.
Community organisations, unless exempted, must pay tax on income and money received from people who are not members. Income from members (e.g. membership fees) is exempt from income tax on the basis of what is called the mutuality principle. Examples of money received from non-members include where an organisation holds functions, raffles or street stalls, or operates a shop or canteen, or otherwise raises income from the public. If, after expenses and deductions, there is net income from non-member sources, many types of community organisation can obtain an exemption from income tax for that income.
The categories of income tax exempt organisations are registered charities, and organisations in the community service, cultural, education, employment, health, resource development, science or sport sectors.
There are other tax concessions that might be relevant for community organisations; in particular, the ability for those who donate to the organisation to claim a tax deduction for their donation. This is called deductible gift recipient (DGR) status. This status is only available to a limited group of organisations that are specifically listed in – or are endorsed by the ATO as a DGR because they fall within a DGR category under – the Income Tax Assessment Act 1997 (Cth). There are almost 50 categories, which include:
• public benevolent institutions (PBIs);
• health promotion charities;
• harm prevention charities;
• environmental charities;
• animal welfare organisations.
Each category has specific requirements.
The most common organisations to be endorsed as deductible gift recipients are PBIs. Generally, to gain PBI status, an organisation must be mainly engaged in assisting people to relieve their poverty, sickness, suffering, destitution, distress, misfortune or helplessness. Such an organisation usually has to address this purpose in its constitution, which also has to contain a not-for-profit clause, a DGR revocation clause, and a suitable winding-up clause. PBIs must be registered with the ACNC as a prerequisite for ATO endorsement as a DGR or to access Fringe Benefits Tax exemption and other federal government concessions. For more information, visit www.nfplaw.org.au/tax, or contact the ATO (see “Contacts”).
Organisations may be eligible for tax concessions under state laws (e.g. on stamp duty, payroll and land tax). For more information about state-based tax concessions, contact the State Revenue Office Victoria (see “Contacts”).
The Fringe Benefits Tax (FBT) is a tax an employer pays when it provides a non-salary benefit to its employees. An example is where an employee chooses to have part of their salary paid directly to their landlord or car loan provider.
Community organisations are only liable to pay FBT on benefits provided to an employee or an associate of an employee in respect of their employment. Generally, benefits provided to volunteers or contractors do not attract FBT as they are not employees.
The FBT rate (for the year ending 31 March 2018 and later years) is 47 per cent. This rate is paid by the employer, based on the value of the non-salary benefits provided to its employees. FBT must be recorded on employees’ PAYG payment summaries (formerly called group certificates). There are two main types of FBT concessions provided by the ATO:
• FBT rebate;
• FBT exemption.
The FBT rebate is a rebate on the tax (i.e. a tax discount) that employers pay on non-salary benefits. As at 1 July 2019, employers that are entitled to the fringe benefit rebate can have their FBT liability reduced by a rebate equal to 47 per cent of the gross FBT payable. The rebate for each employee can be claimed until the total grossed-up taxable value of the fringe benefits provided to an employee exceeds $30 000.
The FBT exemption is a more extensive tax concession that is available for certain not-for-profit organisations, including PBIs, health promotion charities, public and non-profit hospitals, and public ambulance services. The fringe benefit exemption completely exempts employers from having to pay FBT on non-salary benefits up to a certain limit per employee, and therefore makes it financially viable to offer salary packaging to employees. As with the fringe benefit rebate, each employee can access the fringe benefit exemption until the total grossed-up taxable value of the fringe benefits provided to an employee exceeds $30 000.
More information about the FBT is available from the ATO (see “Contacts”).
Generally, not-for-profit organisations with a turn-over of $150 000 or more per year must register for the Goods and Services Tax (GST). Not-for-profit organisations with a turnover of less than $150 000 per year may choose to register for the GST. If an organisation is not registered, it does not collect or remit the GST to the ATO. However, it still pays the GST on purchases. If an organisation is required to register for the GST, then it needs to have an ABN.
An organisation registered for the GST is generally able to claim input tax credits in respect of the GST it has paid. An input tax credit is basically a refund of the GST paid. However, an organisation that is registered for the GST also has to collect the GST. There are significant reporting and accounting requirements attached to GST registration.
If an organisation registers for the GST, then generally GST is payable on supplies made by the organisation, unless those supplies fall into certain categories (e.g. GST-free supplies). However, there are GST concessions available for not-for-profit community organisations. These concessions usually relate to particular activities (e.g. sales relating to raffles, bingo, fundraising events, sales of second-hand goods or uncommercial transactions and volunteer expenses) and mean that the GST is not payable on supplies relating to those activities.
An organisation should obtain professional advice about whether it should register for the GST, the effect of the GST on funding sources, and the best way of maintaining cash flow for the organisation in light of GST remittance obligations.
For more information about the GST, call the ATO’s not-for-profit organisation telephone enquiries line (1300 130 248).
Community organisations may obtain funds through fundraising, donations, government funding and philanthropic grants.
Groups fundraising in Victoria need to comply with the Fundraising Act 1998 (Vic) and the Fundraising Regulations 2009 (Vic) (“fundraising laws”). The fundraising laws are regulated by CAV, and cover activities including telephone appeals, auctions, door-knock appeals, tin collections, and public appeals to support clubs, associations, causes or people. Compliance with the fundraising laws might include registering with CAV as a fundraiser.
Each state and territory has its own rules for fundraising activities. Organisations that are fundraising in more than one state or territory need to ensure they are complying with all relevant fundraising laws in those jurisdictions.
Online fundraising has raised new challenges for fundraising regulation and organisations should carefully consider the relevant laws before conducting an online fundraising appeal.
Some fundraising activities (e.g. door-knocking, lotteries, raffles, street collections, and the sale of alcohol) require other permissions, permits or licences. Information about permits and licences is usually available from local councils.
Receipts stating that donations of $2 or more are tax deductible cannot be given unless the organisation has been endorsed as a DGR by the ATO, or is specifically listed as a DGR (see “Deductible gift recipient status”).
Organisations may apply for financial grants from government, philanthropic foundations, charitable trusts, private businesses and others. Information on how to make these applications is available from grant providers. Being endorsed as a DGR is a requirement of some grants.
Organisations should be aware that GST may apply to sponsorship and funding arrangements (“sponsorship” is defined very broadly). GST generally does not apply to donations. However, if something of value is provided (e.g. advertising, signage, or naming rights), this may be considered to be sponsorship, thus attracting GST.
A community organisation (regardless of whether it is incorporated or unincorporated) is not required to have an Australian Business Number (ABN) (unless it is a charity) but may need one for business purposes (e.g. registering for the GST). An ABN is an identifying number for all Australian enterprises (the definition of “enterprise” is very broad and encompasses businesses and most community organisations).
Community organisations may have to comply with other laws. This depends on a range of factors, including an organisation’s activities, funding arrangements, contracts, legal structure, and the kind of people involved in the organisation. Some of the legal topics that may have legislation applicable to a community organisation include:
• health and safety;
• employment, workplace injury and superannuation;
• equal opportunity and human rights;
• working with children;
• intellectual property;
• planning and the environment.
For more information about these laws, see Not-for-profit Law’s website (www.nfplaw.org.au).