Charitable organisations in Australia: overview
A Q&A guide to charity law and practice in Australia.
The country-specific Q&A guide provides a structured overview of the key practical issues concerning charity law in this jurisdiction, including the legal framework and legal definition of a charity; principal sources of law; forms of organisation used for charitable purposes, and the qualification requirements/formalities to set these up; main regulatory authorities; management; accounting/financial reporting requirements; tax; overseas charities; and reform.
To compare answers across multiple jurisdictions visit the Charity law Country Q&A Tool.
This Q&A is part of the Charity Law Global Guide. For a full list of jurisdictional Q&As visit www.practicallaw.com/charity-guide.
Overview and main trends
Australian legal system
The Australian legal system consists of both federal laws and state and territory laws. The Australian Constitution of 1901 established a federal system of government, the Commonwealth, which clearly sets out the division of power between the Commonwealth and state and territory governments. In effect, Australia has nine sources of legislation - the eight state and territory systems, and the federal Commonwealth system.
The Constitution vests exclusive powers in the Commonwealth in sections 51 and 52 to make laws on certain matters such as trade and commerce, taxation, external powers, defence and immigration, which apply to the whole of Australia. Powers which are not exclusively vested in the Commonwealth government remain with the states and territories.
The Constitution also gives states and territories independent legislative power, known as concurrent or shared power, to make laws in the areas where the Commonwealth government has power, provided that the state laws do not conflict with those of the Commonwealth. Where there is inconsistency between Commonwealth and state or territory law, section 109 of the Constitution provides that Commonwealth law will prevail, and the state or territory law, to the extent that it is inconsistent, will be invalid.
The history and development of charity law
The origins of Australian settlement by Europeans occurred just over 200 years ago. After initially being established as a penal colony, "free settlers" (mostly from lower or middle class Britain) followed the convicts who had been sent to Australia. As the new colony began to grow, it quickly became apparent that not all the needs of the poorest in the community were being met by the government. Providing for the poor and the sick soon became the domain of the leading colonists and their wives, who were encouraged to form and support not-for-profit organisations to provide these much needed services. Initially, the government subsidised these public charities, mostly on a dollar-for-dollar basis, which increased at a higher rate, especially into the 20th century, and with the increase in government subsidisation there developed an increase in government regulation.
Up until recently, charity law in Australia was essentially treated as a subset of the law of trusts. This is primarily because trusts were the traditional vehicle through which charitable purposes were given effect. This is no longer an appropriate classification in modern times, as trusts have been replaced by other legal vehicles such as incorporated associations and public companies limited by guarantee. Further, characteristics exist within charity law which are foreign to much of the law of trusts (Gino E Dal Pont, Law of Charity (LexisNexis Butterworths, 2010), 3-4). An example is that currently, and over the past 80 years, the existence of charities owes a considerable debt of gratitude to revenue-related exemptions and concessions, resulting in the general law of charity being an artificial construct, driven more by statutory concession rather than pure altruism (Law of Charity, 9).
In recent years, there has been a dramatic overhaul of charity law in Australia. The Charities Act 2013 (Cth) (Charities Act) has introduced a new statutory federal definition of a charity, and provides a legal federal framework for the operation of charity law in Australia. Prior to the statute's commencement, the common law contained a complicated collection of definitions and categories which the Charities Act has sought to simplify. The Charities Act has reformulated a large portion of the former law as it existed, and restated it in modern language which is easier to understand and reflects a contemporary understanding of the meaning of "charity".
A further significant reform has been the establishment of the Australian Charities and Not-for-profits Commission (ACNC). Established by the Australian Charities and Not-for-profits Commission Act 2012 (Cth) (ACNC Act), the ACNC is the sole regulator of charities in Australia, and is responsible for their registration, the maintenance of a register of details of registered charities and the enforcement of regulation reform. The introduction of the ACNC represents a shift in Australian charity law towards a centralised system of regulation and control.
In Australia, there are roughly 600,000 not-for-profit organisations. The majority of these organisations are small bodies which do not employ many people; instead they rely on volunteers and the participation of members. At the time of writing, there were about 53,668 charities registered with the Australian Charities and Not-for-profits Commission (ACNC) in Australia (source: ACNC Charities Register, 2016 (based on data provided in June 2016)). In December 2015, the ACNC released a report which laid out important quantitative data, providing a snapshot of the charity sector in Australia (Cortis, N and others, Australian Charities Report 2014, Centre for Social Impact and Social Policy Research Centre, UNSW Australia). At the time, charities employed 1,005,694 people, 475,777 in a full time capacity and 529,917 persons in a part time capacity. In 2014, 47.7% of charities had at least one paid employee and one volunteer in their service.
Charities range significantly in their size and make up. Around two-thirds (64.1%) of Australian charities are small, with an annual income of less than A$250,000. Large charities with a turnover exceeding A$1 million comprise about one-fifth (19.2%) of charities in Australia, and medium-sized charities, those with a turnover between A$250,000 and A$1 million, comprise the remainder, at 16.6%.
Australian charities mostly operate in only one state or territory, with only 3.9% of charities operating nationally, and 9.3% of charities operating in at least more than one state or territory. About two-thirds of charities are located in metropolitan areas and about one-third (31.2%) are located in rural areas, with the remainder in remote areas. A small number (7.7%) of charities have operations which extend overseas, although 16.9% of charities have involvement with other overseas parties and organisations. These figures demonstrate that a large number of charities have a local focus, and do not operate interstate or overseas.
Charities in Australia have a diverse range of activities and functions. About one-third of charities are religious, although they are typically small in size. The second major type of activity undertaken by Australian charities is education and research, which accounts for 18.4% of all registered charities.
Australian charities seek to assist a wide range of people and groups. Almost half of existing charities (47.6%) benefit members of the general public. 40.9% of charities state that they assist women, 38.3% assist men and 37.6% assist children.
The Charities Act provides the framework for the operation of charity law at a federal level in Australia. It is important to note that not all non-profit organisations are charities; charities are essentially a subset of not-for-profit organisations in Australia. There is no consistent definition of a charity at a state/territory level.
The Charities Act defines a "charity" as a not-for-profit entity which exists for a "charitable purpose" and for a "public benefit". The Act further defines a public benefit as something which is available to the general public or a sufficient section of the general public. If a not-for-profit exists for any of the following purposes, it is deemed to be for the public benefit:
Preventing and relieving sickness, disease or human suffering.
Relieving the poverty, distress or disadvantage of individuals or families.
Caring for and supporting the aged or individuals with disabilities.
A not-for-profit has a charitable purpose if it exists for one of the following purposes:
Advancing social or public welfare.
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.
Any other purpose beneficial to the general public that may reasonably be regarded as analogous to, or within the spirit of, any of the above purposes.
Advancing public debate (promoting or opposing a change to any matter established by law, policy or practice in Australia or another country).
For the purposes of the legal definition of a charity, it does not matter if a charitable purpose is intended to be advanced in Australia or overseas.
A charity will be disqualified from being a charity if its purpose is either:
Engaging in or promoting activities that are unlawful or contrary to public policy.
Promoting or opposing a political party or a candidate for political office.
Importantly, it is still permissible for a charity to advocate for policy change in carrying out its purpose. However, it cannot exist for the sole purpose of supporting a political candidate or party.
Australian Charities and Not-for-profits Commission (ACNC) legislation
The establishment of the ACNC has dramatically altered the way in which charities operate in Australia. As the ACNC is a large, sophisticated body, there are several pieces of legislation which govern how it functions, what its role is, and the nature of its powers.
The ACNC Act established the ACNC and lays out its objects and functions. The legislation contains the framework for how charities are to be registered and regulated. In addition, the Australian Charities and Not-for-profits Commission Regulation 2013 (Cth) lays out the practical requirements as to how the ACNC itself functions. For example, it oversees the ACNC Register which contains the details of all registered charities in Australia. The Regulations also set out how charities are to comply with financial reporting requirements and governance standards.
Public company limited by guarantee. Increasingly in Australia, charities are established as public companies limited by guarantee. The structure is similar to a company limited by shares, but instead of shareholders, a company limited by guarantee has members, who guarantee the payment of a fixed contribution in the event the company is wound up and cannot pay its creditors.
The members of a public company limited by guarantee have no right to receive a share of the company's profits, which must be applied only for its charitable purposes. If a company is wound up, any surplus assets must be applied to another organisation for similar charitable purposes (often this means its assets are transferred to another charity). If the company is also endorsed as a deductible gift recipient (see Question 9, Deductible gift recipients (DGR)),any surplus assets arising from deductible monies must be transferred to another deductible gift recipient.
Public companies limited by guarantee must comply with company law provisions set out in the Corporations Act 2001 (Cth), although section 111L does provide exemptions for charities. These entities are also regulated by the Australian Securities and Investments Commission (ASIC).
A public company limited by guarantee also has its own legal personality, meaning that it can hold land, enter into contracts in its own name, sue and be sued. Such a company can also carry on activities anywhere in Australia and is not limited to one particular state or territory. This makes the public company limited by guarantee structure quite popular and the most suitable for larger charities.
A public company limited by guarantee can either be wound up under insolvency proceedings (in the same way a for-profit company can be), or it can be dissolved and an application can be made for it to be removed from the register of companies held by ASIC. Once the company has been wound up or dissolved, the Australian Securities and Investments Commission (ACNC) must be notified so that it can be removed from the register of charities.
Incorporated association. For small charities operating in only one jurisdiction, it may be more appropriate that they operate as incorporated associations. If an incorporated association eventually wishes to carry on activities in more than one jurisdiction, it is legally possible in most states and territories for it to convert into a public company limited by guarantee. An alternative route which is quicker and cheaper is for an incorporated association to register itself with ASIC as a Registered Australian Body.
Each state and territory in Australia has its own Associations Incorporation Act, which is administered by the relevant authority. An incorporated association is a legal entity separate from its individual members, can hold property, and can sue and be sued.
Once the incorporated association has been wound up or has had its incorporation cancelled, the ACNC must be notified so that it can be removed from the register of charities.
On a wind-up or cancellation of incorporation, any remaining assets of the charity must be passed to another charity with similar purposes. It is important to note that under no circumstances can the assets of an incorporated association be divided among its members.
Charitable trust. Historically, the trust was the legal structure of choice for many charities. This has changed in recent years, primarily because of the advantages for trustees of incorporating as a company or an incorporated association.
A charitable trust is formed by a trustee or trustees agreeing to hold assets on trust to be applied for the purposes of the charity. The trustee can be an individual or a body corporate (such as a company or incorporated association). The charitable trust has no separate legal identity from the trustee, and cannot own land or sign documents in its own name. Everything must be done by and in the name of the trustee.
A charitable trust does not need to comply with company law or the law applying to incorporated associations (unless and to the extent that trustee is a company or an incorporated association), and can therefore be more flexible than a public company limited by guarantee or an incorporated association. However, it will be governed by trust law which can be a complex area requiring specialist advice. The trust itself (as distinct from the trustee) does not need to report on its affairs and accounts to ASIC, although it may still have reporting obligations to the ACNC.
The main disadvantage of a charitable trust is the absence of limited liability for the trustees, who are jointly and severally liable for the debts and liabilities of the charity. If the liabilities do not result from a breach of trust by the trustees, the trustees are entitled to be reimbursed from the assets of the charity, but this indemnity is of little value if the charity has insufficient assets to cover its debts and liabilities. Many potential trustees are uncomfortable about entering an agreement which would require them to personally be named as employer, buyer and so on, on behalf of the charity.
The trust deed usually sets out the procedure under which a charitable trust can be dissolved. If there is no procedure, a charitable trust can be dissolved when all of its assets have been applied in furtherance of its objects. Once all of the liabilities of the trust have been settled and its assets spent, the trustees can apply to the ACNC to have the trust removed from the register of charities.
Unincorporated association. The largest proportion of not-for-profit organisations in Australia are unincorporated. Any number of persons who wish to associate together as a group for any lawful non-commercial purpose, which does not involve a personal pecuniary profit, may agree to form an unincorporated association. The founding members will normally give the association a name and adopt suitable rules. The elected members of the executive committee are in a fiduciary position and as such have a duty to act in the best interests of the members of the association.
The advantage of an unincorporated association is that it is relatively simple to create and flexible to run and, in most cases, professional legal advice can be kept to a minimum. It can also provide a structure whereby all of the members can play a role in carrying out its objects.
As with a charitable trust, the disadvantage of an unincorporated association is that it will have no separate legal personality. The members and executive committee will also not be protected from liability and so may be personally liable for the association's debts. This personal liability extends to any damages payable by the unincorporated association as a result of a successful action against the association in contract or tort.
Unincorporated associations can be dissolved subject to any procedure or restrictions set out in their governing documents. The procedure is generally the same as for a charitable trust (see above, Charitable trust).
An unincorporated association is the simplest form of charity to establish, but provides the least protection for its members and its executive committee. Unincorporated associations are generally more suitable for small, membership based charities that hold few or no assets and employ no staff.
Other types of charitable structure. Most charities in Australia are public companies limited by guarantee, incorporated associations, charitable trusts or unincorporated associations.
However, there are a number of other legal forms that charities can adopt. The particular circumstances in which these would be appropriate are outside the scope of this guide, but charities may also be:
Royal Charter bodies (which are incorporated by way of a charter from the Queen). There are only a few of these remaining and they are generally no longer granted.
Incorporated by federal or state parliament by a special Act of Parliament (such as religious denominations).
Aboriginal companies (which are regulated by the Office of the Registrar of Indigenous Corporations).
Other non-profit organisations
Public company limited by guarantee. Most non-charitable not-for-profits which carry on activities in more than one state or territory are incorporated as public companies limited by guarantee, with a prohibition on the members sharing in any profits of the company.
Non-charitable public companies limited by guarantee are only subject to company law and do not need to comply with charity law. However, if they enjoy any tax exemptions or concessions, then they must also comply with the state and federal laws granting them the exceptions or concessions.
Incorporated associations. Incorporated associations are also a popular vehicle for other not-for-profits, especially the smaller entities which only operate in one state or territory. These entities are still subject to the laws governing incorporated associations. Further, if they enjoy any tax concessions or exemptions, then the incorporated associations must also comply with the relevant federal and state/territory laws which grant them the exemptions or concessions.
Other types of non-profit structure. As with charities, non-profits can also take the form of Royal Charter bodies, bodies which have been incorporated pursuant to a special Act of Parliament, or Aboriginal companies.
Another structure which is typical for a not-for-profit (but not a charity) is that of the co-operative society. This is a non-profit organisation formed or carried on for the mutual benefit of its members and is quite common in industries as diverse as publishing, tourism, catering, dairy produce, taxis, housing, recycling and childcare. Co-operatives are different from other forms of incorporation because of their membership ownership and democratic structure.
Public companies limited by guarantee. The first task when establishing a public company limited by guarantee is to prepare the company's constitution (its governing document).
The constitution is a formal document used to incorporate and govern the company. This document:
Contains the charity's objects.
Sets out what must happen to any surplus assets if the charity is dissolved.
Contains procedural rules governing matters such as membership, and the appointment and retirement of directors.
Contains the procedures to be followed at meetings.
It is largely up to the founders of the charity to decide how the company will operate by deciding what should and should not be included in its constitution. There are some provisions, however, that will need to be included, such as restrictions on director benefits and on members receiving any share of the charity's profits.
Relevant details about the company's registered office and directors must be collected. The first members and directors then complete the necessary incorporation documentation and lodge it with the relevant fee at the Australian Securities and Investments Commission (ASIC). The incorporation process is usually fairly straightforward and should take only about one week with ASIC.
Once incorporated as a public company limited by guarantee, the company must apply for an Australian Business Number (ABN) with the Australian Tax Office (ATO). Once the ABN has been obtained, the company must then apply to the Australian Charities and Not-for-profits Commission (ACNC) to be registered as a charity, as set out above.
Incorporated associations. The first step is to prepare a constitution which complies with the relevant state/territory legislation. Once the constitution is prepared and the committee members and members of the proposed incorporated association have been identified, the committee members can apply for incorporation as an incorporated association with the relevant state/territory authority by lodging the appropriate forms. There is also a fee to be paid with the lodgement of the forms. There is a further fee payable to ASIC if the incorporated association subsequently applies to become a Registered Australian Body, enabling it to operate in more than one jurisdiction.
Once incorporated, which usually only takes a few days, it must then apply to the ATO for an ABN. The incorporated association must then apply to the ACNC to be registered as a charity, as set out above.
Charitable trusts. In order to establish a charitable trust, a trust deed must be drawn up. This is the document which governs how the trust will be operated: it explains how the trustees determine which causes the trust will support, and may outline any limits on the way that assets can be disbursed. It also sets out who the trustees are and includes provisions setting out how they should govern the trust. It is important that this document satisfies the legal requirements for the creation of a trust and includes clauses that satisfy the ACNC and ATO requirements for a charitable trust. Stamp duty may be payable on the trust deed (depending on its jurisdiction) and the deed may also need to be registered with the local Department of Lands (again, depending on its jurisdiction).
The trust can be funded either through the founders transferring assets to the trust or by soliciting donations. The process of drafting a charitable trust deed depends on the complexity of the trusts involved, but should not take long.
Application must then be made to the ATO for an ABN. The trust must then apply to the ACNC to be registered as a charity, as set out above.
Unincorporated associations. An unincorporated association's governing document is usually known as its constitution or its rules. There is no prescribed format, but it usually specifies:
The objects of the association.
How the members and management committee of the association are appointed.
How the association will be operated.
The restrictions on the distribution of the association's assets.
Once the governing document has been drawn up, the members and management committee of the association can be appointed.
The association must then apply to the ATO for an ABN. The unincorporated association must then apply to the ACNC to be registered as a charity, as set out above.
Public company limited by guarantee. The procedure is identical to that for a charitable public company limited by guarantee, save that there is more flexibility in the drawing up of the constitution. Nevertheless, the constitution must contain certain clauses to be able to legally classify itself as a not-for-profit. These include a:
Special dissolution clause.
Prohibition on the distribution of income and assets to directors or members.
It may not be necessary for the company to apply to the ATO for an ABN, but it is still advisable to do so. As opposed to charities, it is not necessary for not-for-profits to register with the ACNC.
Incorporated and unincorporated associations. Setting up an incorporated or unincorporated association which is a not-for-profit is similar to the processes outlined above for public charitable incorporated and unincorporated associations. The main differences are:
There is greater flexibility with the drafting of the constitution, so long as the requisite clauses (those outlined for charitable public companies limited by guarantee above) are included.
There is no requirement to be registered with the ACNC.
Registration of charities and not-for-profits
If a charity wishes to obtain charity status in Australia, it must be registered with the ACNC. The ACNC Act sets out the conditions for registration as the following:
Being a not-for-profit entity.
Compliance with the governance and external conduct standards set out in Part 3-1 of the ACNC Act. In short, these standards require the open, accountable, transparent, effective and efficient governance of entities seeking registration.
Having an ABN.
Not being covered by a decision in writing made by a government agency that characterises the entity as engaging in or supporting terrorist or other criminal activities.
Meeting the criteria of a charity or not-for-profit subtype (see Question 3, Charities Act).
In addition to these conditions, in the application for registration, the ACNC requires certain details about the organisation seeking registration including:
A statement of charitable purpose and description of activities.
The beneficiaries of the organisation.
Financial information for the current and previous financial year.
The ACNC aims to process applications for registration within 28 days.
ACNC Register. The ACNC must keep a publicly accessible register containing information about each registered and formerly registered charity. This register is published on the ACNC website at www.acnc.gov.au/findacharity. In addition to the name and contact details of each charity, the register includes the subtype of charity, copies of governing documents and financial records disclosed to the ACNC, information about the beneficiaries of the charity and any enforcement orders made by the ACNC Commissioner against the charity.
Ongoing regulatory requirements
Australian Charities and Not-for-profits Commission (ACNC)
The ACNC is the sole regulator of charities in Australia in their capacity as charities. It is responsible for the registration of charities, maintenance of a register of organisation details and enforcement of charities' regulations.
ACNC regulatory and enforcement powers. The ACNC Act grants the ACNC limited powers to monitor charities' compliance with regulations and subsequent enforcement.
Regulatory requirements. Charities are required to satisfy certain areas of compliance to fulfil their ongoing regulatory requirements. Charities must:
Remain a not-for-profit organisation, maintain a charitable purpose for the public benefit and comply with the governance standards that apply to them.
Update the ACNC when they change their legal name, address, "responsible persons" and governing documents (constitution, rules or trust deed).
Keep accurate financial and operational records for at least seven years.
Report their financial information to the ACNC annually. The stringency of these requirements varies depending of the size of the revenue of the organisation (see Question 8).
Enforcement and regulatory powers. The ACNC typically uses its enforcement powers as a final measure following provision of guidance and support to charities to meet their obligations. Where compliance does not result from this approach, formal powers of enforcement may be used. These powers include:
Suspension or removal of a "responsible person" (such as a committee or board member or trustee) of a charity.
Disqualification of a responsible person from being a responsible person of any charity.
Revocation of registration.
Imposition of administrative penalties for the making of false or misleading statements or failure to lodge documents on time. For example, at the time of writing, administrative penalties ranged from A$170 to A$4,260 for failure to lodge an annual information statement on time.
The ACNC has the power to gather information and documents necessary to monitor compliance with the regulations and assess ongoing entitlement to registration. ACNC officers also have the power to monitor the activities of a charity to verify the accuracy of information provided, and to ensure compliance with regulations. These monitoring powers extend to the search and examination of premises for which a monitoring warrant is granted.
At a federal level, the ATO also has a role in regulating charities. The ATO ultimately grants tax exemptions to charities, in most cases on the basis of endorsement by the ACNC. Applications for tax exemptions are usually forwarded to the ATO by the ACNC, allowing charities to mostly deal with a single federal regulator. At a state or territory level, the relevant Associations Incorporation Act may impose additional financial reporting or governance requirements on incorporated associations that are charities.
There are a variety of structures which charitable organisations adopt in Australia (see Question 4). Each structure has different types of persons who manage these organisations depending on their construct. The Australian Charities and Not-for-profits Commission (ACNC) Act refers to these persons as "responsible persons":
Public company limited by guarantee. The directors of the company are the responsible persons. Directors' duties include:
avoiding conflicts of interest;
acting with due care and diligence;
acting in good faith.
Incorporated associations. Members of the committee of management of the association are the responsible persons. Incorporated association management committee members' responsibilities will be determined by the relevant state or territory legislation. However, their obligations may include:
maintaining the association's financial viability; and
ensuring the association's purposes are being achieved.
Unincorporated associations. The governing body of an unincorporated association is not always clear. The responsible persons may be members of the association, in particular, members who direct or provide guidance for the association, and those who monitor its solvency. Responsible members of an unincorporated association are bound by obligations placed on them by the constitution of the association.
Trust. The trustees and, in the case of a corporate trustee, the directors of that corporation, are the responsible persons. Trustees must exercise reasonable care and know the terms of the trust.
Co-operative. The directors of the co-operative are the responsible persons. Co-operative directors' responsibilities are determined by the relevant state or territory legislation, but may include:
acting in good faith in the interests of the co-operative;
acting with reasonable care;
acting for a proper purpose;
making decisions independently; and
avoiding conflicts of interest.
Insolvent charity. When an organisation can no longer pay its debts as they fall due, a person is appointed to administer the organisation's liabilities. This appointed person is deemed to be the responsible person. Depending on the legal structure of the charity that has become insolvent, the appointed person may be a "trustee in bankruptcy", "receiver", "administrator" or "liquidator". The responsibilities of such a person usually include the duty to act with due care and in good faith for the benefit of the creditors of the charity.
Obligations of responsible persons
Generally, the ACNC Act requires that charities meet certain governance standards. Charities must ensure that the responsible persons who manage or govern the organisation are suitable, and that each person is fully aware of their duties. Generally, the duties of responsible persons are as follows:
Act with reasonable care and diligence.
Act honestly and fairly in the best interests of the charity in the pursuit of its purposes.
Not misuse their positions or information they receive because of their positions.
Disclose all actual or potential conflicts of interest.
Not to operate the charity if it is insolvent.
Manage the financial affairs of the charity responsibly.
Further obligations may be placed on responsible persons depending on the construct of the charity (see above, Responsible persons). There may be further obligations that responsible persons must meet under state and territory legislation.
The accounting/financial reporting requirements of a not-for-profit organisation will depend largely on:
Its tax status, that is, whether it is a charity, an income exempt not-for-profit or a tax paying not-for-profit.
Its structure, that is, whether it is a public company limited by guarantee, an incorporated association or some other structure.
Australian Charities and Not-for-profits Commission (ACNC)
All charities must report to the ACNC, regardless of structure.
Small charities (those with an annual revenue less than A$250,000) must submit an "Annual Information Statement" which includes basic financial questions such as overall figures for income, expenditure, assets and liabilities.
Medium-sized charities (those with annual revenue between A$250,000 and A$1 million) must submit an Annual Information Statement, requiring more detailed income, expenditure, asset and liabilities information.
Large charities (those with annual revenue above A$1 million) have the same obligations as medium-sized charities, but must also submit an independently audited financial report.
Basic religious charities are exempt from financial reporting entirely.
Australian Tax Office (ATO)
Every type of charity and not-for-profit is accountable to the ATO (and some are required to report, depending on their tax concessions or exemptions).
Australian Securities and Investments Commission (ASIC)
The following are accountable to ASIC:
Public companies limited by guarantee which are not charities.
Incorporated associations that are registered Australian bodies and are not charities.
Office of the Registrar of Indigenous Corporations
Indigenous corporations that are not charities must report to the Office of the Registrar of Indigenous Corporations.
State or territory regulator
Incorporated associations (unless exceptions apply) and co-operatives must report to state or territory regulators.
General tax concessions
There are multiple tax exemptions and concessions available to charities in Australia. In order to gain an exemption or concession, a charity must first be registered with the Australian Charities and Not-for-profits Commission (ACNC). After this, the charity must then apply to the Australian Tax Office (ATO) to obtain the benefit of the taxation exemptions and concessions. Generally, the tax concessions and exemptions that are available to charities are as follows:
Income tax exemption. Any taxable income (including capital gains tax) received by the charity is not taxed; therefore, they are not required to lodge tax returns with the ATO.
Refunds on franking credits. This applies if the charity holds shares in a company that provides franked dividends.
Goods and services tax (GST). GST operates similarly to a value added tax. In Australia the GST rate is 10%. When goods and services are sold, the amount which the seller receives for the sale usually carries GST. When goods and services are purchased, the purchaser may be able to claim a GST credit for the GST included in the amount paid. Charities are granted significant GST concessions.
Fringe benefit tax rebate. Fringe benefits tax is a tax placed on benefits which an employee receives in addition to their salary. For example, a company car, or phone. Charities may be granted a rebate of up 47% until 31 March 2016, and up to 49% from 31 March 2017.
Further tax concessions
In addition to the purposes listed in the Charities Act, there are two further types of charities, which entitle an organisation to tax concessions in addition to those listed above. These are public benevolent institutions and health promotion charities. These charities are entitled to a fringe benefit tax exemption and deductible gift recipient status (see below, Deductible gift recipients (DGR)).
Deductible gift recipients (DGR)
Some charities can also apply for DGR status when they register with the ACNC. If a charity has DGR status, donations which are made to the charity may be tax deductible to the donor (meaning that when donors lodge their tax returns with the ATO, they may deduct any donation made to a DGR from their taxable income).
State and territory tax concessions
Charities may also be eligible for certain state and territory tax exemptions or concessions. These include:
Payroll tax exemptions.
Stamp duty on property, insurance and motor vehicle duty.
For each of these duties and taxes, the relevant legislation in each state or territory will determine which organisations are entitled to the tax exemptions and concessions. It must also be noted the organisations entitled to these exemptions and concessions are defined differently in each state and territory legislation.
The key taxation benefit for donors arises from donating to charities which have deductible gift recipient (DGR) status (see Question 9, Deductible gift recipients (DGR)) as it generally entitles donors to a tax deduction. This applies whether the donor is an individual or a corporate entity. There are special rules as to:
The sort of donated property that can entitle the donor to a tax deduction.
The amount of the tax deduction available to the donor.
Organisations which are endorsed as DGRs find fundraising easier, given that donations generally entitle the donor to a tax deduction. However, having DGR endorsement places additional statutory reporting requirements on the charity, such as the requirement of having their accounts audited, even if the charity is small or medium sized.
The principal disadvantage for organisations with charitable status is the on-going regulation and public scrutiny required for the tax advantages they receive.
As a charity registered with the Australian Charities and Not-for-profits Commission (ACNC), there are several on-going responsibilities that may strain a charity's time and resources. Most notably, charities must maintain clear financial records, submit Annual Information Statements and abide by strict corporate governance standards. For small organisations, these tasks may be difficult to complete without diverting significant amounts of time away from their original charitable purpose. In addition, charities may find it difficult to comply with legislative changes if they operate across multiple jurisdictions. This is why the ACNC imposes reduced reporting requirements on smaller charities.
For an overseas charity to operate within Australia, it must be registered with the Australian Charities and Not-for-profits Commission (ACNC). It will be able to do so if it:
Satisfies the legal meaning of charity.
Identifies its charitable purpose.
Has an Australian Business Number (ABN).
Meets the governance standards.
Is not a type of organisation that cannot be registered, such as an organisation included in a written decision made by an Australian government agency or judge that lists it as engaging in or supporting terrorist or other criminal activities.
To benefit from tax concessions available from the Australian Tax Office (ATO), the charity must satisfy one of the following three:
Physical presence in Australia test.
The deductible gift recipient test.
The "prescribed by law" test. Essentially, this test refers to when an Australian statute names a specific charity and allows it to operate in Australia.
Many overseas charities struggle to satisfy the physical presence in Australia test, which has two elements:
The charity must have a physical presence in Australia.
To the extent that the charity has a physical presence in Australia, if it pursues its objectives and incurs its expenditure principally in Australia.
An overseas charity that does not have some form of legal operating structure in Australia:
Will find it difficult to be registered with the ACNC.
Will find it difficult to receive charity tax concessions from the ATO (as registration with the ACNC is a precondition).
May struggle to gain public support, secure leases or employ staff.
Therefore, an overseas charity that is planning to undertake significant operations in Australia, or which wishes to raise funds from Australian donors, should consider:
Creating a separate Australian legal entity.
Registering with Australian Securities and Investments Commission (ASIC) as a foreign company.
Importantly, overseas charities and domestic charities operating overseas must engage in risk minimisation with regard to whom the charitable funds are ultimately benefitting. Concerns have been raised with regard to funds being misused or re-directed to inappropriate purposes, including terrorism funding and money laundering. As such, these charities must take reasonable steps to ensure that:
Their activities outside Australia are carried out in a way that is consistent with their purpose and character as a charity.
The resources (including funds) given to third parties outside Australia are applied in accordance with their purpose and character as a charity, and with proper controls and risk management processes in place.
There is no specific Australian law which prohibits an Australian charity from registering overseas. However, certain organisational structures, such as incorporated associations, do not permit activity outside of a particular State of Territory. At the time of writing, Australia is a not a member to any treaty which governs the ability of domestic charities registering overseas. Importantly, as mentioned in Question 12, a charity must maintain a physical presence in Australia; therefore, an Australian charity should take this into account when any it considers activity overseas.
The charity must also consider the domestic law of the foreign country in which it seeks to operate.
Given there has been significant reform in this area in the past few years, it is unlikely that any policy reform will occur in the near future. The Australian Charities and Not-for-profits Commission (ACNC) has been fully funded until 2019, after which the Federal Government may decide to de-fund the Commission. If this were to occur, it would significantly change the regulations and operations surrounding the charities sector.
At the time of writing, there have been no significant proposals to reform the area of charity law; however, the ACNC does periodically publish guidance regarding the conduct of charities.
The multi-layered regulatory framework for charities in Australia has given rise to suggestions of a need to create greater uniformity across states and territories by replacing state and territory regulations with further Commonwealth regulations, enforced by the ACNC. This would consolidate regulation and reduce the compliance burden for charities. (See also Deloitte Access Economics, Cutting Red Tape: Options to align state, territory and Commonwealth charity regulation Final Report (23 February 2016) Australian Charities and Not-for-profits Commission, 35-38).)
Regulatory authorities/online resources
Australian Charities and Not-for-profits Commission (ACNC)
Description. The ACNC is the primary regulator of charities in Australia. It is constituted under the Australian Charities and Not-for-profits Commission Act 2012 (Cth).
The official ACNC website contains up-to-date information about registering and managing charities. It contains information for charities as well as the general public. It also contains the Australian charities register.
Australian Securities and Investments Commission (ASIC)
T +61 3 5177 3988
Description. ASIC is the primary corporate regulator in Australia. It enforces and regulates Australian company law, seeking to protect consumers, investors and creditors.
The official ASIC website contains current information about establishing, running and closing public companies.
Australian Taxation Office (ATO) – Not-for-profit
T +61 2 6216 1111
Description. The ATO is the federal Australian taxation authority. It collects company tax and the goods and services tax among others. The ATO also maintains the Australian Business Register on which Australian Business Numbers are recorded.
The ATO not-for-profit website contains information about the federal taxation requirements for not-for-profit organisations and the tax concessions available to them. This website also provides for online lodgement of activity statements.
Vera Visevic, Partner
Professional qualifications. Australia, Lawyer, 1993.
Areas of practice. Charity and not-for-profit law; property law.
Non-professional qualifications. Bachelor of Economics; Bachelor of Theology.
- More than 20 years' experience acting for numerous charities, religious and not-for-profit organisations.
- Assists clients on governance and fundraising issues, Australian Charities and Not-for-profits Commission endorsements, constitutions, and structural issues.
- Has acted on numerous large mergers and divisions, including with federated structures.
- Has been involved in resolving complicated disputes between directors and members of not-for-profit organisations.
Languages. English, Croatian.
- Australasian Society of Association Executives (AuSAE).
- Australian Institute of Company Directors.
- Not for Profit Committee New South Wales, Certified Practicing Accountants.
- Member of Australian Charities and Not-for-profits Commission Professional User Group.
- Editor of the Clubs & Societies title in the Australian Encyclopaedia of Forms and Precedents.
- Third Dimension, Mills Oakley not-for-profit publication.
- Previous edition of this book.
- Numerous publications for Australian Charities and Not-for-profits Commission.