Not-for-profit entities will not automatically be able to register as a charity. Likewise, registering a not-for-profit entity as a charity does not automatically entitle the entity to endorsement as a deductible gift recipient (DGR).
These are important considerations because:
- registered charities can obtain certain tax concessions such as an income tax exemption and goods and services tax concessions;
- DGR endorsement allows donors to receive tax relief for donations over $2;
- in order to register as a charitable organisation with the Australian Charities and Not-for-profits Commission (ACNC) there are a number of criteria that must be met;
- The eligibility criteria as set out by the Australian Taxation Office (ATO) and the relevant income tax law for DGR endorsement is complex;
- not all not-for-profit organisations can qualify for registration as a charity and there are many charities that do not obtain DGR status;
- as a starting point consider in all circumstances in advance what the purpose of the organisation will be and consider the ACNC eligibility criteria.
Requirements for ACNC registration
To be eligible for ACNC registration, an entity must:
- be not-for-profit;
- have recognised charitable purposes that are for the public benefit;
- comply with the ACNC governance standards (these are available at acnc.gov.au);
- not have a disqualifying purpose such as:
- engaging in or promoting activities that are unlawful or against public policy; or
- promoting or opposing a political party or a candidate for a political party; and
- not be an individual, political party or government entity.
Implications of not complying
The ACNC is the charities regulator and is empowered under the Australian Charities and Not-for-profits Commission Act 2012 (Cth) (ACNC Act) to gather information that is reasonably necessary to monitor a charity’s entitlement to registration.
The ACNC has broad punitive powers under the ACNC Act in the case of non-compliance with the ACNC Act or a governance standard. These include the power to revoke charity registration with the consequent loss of charity tax concessions.
Applying for Deductible Gift Recipient (DGR) registration
A DGR is an entity or fund that can receive tax-deductible gifts. It is therefore extremely sought after.
To be eligible for endorsement as a DGR, an entity must be endorsed by the ATO on application or listed by name in the income tax law. There are many categories of DGR ranging from health to welfare and rights, environment and public ancillary funds.
In order to be eligible, an entity must:
- have an ABN;
- be established and operate in Australia;
- have acceptable rules for transferring surplus gifts and deductible contributions on winding up or revocation of endorsement;
- fall within a general DGR category under the income tax law; and
- apply to the ATO with supporting documentation or ask for endorsement in its charity registration application to the ACNC who will pass it on to the ATO;.
Fundamental Items to Consider
The fundamental items that any entity needs to address before establishing a company as a not-for-profit entity, applying to the ACNC and applying for DGR status are:
- the structure must be not-for-profit;
- the not-for-profit entity must have a charitable purpose;
- the not-for-profit entity must benefit the public;
- the not-for-profit entity must meet other requirements for registration.
Entity Structure
The following structures can be used to establish a not-for-profit entity:
- Public company limited by guarantee — a public company that is not listed on a stock exchange where the liability of the members is limited to a fixed amount.
- Incorporated association — an association set up under state or territory law. This type of entity usually does not operate outside its home state or territory.
- “Not-for-profit Pty Ltd” corporate entity — a privately owned special purpose corporate entity, with shareholders, that has a not-for profit purpose.
- Charitable fund — a public fund that can be registered with the ACNC and endorsed as a DGR and that fits within one of the DGR categories, for example, a scholarship fund, school building fund, harm prevention charity fund or overseas aid fund.
- Ancillary fund — a public or private fund that distributes funds to charities that are endorsed as DGRs. These funds do not directly provide services.
Consider the following
- Main activities
- Programs or services that will be provided
- Who is the charity’s target audience?
- The target benefit from the charity’s activities and programs
- The need for this new charity
- Consider the time of the Venture, that is will it be for a one-off, short-term project or an ongoing, long-term venture?
Registration Timing
The timeframe from incorporation to registration as a charity to receiving DGR status is not certain and can be very lengthy.
Applying for an Australian Business Number is imperative before applying to the ACNC. This can take anywhere from 1 day to 28 days to complete.
The ACNC can take 28 days to respond to your application and may have further questions that may require you to submit more information.
Endorsement as a DGR can take up to 4 to 6 weeks, or much longer if you apply to be listed by name under the income tax law.
Pavuk Legal can assist you on many legal aspects in relation to your philanthropic requirements including ascertaining how your philanthropic agenda is best achieved, review and advice on which vehicle is most suited to your state of affairs as well as establishing philanthropic structures to suit your needs. This should be determined by balancing out the pros and cons associated with making direct donations to an operating charity of your choice as compared to making direct donations to an existing charity. Pavuk Legal can advise you on the various range of structures and the ‘charities only’ tax concessions that are available to support your personal and philanthropic agendas.
Many other essential hot topics for business owners is all found in the book Nobody Else’s Business. Nobody Else’s Business is about helping business owners live the life they want to live, now and in the future. It is the ultimate guidebook for succession planning of modern Australian businesses.
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