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Frequently asked questions and misconceptions about charity registration

Good intentions are common, if not universal, when setting up a not-for-profit organisation to operate as a charity. However, many people do so without fully understanding the process for obtaining status as a registrable charity and deductable gift recipient. This article seeks to outline these processes in order to minimise confusion and to highlight helpful questions to answer prior to embarking on this process. Stephanie McLennan, Maddocks Lawyers

Overview

Setting up a structure, for example, a company limited by guarantee, that is not-for-profit, will not automatically provide entitlement to registration as a charity. Likewise, registering a not-for-profit organisation as a charity does not automatically entitle the organisation to endorsement as a deductible gift recipient (DGR).

These are important considerations because:

  • charity registration entitles you to certain tax concessions such as an income tax exemption and goods and services tax concessions; and
  • 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 ATO or in the income tax law for DGR endorsement can be complicated.

It should be noted that there are many not-for-profit organisations that do not qualify for registration as a charity and there are many charities that do not obtain DGR status.

In all circumstances it will be helpful to decide in advance what the purposes of the organisation will be and to consider the ACNC eligibility criteria and the relevant criteria that apply to the DGR category under which you seek to apply for tax relief.

Requirements for ACNC registration

To be eligible for ACNC registration, an entity must:

  • be not-for-profit;
  • have charitable purposes that are for the public benefit;
  • comply with the ACNC governance standards (these are available at www.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 DGR status

DGR status is probably the most sought-after aspect of charity registration. A DGR is an entity or fund that can receive tax-deductible gifts.

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:

  • fall within a general DGR category under the income tax law; and
  • apply to the ATO with supporting documentation.

Critical questions to ask at the beginning

The fundamental questions that any entity needs to address before setting up a company as a not-for-profit, applying to the ACNC and applying for DGR status are:

  • is my organisation structure not-for-profit?
  • does my not-for-profit have a charitable purpose?
  • does my not-for-profit benefit the public?
  • does my not-for-profit fit the other rules for registration?

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" company — a privately owned special purpose company, 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 fund that distributes funds to charities that are endorsed as DGRs. This fund does not directly provide services.

Purpose

  • What will my charity try to achieve?
  • What will its main activities be?
  • What programs or services will it provide?
  • Who is the charity's target audience?
  • Who will benefit from the charity's activities and programs?
  • Why is there a need for this new charity?
  • How long will the charity last? Will it be for a one-off, short-term project or an ongoing, long-term venture?

Timeframes

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.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of topics.

See in particular our article clarifying the meaning of "charity".

Order Cleardocs company packages

 

Lawyer in Profile

Daniel Hui
Daniel Hui
Senior Associate
+61 3 9258 3563
daniel.hui@maddocks.com.au

Qualifications: BCom, LLB (Hons), Monash University

Daniel is a member of Maddocks Tax and Structuring team. He has expertise advising on both direct and indirect taxes. He has represented private and publicly-listed companies, high net worth family groups and not-for-profit organisations in a broad range of tax and duty matters.

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