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:
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.
To be eligible for ACNC registration, an entity must:
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.
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:
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:
The following structures can be used to establish a not-for-profit entity:
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.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.
You can read earlier ClearLaw articles on a range of topics.
See in particular our article clarifying the meaning of "charity".
Leigh is a partner in the Maddocks Tax & Revenue team.
Leigh regularly provides advice on:
His advice covers both direct and indirect tax considerations.
Leigh advises Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.