Definition of 'charity'

Under the law, a charity means an entity:

  • that is not-for-profit;
  • all of the purposes of which are charitable purposes for the 'public benefit', or incidental or ancillary to, and in furtherance or in aid of, such purposes;
  • which does not have any 'disqualifying purposes'; and
  • which is not an individual, a political party or a government entity.

Charitable purposes The company's Constitution must set out the company's purpose as one of the following:

  • advancing health;
  • advancing education;
  • advancing social or public welfare;
  • advancing religion;
  • advancing culture;
  • promoting reconciliation, mutual respect and tolerance between groups of individuals 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 be reasonably regarded as analogous to, or within the spirit of, the above purposes; and
  • promoting or opposing a change to any matter established by law, policy or practice in the Commonwealth, a state, a territory or another country, in furtherance or protection of one or more of the above purposes.

Purposes for the 'public benefit' An entity's purpose will be for the public benefit if the achievement of the purpose would be of public benefit and the benefit would be available to a sufficient section of the general public.

The following purposes are presumed to be purposes for the public benefit, in the absence of evidence to the contrary:

  • preventing and relieving sickness, disease or human suffering;
  • advancing education;
  • relieving the poverty, distress or disadvantage of individuals or families;
  • caring for and supporting the aged or individuals with disabilities; and
  • advancing religion.

'Disqualifying purpose' An entity will not be a charity under the law if it has a disqualifying purpose. A disqualifying purpose is a purpose which involves:

  • engaging in, or promoting, activities that are unlawful or contrary to public policy; or
  • promoting or opposing a political party or a candidate for political office.

Income tax exempt status

A company that is going to be a charity cannot self-assess its income tax exempt status. Instead, the company must apply to the Australian Charities and Not-for-profits Commission (ACNC) for registration as a charity and to the Australian Taxation Office (ATO) for endorsement as an income tax-exempt entity (the company can choose for the ACNC to apply to the ATO on its behalf). The company must seek legal advice about this.

If you order a company that is to be a charity through Cleardocs, then you must brief an external lawyer to manually prepare the appropriate Constitution and applications to the ACNC & ATO. The Cleardocs interface will allow you to nominate Maddocks: by the end of the next business day Maddocks will contact you with an estimate of fees. If you agree, then Maddocks will finalise your applications and register the company with ASIC.

A not-for-profit company (that is not a charity) may assess itself as being exempt from income tax if it is one of the following:

  • a community service organisation — for example, a company established for community service purposes except political or lobbying purposes;
  • a cultural organisation — for example, a company established for the encouragement of art, literature or music;
  • an educational institution — for example, a business college;
  • an employment organisations — for example, an employer association;
  • a health organisation — for example, a hospital benefits organisation;
  • a religious organisation — for example, a group which promotes Buddhism in the community;
  • a resource development organisation — for example, an association to promote Australian manufacturing resources;
  • a scientific organisation — for example, a group formed to promote science in the community; or
  • a sporting organisation — for example, a netball club.

Because these types of companies assess themselves as being exempt from income tax (that is, they do not need to apply to the Australian Charities and Not-for-profits Commission (ACNC) and the Australian Taxation Office (ATO) for endorsement) the company must seek legal advice before making a self-assessment as to whether it fits into one of the above categories.

If a company has one of the above purposes, it may also be a charity. However, a company that is to be a charity cannot self-assess its income tax exempt status. Instead, the company must apply to the ACNC for registration as a charity and then to the ATO for endorsement as an income tax-exempt entity (the company can choose for the ACNC to apply to the ATO on its behalf). The company must seek legal advice about this. If you order a company that is to be a charity through Cleardocs, then you must brief an external lawyer to manually prepare the appropriate Constitution and applications to the ACNC and the ATO. The Cleardocs interface will allow you to nominate Maddocks: by the end of the next business day Maddocks will contact you with an estimate of fees. If you agree, then Maddocks will finalise your application and register the company with ASIC.