You’re starting a new entity or organisation aimed at the public good: a school, church, hospital, clothing recycling centre, or public advocacy group. You’ve probably also heard of the terms ‘charity’ and ‘not-for-profit’ and wondered if there was a difference between them. You may also be wondering about certain benefits or concessions you may be eligible for, such as DGR status, income tax exemption, or GST concession. But how does it work, and who is eligible for what?
This article will help you correctly identify the legal nature of your organisation and how this will impact your organisation.
Charity vs Not-For-Profit
Simply put, a charity is a subcategory of a not-for-profit (NFP). An entity that is an NFP is not necessarily a charity, but any entity that is a charity must necessarily be an NFP.
An NFP simply means, as would be expected, that any profits or assets of the entity are not distributed to shareholders or for the benefit of specific people. Rather, any profits or assets are used to operate the NFP.
A charity is more than that. A charity must:
- Be an NFP
- Have a charitable purpose
- Be for the benefit of the public or a section of the benefit
The last two criteria may seem to mean the same thing, but there is a subtle difference between them. The law identifies several purposes it deems to be ‘charitable’ including advancing health, education, religion, or culture. However, a charitable purpose that only benefits specific individuals would not be ‘for the benefit of the public or a section of the public’. For example, an entity set up to help arts students graduating in 2021 may be too narrow to qualify as a charity.
Examples of NFPs that are not charities include:
- Sport clubs
- Social clubs
- Professional associations
- Community service organisations
Examples of charities include:
- Religious Groups
- Homeless shelters
- NFP ages care centres
There are further subcategories of charities and NFPs, but we’ll leave that for a future article.
What benefits is my organisation eligible for?
Both charities and NFPs may be eligible for tax benefits such as income tax exemption, GST concession, or DGR status. However, the rules are different for charities and NFPs. Firstly, eligibility depends on the kind of NFP or charity that you are. Secondly, the application process for tax benefits is different for charities and NFPs.
This is a complex area of law, but our Charity and Not-for-Profit legal experts at FAL Lawyers can assist you.