What is a charity?
A not-for-profit organisation is a charity if it has been set up exclusively or mainly for charitable purposes. A charity's purposes, aims and objectives are set out in its governing instrument.
If the organisation is not set up for charitable purposes, this does not mean that it cannot fundraise - it only means that it cannot classify itself as a charity.
Beneficiaries - the people (or in some cases, organisations) which the charity is set up to help. The charity’s governing instrument usually explains who the beneficiaries are.
Governing instrument - any document that sets out the charity’s purposes and how it is to be run. It may be a constitution, association rules, cooperative rules, memorandum and articles of association, trust deed, or an Act of Parliament.
Management - the people responsible for the general control and management of the charity including:
- the members of the committee responsible for running an unincorporated or incorporated association
- the Governing body members (ie.directors) of a corporation or cooperative
- the trustee(s) of a charitable trust
- the Governing body members responsible for conducting an appeal.
Property - land, buildings, cash, investments or any other possession, which the charity has.
The Register - the computerised Register of Authority Holders. Some of the particulars of the Register can be found on the One Gov website.
Recommend or advise - used when we are suggesting actions which we consider to be good practice but are not legal requirements.
Should or must - used to refer to actions that need to be done by law.
Authority for undertaking charitable fundraising appeals
You need a licence (known as an authority)for undertaking a charitable fundraising appeal unless you are exempt from the Act (for example, you are a religious organisation or you are collecting less than $15,000 gross in a financial year). Go to the exemptions from the Charitable Fundraising Act page for more information. The licensing scheme is governed by the Charitable Fundraising Act 1991. Under this scheme, an organisation does not have to be a charity, it only needs one or more charitable purposes.
Advantage of having an authority
Having an authority allows organisations to legally hold fundraising appeals for charitable purposes. This means that you are able to give the public the assurance that you’re working in accordance with the Act, regulations and authority conditions and that you are being monitored by us.
Charities may be eligible to receive exemptions and assistance from Federal, State and Local Government. For example, a charity may:
- not have to pay income tax
- be eligible to receive exemptions, concessions or special treatment in some circumstances under the tax regime such as GST and FBT
- be entitled to exemptions, concessions or special treatment in some circumstances in respect of taxes or duties imposed by the NSW Government
- be entitled to deductible gift recipient status in respect donations (income tax deductibility)
- be eligible for exemptions, concessions or special treatment in respect of taxes or duties imposed by Local Government
- be able to get grants or subsidies from government agencies more easily than non-charitable bodies
- also be able to obtain concessions on utilities (water, electricity).
If you have any questions, direct your inquiries to the government agency concerned.
Charitable purposes fall under four main groups:
- the relief of financial hardship
- the advancement of education
- the advancement of religion
- other charitable purposes for the benefit of the community.
The following are examples of organisations or purposes which are often assumed to be charitable, but are not:
- sports clubs set up to benefit their members (as distinct from sports facilities open for everyone or specifically provided for special groups of people, such as young people)
- the promotion of political or propagandist purposes, or the promotion of a particular point of view
- purposes which include arrangements where people running the organisation get significant personal benefit.
To qualify as a not-for-profit organisation, all the income, assets and surplus funds of your organisation must be used to achieve its objectives and cannot be distributed to members.
Charities and remuneration
You must get approval for a member of the governing body of a not-for-profit organisation to be remunerated, or to enable a staff-elected employee, or a person receiving some form of assistance from the organisation (beneficiary/ consumer) to take up a position on the governing body. To apply for approval notify Fair Trading when applying for an authority, at time of renewal or during the term of your authority once intending to remunerate.
Registering a not-for-profit organisation
A not-for-profit organisation only needs to register if it wants to be incorporated. Go to the incorporating an association page for more information.
A governing instrument outlines the objectives or aims of the charity. We recommend it outlines:
- what the charity is set up to do (objectives)
- how the charity will do these things (powers)
- that the funds of the charity cannot be distributed to members of the charity (a non-distribution of profits provision)
- who will run the charity (the management).
Go to the governing instrument of a charity page for more information.
Legal format for the charity
There are two formats:
- unincorporated formats, for example, unincorporated associations, societies or clubs and trusts
- incorporated formats, for example, company limited by guarantee, incorporated association and a cooperative.
What is the difference between an unincorporated and incorporated organisation?
An unincorporated organisation is relatively cheap and easy to set up. If the purposes of the organisation are relatively simple, then it may be enough to set up an unincorporated organisation. The main disadvantage of an unincorporated organisation is that members of the organisation are personally required to enter contracts on behalf of the organisation and if sued, their names will appear on the summons or writ, and they will have to pay any damages.
The major legal difference between unincorporated and incorporated organisations is that an incorporated organisation has a separate legal identity which limits the liability of the members of the governing body (directors). This protection is known as limited liability.
There are costs of incorporation and once an organisation is incorporated, the association must maintain a public liability insurance policy and lodge an annual statement. It’s appropriate to establish an unincorporated organisation if any of the following applies:
- the organisation is relatively small in terms of assets
- the organisation is a local branch of a charity, and a standard constitution exists for branches
- the organisation has membership
- the management committee is elected or appointed to hold office for a fixed period of time – usually for one year
- the management committee is elected by members
- the objects of the organisation are carried out wholly or partly by, or through, the members (ie where the members undertake office or voluntary work on behalf of the organisation).
Which organisations use an incorporated structure?
You can establish an incorporated association if some of the following apply:
- the organisation has at least five members
- the organisation is small (large organisations with significant funds and property will have their applications refused and requested to seek incorporation under the Corporations Law 1989 or the Cooperatives Act 1992)
- it will employ staff
- it will deliver charitable services under contractual agreements
- it will enter regularly into commercial contracts
- it will be an owner of freehold or leasehold land or other property.