Regulation of Not for Profits and Charities
Although the Australian Charities and Not for Profit Commission (ACNC) mentions the word “not for profit” in its title, confusingly not all not for profits are actually governed by the ACNC.
Even more confusingly, not all charities are governed by the ACNC either!
This article will deal with the not for profits that fall outside of the ACNC’s regulatory grasp and we will deal separately with charities in a different article.
As stated by the Honourable Robert French AC, who spoke at a recent Summit on not for profits held at the University of Western Australia, for a regulatory regime to have democratic legitimacy and public confidence it must have clear purposes and those purposes must be consistent with broadly accepted community values.
At the moment, the ACNC deals with what we would all easily identify as ‘Charities’ but it does not deal with all not for profit organisations.
According to the ACNC a not for profit is defined as an organisation that does not operate for the profit, personal gain or other benefit of particular people (for example, its members, the people who run it or their friends or relatives). The definition of not-for-profit applies both while the organisation is operating and if it ‘winds up’ (closes down).
A charity is a sub category and one type of not for profit organisation. A charity is generally there to “do good” and provide public benefit, whereas a not for profit is simply defined by the way in which its profits are distributed – i.e. generally, not for the benefit of a private individual.
The not for profits that come under the auspices of the ACNC are those that identify as being a charity. Not for profits designated as a charity by the ACNC can gain income tax exemption and other tax concessions if they have an ABN and have received endorsement from the ATO. If an NPO is registered to pay income tax, endorsement reduces the amount of tax payable.
Not for profits that are not charities do not have to be endorsed to access a tax exemption; instead they need to self-assess their entitlement against a standard set of tests and rules. This exemption is not a given and is tested on an annual basis.
When a not for profit is not a charity it is because it has a purpose other than what the legislature sees as being “charitable”. This sort of activity includes things like sporting clubs, recreational clubs, community service organisations, professional and business associations and social organisations. This is where the contention lies. Are these organisations really not for the “public good”? For example, where would we be without professional organisations? They certainly assist in important tasks of setting professional standards and codes of conduct. Another example is sporting clubs. Clubs can assist greatly in maintaining and promoting positive physical and mental well being. Are these really not for the good of the public at large
Thus we come back to Justice French’s words – “Good” these days has to measure up to community values. If a charity is “good” then how can sporting clubs and other such entities be left out of the definition of “good”?
In 2018 the ACNC released the “Strengthening for Purpose Report” of the ACNC Act Review. Part of the report’s recommendations was to expand the ACNC regulatory regime beyond charities to include all not for profits. We think this is a very good idea however we do think that it doesn’t really address the core issue which is that the definition of “charity” should be broadened to include important organisations that are otherwise currently left out.
If you have any further questions please do not hesitate to contact a member of our Charities and Not-for-Profits Team.