Easy question – difficult answer! This is a question that is regularly raised but is too complex for a simple answer. Let’s look at some of the options and consider how to progress through the maze and what each pathway in the maze provides…
Is the organisation “for profit” or “not for profit”? Well that should be easy enough to determine. Maybe the intended not for profit organisation is a for profit entity. Look at the intent of the organisation, look at the legal definition of what is a not for profit organisation to work out the answer to this question. Typical questions that need to be considered include: Does the organisation distribute ‘profits’ to its members? If the organisation is dissolved what happens to the assets?
If we can get past these questions and conclude that the organisation is a not for profit, then we can move on to the next pathway.
Should the organisation be an un-incorporated organisation, an incorporated organisation, a company limited by guarantee, one of the many forms of trust, or even a cooperative? This will depend on what is the focus of the organisation, its objectives and reason for being.
Mmmm, it’s starting to get a bit complicated.
Having thought this through a bit, the next path is a little more dubious… Should the organisation be a “charity”? Well you may have thought your organisation was a charity all along. However, the rules that define a charity are not straight forward, in fact legislation was put in place – the Charities Act 2013 – to define a charity, and as a result make it clearer. To be a charity the organisation must be a not for profit, must have only charitable purposes that are for the public benefit, not have a disqualifying purpose and not be an individual, a political party or a government entity. It should be remembered that all charities are not for profit organisations – but not all not for profit organisations are charities. There are other groups within the not for profit sector such as religious, community service, health, and recreation based organisations (to list a few categories), some of which may be charitable.
Through a self-assessment process the organisation is determined to be a charity; it is also believed that the organisation should receive a number of taxation concessions including, FBT, PBI/HPC, DGR, GST.
Other than starting to panic over the use of acronyms the entire process is making you think – how do I get out of this maze?
So what happens now? Nothing has been set up yet and what are the compliance requirements? That is, the corporate and taxation laws that impact on the legal and taxation status of the organisation.
If the organisation is a Company Limited by Guarantee or a Trust then it will be governed by Commonwealth Legislation e.g. Companies Act and regulated by ASIC. Most other forms of legal structures will be governed by State legislation and regulated by State based enforcement/regulatory organisations. These statutes will appear similar but do vary from one State to the next.
To be registered as a charity an application must be completed with the ACNC. This online application process also enables the organisation to apply for relevant taxation concessions. These taxation concessions are covered in the online application process and open up additional questions as specific taxation concession areas are applied for. The responses provided in this part of the application are linked to the ATO. The ATO will assess relevant information provided where the organisation is seeking taxation concessions. The ATO is the only organisation that can assess taxation concessions and provide relevant endorsements.
Does this feel like a maze within a maze?
Our organisation has received endorsements and registrations. These endorsements are not forever. The ATO and the ACNC expect the organisation to self-regulate and as a result manage these endorsements through good governance practices. Good governance processes should enable a not for profit organisation to identify and manage compliance requirements e.g. taxation obligations.
It should also be remembered that all PBI/HPC are Charities, not all charities or health organisations are PBI/HPC. Not all PBIs have DGR endorsement. Not all DGRs have PBI endorsement. However, many charities are both.
It can be quite subjective…
A key requirement to minimise the twists and turns that could be experienced in the maze is to have a clearly stated and competent Constitution. It is within this document that many of the answers can be found to questions that occur on each of the pathways within the maze. Clearly worded objectives and governance requirements will make it easier for developing a strong position to gain the legal and taxation structures that are desired for the organisation.
It is recognised every situation is unique, and your concerns and particular requirements will be carefully considered as part of a professional response. Feel free to get in touch with us via:
Phone: 1300 284 364