In Australia, there is a clear difference between a charity and not for profit organisation. To be legally recognised as a charity, an organisation must meet a strict set of requirements and be endorsed by both the Australian Charities and Not-for-profits Commission and the Australian Taxation Office. Despite its liberal colloquial use, the term “charity” actually has a very specific meaning in Australian law. Only some types of organisations are recognised as charities and qualify for charitable tax exemption status. Not all non-profit organisations are (or can become) charities, but all registered charities must be not for profit.
Difference between charity and not for profit
The main difference between charity and not for profit organisations is the legal definition as well as the benefits charitable entities receive after they register with the Australian Charities and Not-for-profits Commission (ACNC). Not-for-profit and non-profit are umbrella terms used to describe organisations that engage in work to benefit the public rather than for profit. They can either be charities or non-charities.
Australia’s third sector organisations combine not only charities but churches, sporting clubs, advocacy groups, community organisations, cooperatives, trade unions and associations, chambers of commerce, welfare organisations. Charities are one type of non-profit organisation and are a subset of the not-for-profit sector. Together, non profit organisations make a significant economic contribution to Australia, comparable to the agriculture and communications industries. There are as many as 700,000 not-for-profit organisations ranging from voluntary to large teams of employees.
Another difference is that non-charities are organisations run in a more informal way, such as an unincorporated association or a club focused on local sports activities for children. Registered charities tend to raise more funds and hire staff rather than rely on volunteers and the financial contributions of members. The revenue they bring in and the jobs they create has grown in recent years. Australian charities vary in size, with 65% classified as small (under $250,000 in revenue), 19% as large (revenue of $1 million or more), and 16% as medium ($250,000 or more and less than $1 million). Yet, Australia has seen a major rise in its charity sector revenue. The ACNC reports that the sector makes up more than 10% of Australia’s workforce (1.38 million people) and donations have increased to $12.7 billion.
Legal definition of a charity
The legal definition of charity was explicitly defined in Commonwealth law in 2013 (The Charities Bill) and the legal definition took effect from 1 January 2014. The Charities Bill 2013 introduced a statutory definition of charity that is applicable across all Australian states and territories. It replaces the common law definition of charity that dated back to 1601 and was based on hundreds of years of case law. More information on the statutory definition of charity is available on the ACNC website. The Charities Act 2013 (Cth) recognises an organisation as a charity under the following conditions:
- It does not operate for profit,
- It has a charitable purpose benefitting the public,
- It does not have a disqualifying purpose such as engaging in unlawful activities contrary to public policy or promoting or opposing a political party or candidate, and
- It is not an individual, a political party, or a government entity.
Under the statutory definition of charity, charities are defined as non-profit organisations that have demonstrated that their purpose is for the public benefit. The old common law permitted relieving poverty, advancing education, advancing religion, relief from illness and the needs of the aged as charitable purposes in the public benefit. Under Australia’s new statutory definition, there are additional charitable purposes, including but not limited to: promoting and protecting human rights, preventing or relieving the suffering of animals, and protecting the safety of the general public. The statutory definition has also clarified some aspects of the common law that have resulted in some significant cases in the past.
Tax Deductible Charities in Australia
Is charity tax deductible in Australia? Yes, organisations that are registered as a charity are often entitled to a range of additional tax and other benefits beyond those already granted to other non-profit organisations. Some tax exemptions, however, such as Deductible Gift Recipient status (the capacity to offer donors the ability to claim their donations as an income deduction in their personal tax return), are only granted to specific types of organisations and require undergoing additional endorsement processes. Deductible Gift Recipient status is also sometimes granted to non-charities (see our DGR status fact sheet for more information).
The Income Tax Assessment Act 1997 (ITAA) exempts some non-profit organisations from having to pay income tax. The exemption rules depend on the type of activities an organisation is conducting and the revenue they receive. In Australia, a charity can also receive tax-deductible gifts such as money, trading stock, and property. To be tax-deductible, the donation must have been made voluntarily, does not give the donor a material benefit, and is made out of generosity and without obligation. The categories of activities qualifying for exempt status include:
- Religious, scientific, charitable, and educational
- Trade unions and employer associations
- Friendly societies
- Music, art, and literature associations
- Groups that promote games and sports
- Community service associations
- Aviation, agriculture, pastoral, horticultural, viticultural, and manufacturing associations
- Funds established by a will or trust for charitable purposes
When is a donation not tax deductible for charities?
Organisations that are registered as a charity are often entitled to a range of additional tax and other benefits beyond those already granted to other non-profit organisations. A charity may also register as a Deductible Gift Recipient (DGR), making it possible to treat donations to the organisation as tax deductible. You should not assume you qualify for tax deductions on donations or gifts your organisation receives. Make surer to obtain expert advice.
Do non-charities have tax deductible status?
Under the tax law, a non-profit organisation must pay taxes on any taxable income, unless it qualifies for a tax exemption. A non profit organisation isn’t obligated to obtain charitable status. However, if it chooses not to register as a charity, it won’t qualify for income tax exemptions for any grants or donation it receives. It will also need to submit income tax returns after it reaches a revenue of $416. Grants received to run a corporation may be subject to goods and services tax (GST). If your organisation receives gifts, you will not be eligible to claim a tax deduction. You can learn more about deductible gifts recipient status here.
What are charity tax concessions in Australia?
Charity tax concessions are received through an approval process whereby organisations register with the Australian Charities and Not-for-profits Commission to obtain charitable status and obtain an endorsement for certain tax benefits. If you are an unregistered non profit organisation, you may not apply for endorsement and will not qualify for exempt income tax status.
Is a charity auction tax deductible in Australia?
Purchases from a charity, such as raffle tickets, food items, or other products used in fundraising campaigns are not considered tax deductible gifts. In addition, the ATO must officially endorse organisations as deductible gift recipients for a donation to be considered tax deductible. You should, therefore, obtain a confirmation that you are able to deduct gifts received by your organisation.
Why are churches tax exempt in Australia?
Australian churches have never been required to pay taxes. As registered charities, they qualify for charitable tax exemption. Critics have argued that churches receive staggering amounts of tax free money each year and should not receive special treatment despite no longer playing as important a role in providing support to citizens. In 1936, the Income Tax Assessment Act considered churches as vital to the country’s charitable sector and gave them religious tax exemption. A 1992 ruling provided clarifications on the meaning of the term religious institution. An organisation is religious if 1) its objects and activities reflect its character as a body instituted for the promotion of some religious object, and 2) the beliefs and practices of the members constituted a religion. It can benefit from tax exemption if it engages in charitable work.
This fact sheet is intended as a simple overview. Non-profit law is incredibly complex and there are many components, allowances, restrictions, exceptions and important qualifications that are not described above. Dedicated legal advice should be sought from a legal practitioner before taking action.