To be registered as a charity under the Australian Charities and Not-for-profits Commission (‘ACNC’) as a “gateway threshold”, the organization must show that it is in fact “not-for-profit”.
In line with ACNC’s general definition a not-for-profit (‘NFP’) is an organization that does not operate for the profit, personal gain, or other benefit of any particular people.
Once an NFP is registered under the ACNC certain strict governance standards will apply to them and ultimately set core minimum of processes that they must follow.
Consequently, these standards require NFP’s to uphold their charitable status whilst operating in both a responsible and accountable manner.
Annual General Meetings (‘AGM’) are central to NFP’s and their internal governance.
An AGM is a yearly gathering where all members of the NFP are required to attend. The AGM gives members a chance to obtain a report on the charity’s activities and financial tracking in the past year. This meeting also operates as a chance for members to ask questions, elect new members of the charity’s governing body or express any grievances they may with how the NFP operates.
Further, along with the importance in holding AGM’s, permanent changes to the Corporations Act 2001 (Cth) (‘the Act’) have made it easier for NFP’s to complete AGM’s. Companies are now allowed to electronically sign documents, including deeds and hold any such meeting in a hybrid form. This means that meetings can be held virtually using technology.
Holding an AGM is to ultimately ensure the NFP is not only running in a responsible way but that its members and or board adopt proper governance standards.
For instance, if any changes are made to the charity at the AGM, the ACNC must then be notified immediately.
For small charities, the ACNC must be notified of these changes no later than 60 days after becoming aware or implementing such a change. For medium or large charities, the requirement is no later than 28 days.
A constitution lies at the heart of any well-functioning company. It is a document which governs the company’s decision making, powers, including the appointment and removal of officers, shareholders, and a myriad of other aspects in relation to the functioning of the company.
When drafting a constitution for an NFP, some clauses are strongly required.
Suggested clauses should, but not limited to, a clause specifying that the NFP is in fact a charitable organization.
It also may be wise to include a clause pertaining to amending the constitution, to allow for members of the charity to amend the constitution if they see it to be necessary in the future.
A clause allowing amendment to the constitution will require members to pass a special resolution. This special resolution is a requirement by the Corporations Act and will be enforced regardless of whether it is included in the constitution or not.
A special resolution requires 75% of the votes cast to be in favour.
Moreover, replaceable rule are sections in the Act which ultimately set default rules for the internal management of companies. These rules can be entirely or partly replaced by clauses within the NFP’s constitution.
An NFP may undertake activities of “advocacy” when working towards a particular goal or charitable purpose.
Examples of advocacy that NFP’s may undertake could include:
On its face, being a deductible gift recipient (‘DGR’) allows a tax deduction for donations made to the organization.
Though not all NFP’s are eligible for DGR endorsement.
How do you know if you are eligible for a DGR?
To ensure an NFP may receive a DGR endorsement, they must meet the eligibility criteria of a DGR category published by the ATO. Certain categories include health, education, research, welfare and rights, family, and environment to name a few. Fitting directly within the published criteria is rare and typically expensive (in time and money) to gain.
Most DGR recipients are also required to be registered charities.
Though in exceptional cases, an organization may have DRG endorsement by being specifically listed by name in tax law.
How to apply for a DGR?
Applying for DGR will depend mainly on whether an organization is registered with the ACNC as a charity.
If the NFP organization is registered with the ACNC, NFP’s can apply for a DGR endorsement directly to the ATO.
If the NFP organization is not registered with the ACNC, NFP’s can then apply for DGR endorsement in the ACNC’s charity registration application.
Ultimately, DGR’s can be a very helpful tool in promoting donations and allowing for tax deductions.
If you have any questions or require further advice on registering a charity or NFP, please contact our Business & Commercial team.