Keen to set up a charity in Australia? — Read this first.
LUNA’s own Georgia Then lays out 6 factors to consider prior to the set up.
Taking the initiative to start a charity has many benefits – tax-wise and of course, in the ‘do good, feel good’ department.
But just like all major decisions in life, this one too should be backed by careful planning, including identifying the possible risks and challenges that you may face along the way.
To help get you started, we’ve broken down the following 6 steps – treat them like a checklist and see how you go!
Step 1: DOUBLE-CHECK WITH THE CHARITY REGISTER
Your starting point should be the Australian Charities and Not-for-Profits Commission (ACNC) – this is the government agency that all charities must be registered with in Australia.
Before setting up your charity, search ACNC’s charity register to find existing charities that may already provide similar support that you may wish to provide, and you can also find useful tips and tricks in the process.
Step 2: KNOWING WHAT A CHARITY TRULY IS
After step 1, you should turn your mind to the definition of a ‘charity’.
Unfortunately, there is no simple legal definition of ‘charity’ under the Charities Act 2013 (Cth) or the Charities (Consequential Amendments and Transitional Provisions) Act 2013 (Cth).
Instead, you will have a charity if you have a ‘charitable purpose’, meaning you satisfy the following 4 elements:
1. Be ‘charitable in nature’: this can mean you provide relief to the poor, aged and impotent, or help with the advancement of education, of religion and/or other purposes beneficial to the community;
2. Be beneficial: what is beneficial can vary over time, but generally, your charity will traditionally not be for a political purpose and not be a profit-making venture, i.e., your charity will be a not-for-profit (NFP);
3. Provide a benefit to the public: your charity must confer a benefit to the public at large or a section of the public. For example, ‘a charity for the education of LUNA employees’ children’ is not for the public benefit because it is contingent on being employed at LUNA; and
4. Be exclusively charitable: finally, your charity must have an overarching charitable purpose, meaning the purpose of your charity cannot be so broad that it includes both charitable and non-charitable purposes. For example, ‘the relief of poverty in NSW and the breeding of pigeons’ makes it unclear whether the charity is for the charitable purpose of alleviating poverty or for breeding pigeons.
It is essential that your charity has a charitable purpose from the outset, as this will help determine your charity’s work and what your charity’s goal is – both being fundamental for helping the public understand your charity.
Step 3: STRUCTURING YOUR CHARITY
Once you’ve determined that your charity has a charitable purpose, the next step is to determine how to legally structure your charity.
Charities can be incorporated or unincorporated. The structure of your charity will determine its governance structure (i.e. who makes the decisions), its legal identity (i.e. who owns the assets, whether it can sue or be sued), who is responsible for debts, and what your responsibilities are to government agencies such as the ATO.
Let’s break both those down:
1. Incorporated structure: There are 3 common ways to use an incorporated legal structure for your charity:
a. Incorporated associations: the charity is a separate legal entity from the individual charity members. It can own assets, be sued and sue, and must meet regulatory requirements of a charity – this is the most common structure.
b. Companies limited by guarantee: the charity will be a public company. This structure involves further reporting and regulatory requirements to the Australian Securities and Investments Commission (ASIC).
c. Indigenous Corporations: under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act) Aboriginal and Torres Strait Islander groups can form charities as corporations.
2. Unincorporated structure: alternatively, you may decide to create a charitable trust or create an unincorporated association.
Step 4: RAISING FUNDS FOR YOUR CHARITY
The next thing to turn your mind to is the funding of your charity.
When determining how much funding your charity may require, think about:
● What will the set-up costs be to get your charity started? (this could also include ASIC registration fees if you have decided to structure your charity as a company limited by guarantee);
● Will your charity have ongoing costs? (e.g. rent, utility fees); and
● Will you need staff or volunteers for your charity? If so, how many?
Here’s some of the ways you can raise money for your charities:
● Public appeals (e.g. door knocking, social media etc.);
● Charging membership fees;
● Fundraiser events (e.g. conferences, dances etc.);
● Grants;
● Philanthropic funding (check out DGR endorsement below); or
● Donations
Importantly, the above can involve obligations under consumer laws regulated by State and territory laws as your charity can still be regarded as a business. (Find this a bit confusing? We can help assist you on this if you need further guidance.)
Step 5: DO I NEED DEDUCTIBLE GIFT RECIPIENT (DGR) ENDORSEMENT?
No, you do not need DGR endorsement with the ATO, however, applying to have this can provide your charity with ‘special tax status’. Let’s break this down.
A DGR endorsement can provide tax benefits for both the recipient of a charitable gift and the donor. For example, people who make donations in support of your charity can deduct those gifts from their income tax. Similarly, your charity can receive funds from certain philanthropic bodies and grantmakers which only provide funds to charities with DGR status.
To be endorsed as a DGR your charity must:
● Have an Australian Business Number (ABN);
● Be a registered charity with the ACNC;
● Satisfy a general DGR category;
● Have acceptable rules dealing with the transfer of surplus gifts and deductible contributions on winding up or revocation of endorsement; and
● Satisfy the gift fund requirements (if applicable)
If you are a registered charity (i.e. you have registered with the ACNC) you can apply for DGR endorsement. If you are a non-registered charity applying for DGR endorsement, you will need to be registered following the 2021 legislation changes.
Step 6: THE PROS AND CONS OF SETTING UP A CHARITY
You’ve got to weigh the good and the not-so-good in all regards. So we’ve done it for you:
Pros
● Tax incentives – our LUNA tax experts can assist with this further!
● Grant eligibility; and
● Fairly easy to satisfy a ‘charitable purpose’ to encourage more people to start charities.
Cons
● Costly and time consuming to form;
● Regulatory obligations (depending on the legal structure of your charity); and
● Restrictions on political campaigning activities within your charity.
Starting a charity is a great idea, but it comes with a lot of leg work, and you’re bound to feel overwhelmed.
In such a case, feel free to slide into our inbox – we’re here to help assist in navigating regulatory requirements and paperwork specific to your situation.
By Georgia Then
