Maintaining charity status
The Government is on the look out to ensure that charities comply with their governance rules and reporting obligations. Just recently (October 2017) the Australian Charities and Not-for-profits Commission (ACNC) revoked 86 charities for being double defaulters, ie failing to submit their Annual Information Statements for two years in a row. If your charitable organisation has had its registration revoked you are also at risk of losing certain tax concessions.
Although not complying with financial reporting obligations is one of the most common causes for revocation of charitable status (registration for 3,810 charities was cancelled for that reason during 2015–2016), if you run a charity you need to be aware of certain other conditions in order to remain a charity by law. Some of these obligations are easy to overlook, while others relate more closely to compliance.
So if your charity is established already (or you plan to set one up) you should familiarise yourself with the requirements and know about the tax benefits you could lose if you don’t comply.
Acting Commissioner, David Locke, was pleased that “over 97% of registered charities… submitted their 2016 Annual Statement”, but he warned “over 2,000 charities have failed to submit their Annual Information Statement on time, and now risk financial penalties, and ultimately, revocation of their charity status”.
Initial and ongoing requirements
In order to be accepted onto the Charity Register by ACNC in the first place, your organisation must be a non-profit organisation (NFP), have a charitable purpose or purposes, and have an Australian Business Number (ABN). ACNC legislation provides a list of 12 recognised charitable purposes that range from health, education and social welfare to protecting human rights and the natural environment. Political parties, government entities and individuals cannot achieve the status of a charity.
Once you have met the conditions for registration mentioned above your organisation also needs to have a legal structure such as an incorporated association, company limited by guarantee, non-trading co-operative, or indigenous corporation. Note that the legal entity you choose can have different legal and tax implications, so we are here to help you to make the right decision.
The ACNC also requires charities to observe governance standards to be registered and stay registered (unless you are a basic religious charity). These are minimum standards that require charities to function as a not-for-profit (NFP) organisation, to be accountable to their members, to comply with Australian laws, and to have suitable, responsible individuals in place to run the organisation. Charities need to be prepared to submit evidence of such standards if requested by the ACNC.
Registered charities also have ongoing obligations in order to stay registered, eg they must lodge annual information and financial statements within six months of the end of their reporting period.
Small charities with revenue under $250,000 are not obliged to provide financial reports for audit and review, but they still need to prepare an Annual Information Statement and be willing to supply information about their activities.
The ACNC website provides further information about what you need to do to register your charity and how you can comply with your ACNC obligations.
The most striking fiscal benefits derived from being a registered charity are receiving tax exemptions and having deductible gift recipient (DGR) status. Other tax concessions a charity could obtain at the federal level are those related to fringe benefits tax (FBT) and goods service tax (GST). For instance, certain not-for-profit entities are exempt from FBT on benefits provided to employees and some charities, public benevolent institutions (PBIs), community groups and religious organisations are exempt from GST on certain activities.
In order to receive these benefits, an ACNC registered charity needs to apply for formal endorsement from the ATO. The same application form lodged for ACNC registration can be used to request endorsement by the ATO.
Overall, a charity must be deemed a “charitable institution” for tax purposes. That means that a charity needs to be a not-for-profit organisation established for a sole or dominant charitable purpose.
There are also specific conditions that a charity needs to meet for tax purposes: it must have a physical presence in Australia, and incur expenditure and pursue its objectives principally in Australia.
If your charity is also endorsed by the ATO as a DGR you can receive tax deductible gifts and donations (over $2) and grants from organisations that only fund DGRs. Note that DGRs can also be listed by name in Australia’s income tax law, in which case an endorsement from the ATO is not needed.
Speak to us about how to keep your tax benefits
If your registered charity is seeking approval as a tax-exempt entity (or other tax benefits) contact us to evaluate your position for endorsement by the ATO and to retain relevant exemption on an ongoing basis.