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To put it plainly, a not-for-profit is an organisation that doesn’t operate for the profit, personal gain or other benefits of particular people like its members or shareholders.
Often stylised as NFP, Not-for-profit organisations provide services to the community. Childcare centres, art centres, sports clubs and neighbourhood associations are just a few examples of NFP organisations.
And there’s always that lingering query, “but, don’t they actually make a profit”?
The “not-for-profit” title can be pretty confusing, but as a good business, NFPs can and do make profits. Acting as an NFP means that all profits made must be invested into the organisation’s services and that profits must never be distributed to its members, even if the NFP closes or is dissolved.
An NFP’s profits are used to fund their amazing, world-changing and lifesaving work — without it, they wouldn’t be able to operate and grow.
This doesn’t mean that profits need to be spent immediately, though. As long as there is a genuine reason, not-for-profit organisations can save profits for a future project or new infrastructure. They can also accumulate a reserve to allow them to continue the work of the organisation sustainably.
So if an NFP has a big idea that they know won’t get funded overnight — like maybe solar panels for their warehouses or constructing an office in a different state — they can save their profits for their larger projects.
However, if a significant amount of profits are held indefinitely, without using them for the NFP’s charitable purpose, it would imply that the organisation is not operating as a not-for-profit. This is also the case if the not-for-profit organisation isn’t solely working toward its stated charitable purpose.
Australian not-for-profit organisations are regulated by a government body called the Australian Charities and Not-for-profits Commission or ACNC for short. They work hard to ensure NFPs are complying with laws and regulations. The commission ensures that obligations are met, and if not, the NFP will be advised to fix its practices. If the organisation fails to comply, the ACNC will revoke the not-for-profit’s registration.
The ACNC works for NFPs and the public to ensure that the not-for-profit sector is trustworthy and efficient. Head over here to dive deeper into the ACNC and its role.
A lot of organisations devote their work to helping the community, but only a few of these organisations are charities.
The title of charity has a specific legal meaning, and for an organisation to be classified as one, it must not only operate as a not-for-profit but also work toward at least one of the following attributes:
Common forms of charities include some animal welfare societies, environmental protection groups and religious groups.
Every charity falls into a different sub-type or category; below, we’ll explore public benevolent institutions (PBIs) and health promotion charities (HPCs).
A public benevolent institution (PBI) is a charity that works to alleviate sickness, suffering, poverty, disability or distress. The word benevolent literally means to act with well-meaning and kindness — so you can already picture some of the charities that fall under this category. Certain hospitals and hospices, disability support services, and low rental providers for people in need can be classified as a PBI.
Their work can directly provide relief for people in need; support work such as entering into a contract with a service provider to deliver relief for a person struggling. A public benevolent institution doesn’t always have to work alone; it can also work in collaboration. Through a collaborative agreement, the PBI could fundraise and channel funds to another organisation that provides some form of benevolent relief.
To meet the definition of a public benevolent institution, it’s essential for a charity to understand the level of distress it is providing relief for and that its purposes try to meet a need that is:
These purposes can relieve other needs, not just the needs of poverty or financial hardship. For example, a charity that teaches life skills through education and activities for disadvantaged young people could be a public benevolent institution. Check out Men of Business Academy for some incredible work in that area. A PBI could also offer support services to people suffering from mental health issues — take LIVIN’s lifesaving work, for example.
On a side note: A public benevolent institution can have incidental non-benevolent purposes, but it must devote its main purpose to benevolence.
A health promotion charity (HPC) is an institution whose principal activity is to “promote the prevention or the control of diseases in human beings”. To avoid confusion, if a charity is working only to improve general health, they cannot be classed as an HPC as their work is not focussed on the prevention or control of disease/s.
For a charity to be an HPC, it needs to:
An important note: A HPC doesn’t necessarily need to identify its charitable purpose as advancing health. Whilst the ACNC requires a charitable purpose; it’s not considered that the HPCs purpose/s necessarily has to be advancing health.
An excellent example of this would be an organisation whose main educational activity promotes safe sex to prevent the spread of STIs. This particular charity has the purpose of advancing education but still works towards the prevention or control of disease/s as its main activity. Therefore, they would be classed as an HPC.
This breakdown helps us to remember that not all charities advancing health are health promotion charities.
There are many other charity subtypes to categorise charitable organisations — twelve to be precise. These include advancing health, advancing education, advancing religion, and promoting or protecting human rights.
The subtype or purpose that a charity aligns with helps the ACNC ensure the organisation operates transparently. It also allows the public to gain trust and better understand the charity and its work.
Indigenous corporations deliver many important services to the community, and some can be structured as an NFP organisation. An Indigenous corporation is an incorporated legal structure that is exclusive to Aboriginal and Torres Strait Islander organisations.
It’s important to note that the structure of Indigenous corporations may not necessarily be the best fit for every Aboriginal or Torres Strait Islander organisation. Legal structures such as incorporated associations or a company limited by guarantee may be more suitable depending on the circumstances. Indigenous organisations have the freedom to decide which structure suits them best.
Like companies limited by guarantee, Indigenous corporations can operate anywhere in Australia and are incorporated under Commonwealth law. Members of an Indigenous corporation can also elect to have limited liability.
Operating as an Indigenous not-for-profit organisation may provide access to tax concessions that may include:
Some examples of other not-for-profits include:
Some charities, associations, societies and clubs are Deductible Gift Recipients (DGRs). What this means is that these organisations can receive tax-deductible donations. When a donation is tax-deductible, donors can deduct the amount of their giving come tax time.
As of July 2019, an organisation with the principal purpose of promoting Indigenous languages can be eligible for DGR status. Indigenous language organisations need to be listed on the Register of Cultural Organisations (RoCO) to be eligible. Once finalised, the organisation will be DGR endorsed.
You can find an organisation’s DGR status when searching for their ABN or ACN on the Australian Government’s ABN lookup website. Alternatively, when you’re giving on Little Phil, you can easily see whether a charity or campaign is tax-deductible in Australia.
NFP organisations that are not charities can assess their own eligibility for income tax exemption; however, they must register for other tax concessions.
It’s a lot of info to digest, and whilst the NFP world can be pretty complicated, it is so rewarding, and charities are making the world a better place each day. So if you’re interested in supporting a super not-for-profit, you can easily find amazing causes via our Explore Page and create a Little Phil Good Moment today.
Perhaps you’re a not-for-profit yourself and want to engage with the future generation of givers. If that’s the case, reach out to us on our messaging service — we’d love to have a chat with you.
Keep the Good Moments Rolling.💛
