Characteristics of a charity
A charity is an institution or fund established and operated for altruistic purposes that the law regards as charitable.
Charities include most religious institutions, aged persons homes, homeless hostels, organisations relieving the special needs of people with disabilities and societies that promote the fine arts.
The characteristics of a charity are:
Entity
An entity for these purposes includes a corporation, unincorporated association, trust or partnership. A charity must be an entity. A part of an entity – like a branch, division or account – is not treated as a charity.
Trust fund or institution
The entity must be a trust fund or institution.
A charitable fund is a fund established under an instrument of trust or a will for a charitable purpose. It must:
- manage trust property, and/or
- hold trust property to make distributions to other entities.
Example
AS Foundation was established by a deed of trust and manages assets to pay scholarships from the income. AS Foundation is treated as a fund.
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In contrast, if your entity mainly carries on activities that are charitable it will be a charitable institution and not a charitable fund.
A charitable institution is an institution that is established and run to advance or promote a charitable purpose. An entity’s purposes can be found from its governing document/s and from its activities, history and control.
An institution may be an entity established by will or instrument of trust. It may also have the legal structure of an unincorporated association or a corporation. However, incorporation is not enough on its own for an entity to be an institution – what the organisation does is also relevant. An entity established, controlled and operated by family members and friends would not normally be an institution.
Example
SD Trust was established by a deed of trust and operates a hostel for the homeless. SD Trust is treated as an institution.
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Public benefit
Charities are altruistic and exist for the benefit of the community or the relief of poverty. If an entity places limits on those who can benefit from its activities, it may still be a charity if those limits are only to enable it to better carry out its charitable purposes.
Charities sometimes limit their activities to a particular segment of the community. Such groups include residents of a particular geographic area, the adherents of a particular religion, or sufferers of a particular disability or condition. If the nature of the benefits provided by an organisation are compatible with such a limit, the purpose can be charitable.
Example
Limiting access to a library to residents of a particular town could be for the public benefit, but limiting the use of a bridge to followers of a particular religion would not.
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Charities often limit access so as to better provide their services to the community. Examples can include the enrolment procedures of schools, the membership procedures of a police and citizens youth club, referral policies of medical clinics and the borrowing rules of libraries. The continuation and efficient administration of a charity can make such limits necessary.
Example: charity
A religious school only educates children who go through its enrolment procedure. If this is merely a means of enabling the school to provide its services to the community, the enrolment process does not stop the school from being a charity.
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If an entity limits benefits on the basis of family ties, employment with a particular employer or membership of a particular association, it will not be a charity unless its purpose is solely to relieve poverty.
Example: non–charity
A fund is set up to provide scholarships for children of employees of a particular company. The fund is not charitable.
A business association is set up to advance the common interests of its members. It is not a charity because its purpose is to benefit its members and not the public. This is the case even though it funds research.
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Certain organisations are accepted as meeting the public benefit requirement, see Legislative extension to the meaning of charity.
Charitable purposes
Charitable purposes are:
- the relief of poverty or sickness or the needs of the aged
- the advancement of education
- the advancement of religion
- other purposes beneficial to the community, and
- the provision of child care services on a non-profit basis.
We have provided examples of charities and non-charities in the Income tax guide for non-profit organisations - Type of organisation - list to help you determine whether your organisation is a charity.
Not all entities that are of benefit to the community are charitable. The entity must be set up for purposes that the law regards as charitable. These purposes are not limited to a finite list. As new community needs arise, particular purposes may be recognised by the courts as charitable.
Non-profit
Charities are non-profit. An entity is not charitable if it is carried on for the purposes of profit or gain to particular people, including its owners or members. This is the case irrespective of the number of owners or members, or whether charitable consequences flow from the entity's activities.
Example
A hospital is operated to distribute dividends to private shareholders. The hospital is not a charity even though it cares for the sick.
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Entities can satisfy the non-profit requirement if their constituent or governing documents prevent them from distributing profits or assets for the benefit of particular people - both while they are operating and on winding up. These documents should contain acceptable clauses showing the organisation’s non-profit character. The entity's actions must be consistent with this requirement.
Example
A company limited by guarantee with the following clauses in its constitution would meet the non-profit requirement, providing its actions were consistent with them:
Non-profit clause
'The assets and income of the organisation shall be applied solely in furtherance of the above-mentioned objects and no portion shall be distributed directly or indirectly to the members of the organisation except as bona fide compensation for services rendered or expenses incurred on behalf of the organisation.'
Dissolution clause
'In the event of the organisation being dissolved, the amount that remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to another organisation with similar purposes which is not carried on for the profit or gain of its individual members.'
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A charity can be non-profit and still make a profit. However, any profits it makes must be used for charitable purposes. The profits must not be distributed to owners, members or other private people.
Example
A charity makes a $40,000 profit for the year. It uses the profit to reduce its debts and provide for next year's charitable activities.
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Sole purpose
The sole purpose of the entity must be charitable.
If an entity has an independent non-charitable purpose, it is not a charity even if that purpose is secondary.
Example: non-charity
An association has been set up to be a social club and to look after injured animals. It is not a charity even though it mainly cares for animals, with lesser attention given to the social club.
Example: charity
A religious congregation holds occasional sporting activities among members. These activities are designed to advance and foster religion among the group. The religious congregation is a charity. The sporting activities are incidental to its religious purpose.
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A charity can also have purposes which, when viewed in isolation, would not be charitable, so long as they are no more than incidental or ancillary to the charitable purposes. That is, they are only done for the sake of, or in furtherance of, the charitable purposes. Such a charity is sometimes described as having a dominant charitable purpose, with purposes that are incidental or ancillary to that charitable purpose.
The characteristics of each entity will determine whether it is a charity. An entity’s governing or constituent documents (constitution, memorandum and articles of association, trust deed, rules, charter etc) must show that it is a charity. For entities that are not merely trust funds, their activities must also show they are charities.
Example: charity
A corporation limited by guarantee has the object of operating a volunteer disaster relief service for the public. Its activities are consistent with its object. The corporation is a charity.
A trust fund's object is to provide scholarships to disadvantaged Aboriginal school students. The trust fund is a charity.
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Evidence supporting an organisation’s purpose can be found in the following:
- written governing document/s such as trust deeds, memorandums and articles of association, constitutions, rules or charters
- copies of annual reports and financial statements (including detailed income and expenditure statements)
- activities undertaken
- minutes of relevant meetings, and
- pamphlets, brochures, newsletters, advertisements or any other literature that provides details or advertises an organisation’s activities.
Legislative extension to the meaning of charity
A statutory extension to the common law meaning of charity introduced from 1 July 2004 allows:
- open and non-discriminatory self-help groups that are for charitable purposes only, and
- closed or contemplative religious orders that offer prayerful intervention for the public,
to meet the public benefit test. To be considered charities, these entities must satisfy all other characteristics of a charity. That is, these entities will also need to be non-profit, and have a sole or dominant purpose that is charitable.
Open and non-discriminatory self-help groups are associations established for the purpose of assisting individuals affected by:
- a particular disadvantage or discrimination, or
- a need, arising out of a particular disadvantage or discrimination, that is not being met.
It is expected that the association would be made up of, and controlled by, individuals who are affected by the disadvantage or discrimination, and that all of the criteria for membership to the group relate to its purpose. Membership should be open to any individual who satisfies the criteria.
The statutory extension also provides closed and contemplative religious orders that regularly undertake prayerful intervention at the request of members of the public to meet the public benefit requirement.
The provision of child care services on a non-profit basis is a charitable purpose under the statutory extension. Entities providing child care services on a non-profit basis must satisfy all other characteristics of a charity. For example, these entities will also need to meet the public benefit requirement.
Organisations that are not charities
Many community organisations are not charities. An entity is not a charity if:
- it is primarily for sporting, recreational or social purposes
- it is primarily for political, lobbying or promotional purposes
- its purpose is illegal or against public policy, or
- it is primarily for carrying on a commercial enterprise to generate surpluses.
Government departments and instrumentalities carrying out the ordinary functions of government are unlikely to be charities.
Charities are not sporting, recreational or social
Sporting and recreational entities established for sporting or recreational purposes are not charities.
Example: non-charity
Organisations that are not charities include rowing clubs, football clubs, dancing clubs, bridge clubs, card clubs, athletic clubs, horse racing clubs, model train societies, gem clubs, boating and fishing clubs, snooker centres, boxing clubs, callisthenic clubs, golf clubs, ski clubs, car clubs, scuba diving clubs and motor racing clubs.
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Entities which are primarily for social or entertainment purposes are not charitable.
Example: non-charity
Organisations that are not charities include social clubs run by religious institutions, ethnic cultural associations, cinema clubs, nudist clubs, singles clubs, friendship clubs, wine societies and fan clubs.
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Sporting, recreational or social activities can be carried out by a charity if they are merely a means used to achieve charitable purposes.
Example: charity
A rehabilitation service organises swimming sessions to help its clients regain full use of their limbs. It is a charity as its swimming activities are a means of carrying out its dominant purpose of helping people recover from their injuries.
An organisation has been set up to facilitate sporting programs run by universities in Queensland. The organisation is a charity if the sporting programs are a means of advancing education among the universities' students.
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Charities are not political, lobbying or promotional
An entity is not charitable if its dominant purpose is advocating a political party or cause, attempting to change the law or government policy, or promoting a particular point of view. However, if an entity's purpose is otherwise charitable, the presence of political, lobbying or promotional activity that is incidental to the charitable aims will not prevent it being a charity.
Example: charity
An animal shelter's main purpose is looking after sick, stray and unwanted animals. Around budget time it sometimes lobbies politicians for funding. As long as the lobbying remains no more than incidental to the charitable purpose, the animal shelter will continue to be a charity.
A group of state-based health charities form a national peak body having the same objects. The activities of the peak body are various means of coordinating and supporting the state charities' activities, including by lobbying. As long as the lobbying is incidental to its charitable health purposes, the peak body can be a charity.
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Political parties and organisations promoting political parties or their policies are not charitable.
Example: non-charity
An institute formed to educate people in the platform of a political party is not a charity.
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An entity whose dominant purpose is to change the law or government policies is not charitable. This is so even if the subject matter of the change may be beneficial to the community or is of great concern to the community.
Example: non-charity
A residents’ action group is formed to lobby against a proposed rubbish dump near a suburb. It is not a charity.
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An entity seeking to maintain existing law or government policy is also considered not charitable.
An entity which aims to promote a particular point of view or endeavours to convince the public of the correctness of such a view is not charitable. This is irrespective of whether the view seeks to change law or government policy, or uses educational means to achieve its aims.
Example: non-charity
An organisation is set up to convince the public that pornography is a detriment to society. It is not a charity.
An organisation has been established to promote a 40 letter alphabet to be used by the community. It believes that the alphabet will result in a great benefit to the community because it will be cheaper and easier to use. The organisation is not a charity.
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Illegal activities
If a purpose is unlawful, or a lawful purpose is to be carried out by unlawful means, it is not charitable. For example, a school for thieves might, in a sense, advance education, but it is not a charitable institution.
However, this is not to say that any breach of the law would cause a charity to lose its charitable status. In the course of carrying out their charitable purposes, actions may occur that are not in accordance with the law.
Commercial activities
The purpose of carrying on a commercial enterprise to generate surpluses is not charitable.
Charities can carry out commercial and business-like activities where they are only carried out for the sake of, or in aid of, or in furtherance of the charitable purposes.
There are incidental ways in which charities can raise funds to carry out their charitable purposes, and carry out their purposes using business-like opportunities and methods.
Examples: charities
A youth development organisation regularly runs biscuit and chocolate sale drives. The biscuits and chocolates are purchased in bulk and packets are allocated to the children’s families for sale to the public.
A college’s hospitality students prepare and serve meals, while being assessed as part of their course, at the college’s campus restaurant.
An agricultural charity, which has developed a new vaccine to protect livestock, manufactures and sells the vaccine. The prices are set to cover costs and fund future research and expansion.
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If a company is controlled by a charity, it is not automatically a charity. The company itself will need to satisfy the requirements of being a charity. In determining this, the company’s integration with the charity could be relevant.
Example: charity
A charity sets up and controls a non-profit company. The company’s purpose is to operate a shop located in the controlling charity’s museum. The shop is to sell souvenirs and collectibles of the museum. Surpluses from its operations are to be distributed to advance charitable purposes.
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For more information, see:
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Governmental
Government departments and instrumentalities are unlikely to be charitable institutions. They are simply carrying on the ordinary activities of a government department. This is the case even if the activities are such that, if carried on by private people, they would be charitable.
Example: non-charity
A state welfare department helps homeless people. The department is not a charity.
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However, charities frequently receive government funding. This does not stop them being charities.
Example: charity
A migrant resource centre receives government funding and has a service agreement with a government department. The centre is still a charity despite having been funded by a government department.
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Last Modified: Monday, 7 April 2008
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