Is your organisation not-for-profit?
A not-for-profit (NFP) organisation does not operate for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up.
An NFP organisation is not an organisation that hasn't made a profit. An NFP organisation can still make a profit, but this profit must be used to carry out its purposes and must not be distributed to owners, members or other private people.
We accept an organisation as NFP where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people – both while it is operating and when it winds up. These documents should contain clauses that are acceptable to us as showing the organisation's NFP character.
Clauses – NFP character
The tax law does not prescribe the words that an NFP organisation must have in its constituent documents.
The following example clauses would be acceptable to us, provided that other clauses do not contradict them. The organisation's actions must be consistent with this requirement.
'The assets and income of the organisation shall be applied solely in furtherance of its 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.'
'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.'
End of example
Examples of NFP organisations
NFP organisations (including charities) operate in many areas of society. They can include:
- church schools
- community child care centres
- cultural societies
- environmental protection societies
- neighbourhood associations
- public museums and libraries
- scholarship funds
- scientific societies
- sports clubs
- surf lifesaving clubs
- traditional service clubs.
Types of not-for-profit organisations
Checklist – is your organisation an NFP organisation?
Consider the following questions, together with the other information we have provided, when working out whether your organisation is an NFP organisation.
A not-for-profit organisation does not operate for the profit or gain (either direct or indirect) of its individual members. This applies both while the organisation is operating and when it winds up.
- Is your organisation not operating for the profit or gain of its individual members, either directly or indirectly?
- Do your organisation's constituent documents prohibit it from making any distribution – whether money, property or otherwise – to its members during the course of its operations?
- Do your organisation's constituent documents prohibit it from making any distribution – whether money, property or otherwise – to its members on dissolution?
- Are your organisation's activities consistent with its constituent document's clauses?
- Does your organisation have sufficient controls (processes) in place to ensure that members and other private persons do not receive the property or assets of the organisation? Property or assets can be bona fide (legitimate) reimbursement for services they have provided to the organisation, or as reasonable compensation for expenses incurred on behalf of the organisation.
- Are any profits made by your organisation used to carry out its purposes?