Australia adopts common law as its legal system which also impacts the nonprofit laws in the country. Likewise, the federal, state and local governments are the three tiers of government.
Nongovernmental and not-for-profit organisations (NPOs) can be established by legislation enacted by the federal government, states, and territories.
- The legal structure of an organisation will determine whether it is subject to Commonwealth or state-level regulation.
- The Charities Act 2013 governs organisations that further the public good.
What are the various Nonprofit Laws in Australia?
In this section, we will outline the various nonprofit laws in Australia that govern the sector’s activities and operations.
1. Tax Laws
NPOs are, to varied degrees, exempt from taxes at every level of government. Generally speaking, gifts of property, unless they are publicly traded shares, must be valued by the Commissioner of Taxation at more than AUD 5,000 to qualify for a deduction.
Also, information about the taxation of nonprofits and incentives for philanthropy is easily accessible through the Australian Taxation Office (ATO). The governing entity keeps an extensive website that addresses laws, court rulings, policy announcements, fact sheets, and guidelines written in simple terms.
2. Public Benefit Status
The Charities Act 2013 governs organisations that further the public good. An official definition of “charity” and “charitable purpose” for the Commonwealth (as opposed to states and territories) is simply what the Act aims to accomplish.
3. Charitable Trusts Nonprofit Laws
A charitable trust is not permitted by common law to give out dividends or other similar types of income. In addition, trustees cannot request compensation unless the trust deed specifically permits it. Even then, the compensation is open to court scrutiny.
However, in other jurisdictions, senior trust employees’ compensation is not specifically regulated by any laws.
4. Nonprofit laws for companies limited by guarantee
Any legal purpose may be the basis for the incorporation of a company limited by guarantee. Previously, these entities were not legally prohibited from distributing income to their members. However, the current Corporations Act 2001’s Section 254SA expressly forbids paying dividends to members.
5. Nonprofit laws for Associations
The laws governing each Australian jurisdiction vary slightly. Notwithstanding, an association can only be incorporated for legitimate purposes—”but not for pecuniary gain of its members.” Therefore, giving members “income” or “dividends” is prohibited.
Some jurisdictions restrict a member’s compensation or financial gain to the amount the member would have been entitled to receive if he was not a member of the association.
6. Public Benefit Activities
As earlier stated, only charitable trusts can serve the public interest. On the other hand, public benefit activities are allowed for all organisational forms.
7. Tax Exemption
Division 50 of the Income Tax Assessment Act 1997 (ITAA) provides an exemption from income tax for specific nonprofit categories. Also, the Federal Treasurer oversees the tax administration through the Australian Taxation Office (ATO).
Every year, nonprofits must determine if they qualify for the exemptions on their own. For charitable funds, there are specific exemption requirements. Essentially, all charity funds must be used for the intended purposes to qualify for endorsement.
8. Foreign Grants
The flow of money from abroad is generally unregulated. This is apart from mandatory reporting for significant foreign exchange transactions and grants for electoral purposes.
However, it is illegal for a third party, such as a not-for-profit, to accept donations from overseas sources if the donations’ value or amount is at least equal to the disclosure threshold for electoral expenditures. Also, it is illegal if they are used primarily for the creation or dissemination of electoral matters.
Conclusion
To sum up, managing nonprofits is a challenging endeavour. By and large, the legal structure of an organisation will determine whether it is subject to Commonwealth or state-level regulation.
Some organisations might be subject to extra regulations because of what they do. For instance, an organisation that operates as a charity or is involved in an industry that is subject to strict regulations, like elder care may have extra regulations.
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