Distinguishing between a charity and a not for profit

While all charities are not for profit, not all not for profits are charities. In this article, we examine the distinguishing elements between the two.

A not-for-profit organisation in Australia is defined by its primary objective: to reinvest any surplus funds back into the organisation’s mission rather than distributing profits to owners or shareholders. These organisations exist to benefit the community, a specific group, or a social cause rather than to create financial returns for stakeholders.

However, important distinctions exist within the broader category of not-for-profits, particularly between charities and (non-chairty) not-for-profits. Understanding these differences is key to grasping how these organisations operate and their unique roles in Australian society.

Most Australians think of a charity as not-for-profit organisation, which is correct. All charities are not-for-profit organisations. A charity is a type of not-for-profit organisation that is specifically established to advance public benefit purposes. In Australia, charities are regulated by the ACNC, which defines them as organisations that must be established for one or more charitable purposes and the public benefit. These purposes include, but are not limited to, the relief of poverty, the advancement of education or religion, and the promotion of health.

Charities must meet strict criteria to maintain their status, including adhering to governance standards and providing annual reports to the ACNC. They are eligible for various tax concessions, such as Deductible Gift Recipient (DGR) status, which allows donors to claim tax deductions for their contributions.

While operating under the not-for-profit model, professional, membership, and community (non-charity), not-for-profits may not necessarily qualify as charities.

These organisations are typically formed to support specific communities, social groups, or local causes. They might include sports clubs, arts organisations, or professional and business associations that operate for the benefit of their members or a particular community.

Unlike charities, non-charity not-for-profits do not have to demonstrate a broader public benefit beyond their specific community or member base. Their focus is often on fostering community spirit and social cohesion and providing services or activities that meet the needs of their members.

Four primary differences exist between a charity and a professional, membership, and community not-for-profit. Firstly, it is purpose. Charities must have a public benefit purpose, while other non-charity not-for-profits may focus on specific member benefits or local causes. Regulation is a critical difference between the two. The ACNC regulates charities and must adhere to its standards. The ACNC may only regulate other non-charity not-for-profits if they seek charitable status.

Tax concessions are a major difference between a charity and a non-charity not-for-profit. Charities are eligible for more extensive tax concessions, including DGR status. Non-charity not-for-profits may be eligible for some concessions but typically do not have DGR status unless they qualify as charities.

Lastly, there is the scope of activities. Traditionally, charities operate on a broader scale, aiming to address wider societal issues. In contrast, non-charity not-for-profits typically focus on specific local or community needs.

Understanding the distinction between charities and non-charity not-for-profits is essential for anyone supporting these organisations. While both serve important roles in society, their objectives, regulatory requirements, and the benefits they provide can differ significantly. Whether you’re looking to support a charity or get involved in a non-charity not-for-profit, knowing these differences can help you make informed decisions and contribute more effectively to the causes you care about.

Are you leading a charity or community not-for-profit and seeking expert financial guidance? Our dedicated team at Accounting For Good understands the unique challenges and regulatory requirements of the NFP sector. Whether you’re navigating ACNC compliance, managing tax concessions, or planning for sustainable growth, we’re here to help you achieve your mission.

We work with organisations with a turnover of $1M to $20M. Contact us today for a free consultation and discover how we can support your organisation’s financial health so you can focus on what matters most—making a difference in your community.