What is a not-for-profit?

Defining not-for-profit

Generally, a not-for-profit is an organisation that does not operate for the profit, personal gain or other benefit of particular people. This can include people such as its members, the people who run it or their friends or relatives. The definition of not-for-profit applies both while the organisation is operating and if it ‘winds up’ (closes down).

An organisation does not fail to be a not-for-profit if it simply provides a benefit to a member while genuinely carrying out its purpose. For example, organisations such as self-help groups can be not-for-profits if the benefits provided to members are consistent with the purposes of the organisation. In this example, a self-help group for young parents can provide counselling services to a young parent who is a member of the organisation. The member is also a person in need who is helped by the organisation.

The benefits provided by a not-for-profit can be direct (such as distributing money or gifts) or indirect (such as a member receiving assistance from the organisation that is not consistent with its purpose). Staff or responsible persons (such as board or committee members or trustees) can of course be paid for their work, but not an unreasonable amount.

Not-for-profits can make profit, but any profit made must be applied for the organisation's purpose(s). Organisations can retain profits (instead of applying it towards their purpose), as long as there is for a genuine reason for this related to its purpose. For example, a good reason to retain money may be to save up for starting a new project, building new infrastructure or to accumulate a reserve to ensure an organisation remains sustainable. By contrast, if an organisation continues to retain significant profits indefinitely without applying this to its charitable purpose, this may indicate that the organisation is not working solely towards its stated charitable purpose.

How do I show my organisation is a not-for-profit?

You can show that your organisation meets the requirements of being a not-for-profit by having particular statements (clauses) in its governing rules, and following these. These clauses (the non-profit clause and the dissolution clause) may include wording like:

  • the 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.'
  • the 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.'

The Australian Taxation Office (ATO) also provides guidance on the definition of not-for-profit and the different types of not-for-profits.

New law – the Charities Act 2013 (Cth) – was passed on 27 June 2013, introducing a statutory definition of charity from 1 January 2014. Read more about the ACNC's approach to the legal meaning of charity.