Charities may want to provide gifts or honorariums to individuals – including current or outgoing Responsible People, members, staff or volunteers – as a gesture of gratitude and appreciation for their services.
The decision to provide gifts or honorariums comes with some important considerations and charities should approach it with care and diligence.
As each charity is different, operating in different environments with different aims and challenges, the considerations in deciding to provide gifts or honorariums will differ.
Each charity’s Responsible People need to properly consider the issues and concerns with providing gifts or honorariums in the context of their own charity and understand the implications of their decision.
Some charities refer to payments of this nature as ‘allowances’ or ‘ex-gratia payments’. Although the names may sometimes be different, the considerations for a charity outlined in this guidance, still apply.
A gift is something given to someone without obligation and may be in the form of money, goods or other property.
For charities, a gift is typically given in recognition and appreciation of an individual’s charitable service.
An honorarium is an honorary payment made to someone without obligation in recognition of their professional service.
For charities, an honorarium is typically a payment made to honour an individual for their charitable service.
The ACNC generally expects that gifts or honorariums will be of a token nature.
Gifts or honorariums should not provide any individual with a sizeable or significant personal benefit.
A charity that provides a gift or honorarium of significant value is at risk of not complying with its purpose and character as a not-for-profit entity.
It is up to a charity’s Responsible People to determine an acceptable value of any gift or honorarium. However, in doing so, the Responsible People should consider the charity’s financial position and its ability to carry out its charitable purposes.
Charities need to consider the legal implications of providing a gift or honorarium. To remain registered as a charity with the ACNC, an organisation must:
- Be a not-for-profit entity.
- Comply with its purposes and its character as a not-for-profit entity.
- Be accountable to its members.
- Take reasonable steps to ensure that its Responsible People are subject to, and comply with, duties to:
- Act in good faith in the charity’s best interests, and to further its purposes.
- Disclose perceived or actual conflicts of interest.
- Ensure that the organisation’s financial affairs are responsibly managed.
Read more about the obligations of a charity.
Charities must make sure that their decision to provide a gift or honorarium does not place them at risk of breaching these requirements.
Some examples of how this looks in practice:
- A gift or honorarium of significant value could result in a private benefit to someone. This may breach the requirement to be a not-for-profit entity, and may not be consistent with the charity pursuing its charitable purposes.
- A lack of transparency about gifts and honorariums – especially if they are of significant value – may mean a charity is not being accountable to its members.
- Failing to properly consider all factors before providing a gift or honorarium could indicate a failure to act in good faith in the charity’s best interests and to further its charitable purposes.
- Providing a gift or honorarium to a charity’s Responsible People or their relatives is a conflict of interest. While this doesn’t necessarily mean the gift or honorarium isn’t allowed, failing to disclose the conflict of interest is likely to be a breach of ACNC Governance Standard 5.
- Excessive gifts or honorariums could indicate that the charity’s financial affairs are being irresponsibly managed, particularly if the payments impair its ability to carry out its charitable purposes.
Charities also need to consider the implications of gifts and honorariums under employment and taxation law.
Charities need to consider if it is in their best interests to provide a gift or honorarium.
The Responsible People of a charity should ask themselves:
- Do the charity’s governing rules allow it to provide gifts or honorariums?
- Who receives a gift or honorarium and why?
- How should the charity determine the value of the gift or honorarium?
- It may be through a discussion among the Responsible People or at the management level.
- It may be by consulting with other similar charities.
- Will the payment of a gift or honorarium affect any current funding arrangements?
- Are there conditions on funding that specify funds must be used in a particular way?
- What will supporters or the public think of the charity providing a gift or honorarium?
- For example, it could pose a risk to the charity’s reputation and its donations especially if the gift or honorarium is of significant value?
- Is the gift or honorarium going to be a once-off occurrence?
- If not, it might not be a true gift or honorarium, especially if recipients are expected to do something in return, or if it is made in exchange for services. There may be implications for this under employment and tax law.
- Is the charity considering the gift or honorarium because its rules prevent it from offering remuneration?
- If so, the charity may not be taking reasonable steps to ensure that its Responsible People are acting in good faith and in the charity’s best interests, particularly if the person receiving the gift or honorarium is likely to be regarded as an employee or contractor.
- Is the charity considering making a gift or honorarium to cover the out-of-pocket expenses incurred by individuals – for example, travel costs to attend a board meeting?
- Consider reimbursing those individuals for the actual costs incurred instead, if allowed by the charity’s governing rules.
- Is the charity providing a gift or honorarium on a regular basis to recognise an individual for their services?
- Consider if it is more appropriate to recognise them as an employee or contractor instead.
- Is the charity providing a gift or honorarium to a Responsible Person?
- If so, make sure there is a proper process for making a decision and determining a reasonable value.
- How will the charity’s Responsible People be accountable for and transparent about the gift or honorarium?
- Will the charity consult with its members or put the decision to its members?
- NOTE: A Responsible Person should not participate in any decision about a gift or honorarium to themselves.
Having a formal policy on gifts and honorariums provides a charity with guidelines setting out the circumstances in which they can be provided, and the approval process required to do so.
Charities that prepare financial statements may also need to disclose gifts or honorariums to certain individuals (such as Responsible People) in accordance with the Australian Accounting Standards Board Related Party Disclosures standard (AASB 124).
The Annual Information Statement asks medium and large sized charities:
- whether they have any related party transactions, and
- whether they have documented policies or processes about related party transactions.
Related parties include key management personnel of a charity (defined in AASB 124). This may include a Responsible Person, or a close member of a Responsible Person’s family.