Not for Profit Organisations Explained: Purpose, Benefits, and Tax Implications

What Is a Not for Profit Organisation?

A not for profit organisation is an entity created to achieve a community, social, or charitable goal rather than to generate income for owners or shareholders. Any profits generated must be reinvested back into the organisation’s mission.

Common examples include:

• Charities (homeless shelters, food banks)
• Educational organisations (schools, training programs)
• Sports and cultural clubs
• Religious organisations
• Health and research foundations

The key principle is that surpluses are used for purpose, not for private gain.

Why People Start Not for Profit Organisations

1. Social Impact
   Many founders are driven by a desire to improve communities, address inequality, or support vulnerable groups.

2. Legacy and Reputation
   Building a respected NFP allows individuals or businesses to create a lasting impact and strengthen their social standing.

3. Access to Funding
   NFPs can apply for government grants, philanthropic funds, and community donations that are unavailable to for-profit businesses.

4. Volunteer Engagement
   Unlike commercial companies, not for profits can tap into volunteers, reducing operating costs while building community spirit.

The Other Side of Not for Profits

While the mission is noble, NFPs also face challenges:

• Resource Dependence: Reliance on donations and grants makes income unpredictable.
• Regulation: Strict reporting and compliance requirements apply, especially if tax concessions are sought.
• Mismanagement Risk: Some organisations face scrutiny if funds are not used transparently.
• Competition: With thousands of NFPs, attracting donations and volunteers can be difficult.

Can Not for Profits Be Used for Saving Taxes?

Tax Concessions

In Australia (and many countries), recognised not for profit organisations can access:

• Income tax exemptions
• GST concessions
• Fringe Benefits Tax (FBT) exemptions
• Deductible gift recipient (DGR) status (allowing donors to claim tax deductions)

For Founders

It’s important to note that individuals cannot use an NFP as a personal tax shelter. Any profits must stay within the organisation for its stated mission. However, those running NFPs may benefit indirectly through:

• Paid salaries (reasonable for services rendered)
• Reputational benefits for associated businesses
• Access to certain grants or funding streams

Misuse — such as diverting funds for private benefit — can lead to penalties, loss of tax status, and legal consequences.

Conclusion

Not for profit organisations exist to make an impact, not to line pockets. They provide vital community services, attract government and donor support, and can access tax concessions. However, they also face challenges of sustainability and governance. While they are not designed as personal tax shelters, NFPs remain one of the most powerful ways individuals and groups can channel resources into meaningful change.

FAQs

1. What is the main purpose of a not for profit organisation?
   To reinvest any profits into community-focused goals instead of distributing them to owners.

2. Can a not for profit pay its staff?
   Yes, NFPs can pay staff salaries, but profits cannot be distributed as dividends.

3. Are all charities not for profits?
   Yes, but not all NFPs are charities. Some are sports clubs, cultural groups, or educational bodies.

4. Do not for profits pay tax?
   Many NFPs qualify for tax concessions, but this depends on registration and compliance with government rules.

5. Can people use not for profits to save on taxes?
   They can access tax benefits through concessions and donor deductions, but funds must always support the organisation’s mission, not private individuals.