To be a registered charity with the Australian Charities and Not-for-profit Commission (ACNC) and retain charity registration, an organisation must operate for a charitable purpose for the public benefit. But what does public benefit really mean and how can you make sure your organisation is compliant with this requirement (either as it seeks to become a registered charity or in order to maintain its registration)? In this article we discuss the meaning of public benefit and provide examples of things to look out for to help ensure your charity stays compliant.
We note from the outset this is a complicated issue and something the courts have grappled with on a number of occasions. This article is informational only and does not cover all aspects of public and private benefit. Given the complexity, we highly recommend seeking legal advice if you are unsure whether your organisation is compliant.
What is public benefit?
According to the Explanatory Memorandum to the Charities Act 2013 (Cth) (Explanatory Memorandum) there are two elements to public benefit. First, the achievement of the purpose must be of public benefit. Second, the benefit flowing from the purpose must be broadly available to a sufficient section of the public. Each of these are explained in more detail below.
Achievement of purpose must be of public benefit
In order for the achievement of the purpose to be of public benefit the benefit provided by pursuing the charitable purpose or by fulfilling the purpose must not be negligible (i.e. the benefit must be of adequate worth, importance or significance). Whilst the benefit can be, it need not be, material. For example, the provision of accommodation for homeless people would be a public benefit as would the provision of psychological support. Lastly, there must be overall benefit when compared to any detriment or harm caused by fulfilling the purpose. For example, if your organisation’s purpose is to help the environment but your organisation’s activities involve vandalism or encouraging violence, this detriment may outweigh the public benefit provided and therefore jeopardize charity registration.
Benefit must be broadly available to a sufficient section of the public
Whilst the benefit provided by a charity does not have to be available to the entire public, the benefit must be available to a section of the general public that is not negligible compared to that size of the general public to whom the purpose would be relevant. For example, if your charity aims to cure a rare disease, it is permissible for the charity to only benefit the small number of people suffering from that disease. It is also permissible to limit the benefit to groups with shared characteristics, such as residents of a particular area, followers of a particular religion or sufferers of a specific condition, so long as the limitation to these groups is justified and reasonable considering the nature of the charitable purpose. However, this test is about more than a numbers game and restrictions based on some characteristics (e.g. relatives, employees, members of the organisation) are not generally sufficient to satisfy the public benefit requirement.
What is private benefit?
On the other side of the equation is private benefit or private gain. An organisation cannot be a charity if it exists for private benefit. Often charities provide private benefit and thereby risk their charity status, without even knowing it. In fact, the ACNC revealed 26% of concerns assessed by the ACNC in 2018 were linked to private benefit. It is therefore important to have a clear understanding of what private benefit is to help ensure your charity remains compliant.
Private benefit occurs when benefits are limited to people in a way which is not relevant to the charitable purpose. For example, if an organisation has a purpose of curing a disease but the organisation only benefits people suffering from that disease that are related to a director of the organisation, the charity would exist for private benefit and therefore not qualify as a charity.
In some cases a charity can provide private benefit without jeopardizing its charitable status. According to the Explanatory Memorandum, this is the case if the private benefit is:
- ancillary or incidental to the charity’s purpose (i.e. is a necessary by-product of or necessary means to fulfilling its purpose);
- genuine (i.e. genuinely made for an ancillary or incidental reason); and
- reasonable (i.e. the benefit is reasonable in the circumstances).
Below are some common examples of private benefit and considerations to keep in mind in determining whether such private benefit is permissible or not.
Example 1 – Payments to directors, officers or suppliers
Directors, officers and suppliers of a charity may receive some private benefit from a charity by way of remuneration or payment for goods or services. It is permissible for a charity to provide these benefits so long as the payment helps the charity fulfil its purpose and the amount of the payment is reasonable considering what is being provided to the charity in return. If a charity over compensates its directors, officers or suppliers (e.g. pays them better than market rates) it will likely be considered to be providing private benefit. A clear example of private benefit is where a charity opts to procure goods from a related party (such as a director’s spouse) where the price of such goods is higher than the normal market value. In this case the charity would be providing private benefit that is not reasonable in the circumstances, thereby jeopardizing its charity registration.
Example 2 – Benefits to members
Some organisations provide exclusive benefits to their members. For example, members may be invited to a gala or event or members may be provided with deals or discounts by virtue of their membership. Whilst generally an organisation that exists to advance the interests of its members in their capacity as members cannot be charitable (as it exists to provide private benefit), in limited circumstances an organisation that benefits its members can still be charitable particularly where benefits are merely incidental or ancillary to the purpose of benefiting the public. For example, if an organisation exists to advance social and public welfare and provides some training to its members so they themselves are better equipped to serve those in need, the private benefit provided to the members may be deemed incidental or ancillary to the charitable purpose and therefore be permissible.
Example 3 – Benefits to people with a personal connection
Some entities exist to provide benefits to people with a common personal connection. For example, a trust may be established to provide for health care costs for people from the same family or same employer. Whilst advancing health is a charitable purpose, if there are limits to whom can benefit from the entity and such limits are not relevant to the charitable purpose itself, it is unlikely the public benefit requirement will be satisfied, and charitable registration will not be granted.
As shown in the examples above, the line between private and public benefit is not always clear and often determining whether an organisation is operating for public or private benefit requires an analysis of many different factors. Given charity registration can be revoked if an organisation is found to be operating for private benefit, it is important for charities to regularly evaluate their purpose, activities and operations to determine what side of the line they fall on.
How can we help?
Our Charities + Social Sector team are specialists in undertaking internal charity registration compliance reviews (including with a focus on public and private benefit). We also provide advice on the prospects of an organisation successfully gaining registration as a charity and assist with all aspects of the registration process, including internal ACNC appeals and appeals with the courts (if necessary).
If you have any questions about public or private benefit, or if you need assistance assessing your charity’s operations, please get in touch with our specialist Charities + Social Sector lawyers. More information about public and private benefit can also be found in the Explanatory Memorandum and on the ACNC’s Public Benefit page and Private Benefit page.