ACNC Registration: Difference of Public Benefit v. Private Benefit

Introduction

For a not-for-profit organisation to meet ACNC charity registration eligibility, it must demonstrate that its purposes are for the public benefit. This fundamental requirement, stipulated by the Charities Act 2013 (Cth), ensures that registered charities operate to benefit the general community rather than the private interests of a select few.

However, the distinction between a permissible public benefit and an impermissible private benefit can be complex, particularly for organisations that primarily serve their own members versus the wider community. This guide provides essential clarity on how the Australian Charities and Not-for-profits Commission (ACNC) assesses this distinction, helping your organisation navigate the requirements for successful registration and maintain compliance.

What is Public Benefit for a Charity

Benefiting a Sufficient Section of the Public

For a not-for-profit organisation to register as a charity, its purpose must be for the public benefit. This means its objectives must benefit the general public or what is considered a “sufficient section of the general public.”

The benefit does not need to be available to everyone, but it must be accessible to a portion of the public that is not insignificant. A “sufficient section” can be defined in various ways and may include groups united by common characteristics or location.

Examples of such groups include:

• A local community
• Followers of a particular religion
• People with a specific disability
• Refugees
• Young people

To illustrate, a charity that aims to find a cure for a rare disease is permitted to benefit only the small number of individuals affected by that condition. Even though the group is small, it is considered a sufficient section of the public because the limitation is directly related to the charitable purpose.

Ensuring the Benefit is Significant & Not Negligible

The benefit provided by a charity must also be significant and not negligible, meaning it must have adequate worth or importance. This benefit does not have to be material or tangible; for instance, providing psychological support is recognised as a valid public benefit.

Furthermore, there must be an overall positive impact when the benefit is weighed against any potential harm or detriment caused by the charity’s activities. For example, if an organisation’s activities involved vandalism to promote an environmental cause, the harm caused would likely outweigh any public benefit, thereby jeopardising its status as a charity.

Identifying Private Benefit in Your Not-for-Profit Organisation

Permissible vs Impermissible Private Benefit

An organisation cannot be a registered charity if it exists for private benefit. This occurs when a charity’s resources, such as money, goods, or services, are directed towards individuals close to the organisation rather than its intended beneficiaries and charitable purpose.

Charities must operate for the public benefit, meaning they benefit the general community or a sufficient section of it.

However, a charity can provide a private benefit in certain circumstances without risking its status. The ACNC confirms that a private benefit is permissible if it is merely incidental or ancillary to achieving the organisation’s main charitable purpose.

For this to apply, the benefit must be:

• A necessary by-product of fulfilling the purpose
• Genuinely provided for that reason
• Reasonable in the circumstances

Common Examples of Private Benefit

The question of whether Australian charity board members can receive remuneration is a common one; such payments are a form of private benefit, but they are permissible if they help the charity fulfil its purpose. The amount paid must be reasonable and align with market rates for the goods or services provided.

An impermissible private benefit would occur if a charity:

• Overcompensates its directors
• Pays a related party a price higher than normal market value

Organisations that exist primarily to advance the interests of their members are generally considered to be providing a private benefit and cannot be charitable. This is because their core purpose is to serve the members themselves rather than the broader public.

Similarly, an entity established to benefit individuals with a common personal connection is unlikely to meet the public benefit requirement. For example, an organisation offering scholarships exclusively to the children of employees at a single company would be benefiting a “closed” class of people, which constitutes a private benefit.

Member-Based Organisations & the Public Benefit Test

When Restricting Benefits to a Group is Acceptable

A charity can limit its services to a specific group of people, provided two key conditions are met:

• The group is not a closed class
• The restriction helps to advance its charitable purpose

This approach allows an organisation to focus its efforts effectively while still meeting the public benefit requirement. For instance, a charity established to help refugees can make its services available exclusively to refugees, as this group is not considered a closed class and the limitation directly supports the organisation’s purpose.

Restrictions are also permissible when they are necessary to manage a charity’s services. An organisation is not required to provide services to every member of the public without any conditions. For example:

• A school can require students to enrol before attending
• A library can implement borrowing rules for its members

In certain specific situations, the public benefit test is either limited or does not apply at all. These exceptions include:

Exception Category	Description
Relief for ‘Necessitous Circumstances’	Organisations providing aid to people in need are exempt from the standard public benefit test.
Closed or Contemplative Religious Orders	Religious orders that pray at the request of the general public are considered to meet the requirement.
Specific Self-Help Groups

Why Serving Only Members is Usually a Private Benefit

An organisation that exists primarily to advance the interests of its members in their capacity as members is generally considered to be providing a private benefit. Because its core purpose is not for the public benefit, such an organisation typically cannot register as a charity.

However, a benefit to members may be acceptable if it is merely incidental or ancillary to the main purpose of benefiting the public. The private benefit must be a secondary outcome of activities aimed at achieving a broader charitable purpose. To illustrate, if an organisation’s purpose is to advance social welfare, providing training to its members to better equip them to serve people in need could be considered a permissible ancillary benefit.

How the Australian Charities and Not-for-profits Commission Assesses Your Organisation’s Purpose & Governance

The Importance of Your Governing Document & Activities

The ACNC determines your organisation’s purpose by reviewing a range of sources, including:

• Your governing document (such as a constitution)
• Your activities
• Website content
• Strategic plans

To be eligible to register as a charity, your organisation’s objects and activities must be clearly directed towards achieving a recognised charitable purpose.

The ACNC’s review also considers potential governance issues. For instance, the provision of private benefits can raise concerns about conflicts of interest, which are addressed under ACNC Governance Standard 5. This standard requires charities to ensure their responsible persons disclose conflicts of interest and act in the best interests of the charity.

Aligning Your Charity Subtype with Your Purpose

When the ACNC registers a charity, it is assigned one or more charity subtypes that reflect its specific charitable purpose. There are 14 subtypes available, which help to categorise the work of registered charities.

Examples of common charity subtypes include:

• Advancing health
• Advancing education
• Advancing social or public welfare
• Advancing religion

It is crucial to select only the charity subtypes that represent your organisation’s current purposes and are explicitly stated as objects in your governing document. Choosing inappropriate subtypes that do not align with your core mission will delay the processing of your application to register as a charity.

Conclusion

To register as a charity in Australia, a not-for-profit organisation must demonstrate its purposes are for the public benefit, which involves serving a sufficient section of the community rather than providing an impermissible private benefit. The ACNC carefully assesses this distinction by examining an organisation’s governing document and activities to ensure its primary focus is on the wider community, not just its own members.

Navigating the complexities between public and private benefit is crucial for achieving and maintaining your organisation’s charitable status. For trusted expertise in structuring your not-for-profit to meet ACNC requirements, contact LawBridge’s not-for-profit and charity lawyers today to ensure your successful registration and compliance.

Frequently Asked Questions