Charities undertaking commercial activities – when can you do it and when can you not?

29 AUG 2022



It may seem antithetical for charities to be engaging in commercial activities; the general purpose of charitable organisations is to engage in charity work (which by definition is not commercial in nature).

However, Australian law provides that charities are permitted to engage in commercial activities – so long as the charity’s purposes are all charitable and those commercial activities are conducted in accordance with those purposes.

Effectively, a charity may conduct for-profit activities to fund its charitable purposes.

What is a charity?

The Charities Act 2013 (Cth) defines a charity as an entity:

  • which is not-for-profit;
  • whose purposes are charitable and for the public benefit (or in aid of those purposes);
  • does not have a disqualifying purpose (one that is unlawful, contrary to public policy or related to the promotion of a political party or candidate); and
  • is not an individual, a political party or a government entity.

Classification of an entity as a charity entitles that entity to a variety of tax concessions and allows it to be recognised as a deductible gift recipient, which allows it to receive tax-deductible donations (i.e. donors can deduct the amount of the donation from their taxable income).

Can a charity undertake commercial activities?

Commercial activities can be defined as those activities which involve transactions. They usually aim to provide goods and services to others and are generally conducted with the goal of raising a profit.

Though it was originally the case that charities could not conduct commercial activities unless those activities were incidental to the charitable purposes of the organisation, this position has been expanded.

Originally beginning from a case known as Commissioner of Taxation v Word Investments Ltd (2007) 243 ALR 44 (Word Investments), the position at law now is that commercial activities are permitted to be carried out by charities in accordance with that charity’s purposes.

As an example, the case of Word Investments involved the company Word Investments Limited (Word), which was incorporated for the purpose of generating funding for a religious charity known as Wycliffe Bible Translators (WBC).

Word undertook a variety of commercial activities – including the operation of a funeral business and the investment of money – however did so only to generate funds to support WBC and certain other religious organisations.

In finding in favour of Word, the High Court of Australia noted that importantly:

  • Word’s constitution did not permit it to make payments to be spent on non-charitable purposes;
  • though Word sought to profit from its activities, it did so only to assist its charitable purposes; and
  • those commercial activities it undertook were imbued with a charitable nature due to the fact that they were undertaken solely in aid of Word’s purposes (which were charitable).

Subsequently, Word Investments was found to satisfy the “charitable institution” threshold of the Income Tax Assessment Act 1997, which allowed Word Investments to claim tax concessions for their dealings as a charity.

In which ways can a charity undertake commercial activities?

As now confirmed by the Australian Charities and Not-for-profits Commission, the three (3) main methods in which a charitable organisation may carry out its commercial activities in accordance with its charitable purposes are as follows:

  • Carrying out commercial activities as part of its charitable activities, where these activities relate directly to its charitable purposes. As an example, where a charity has a purpose of providing employment to people living with disabilities, it could operate a retail store which it uses to train and employ such people. The charity is undertaking commercial activity whilst simultaneously working towards its charitable purpose.
  • Carrying out commercial activities with the aim of generating a profit which will be used to fund its charitable activities. This was the scenario in Word Investments.
  • Carrying out commercial activities which are incidental to the organisation’s primary charitable purposes. As an example, a charity with the purpose of rescuing and rehabilitating animals may find that it has a stock of fertilizer as a result of those activities. The charity then decides to sell the fertilizer as a way of raising its profile and generating income. This commercial activity is incidental to its charitable purpose and thus is permitted.

Concluding comments

If you wish to set up a charitable organisation, you may do so with the knowledge that it will be permitted to carry out commercial activities in accordance with its solely charitable purposes.

There are certainly further considerations you must take into prior to establishing a charity. For more information, please contact Rahul Lachman, Partner of our Commercial Department, who is an expert on these matters.

The contents of this publication is for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.

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