It is mid-November, and supermarkets and shopping centres have thrust the jolly season upon anyone willing to look. Tinsel hangs around poles, and shoppers are reminded they need to buy the perfect gifts for their loved ones and themselves.

Many also give to those they have never met, through Christmas drives run by organisations helping those in need. In 2014 alone Australian individuals gave $6.8 billion in donations and bequests to local charities.

But what is the difference between an NGO, not-for-profit, charity and social enterprise? And which of them deserves your money?

What is an NGO?

An NGO or non-government organisation is a voluntary group of organisations or individuals, without government affiliation, formed to provide services for communities through analysis and expertise. NGOs bring the worries of citizens to governments and advocate for them. For example, Engineers Without Borders Australia is an NGO community group that aims to ensure all people have access to engineering knowledge and resources required to live without poverty.

Some NGOs in authoritarian nations are controlled or created by the government, despite the nongovernmental part of the name.

What is a not-for-profit?

Broadly, not-for-profits (NFPs) are organisations that are not run for profit or personal gain. This must hold true for the life of the operation.

Counterintuitively, NFPs can actually make a profit, but this can only be used for the NFP’s own purposes, like building infrastructure or accumulating revenue for sustainability.

If an NFP closes down, the revenue left over from the project needs to be redirected to another organisation with similar goals.

Types of NFPs include unincorporated and incorporated associations, companies registered under the Corporations Act 2001, co-operatives, indigenous corporations, trusts and acts of Parliament.

An example is UNICEF, the United Nations Children’s Fund, which aims to realise the rights of children around the world. The organisation is funded solely by contributions of individuals, businesses, governments and foundations.

What is a charity?

While the word “charity” is thrown around to cover a whole heap of organisations, but charities are actually bound by very specific requirements under Australian law. They are a type of not-for-profit organisation, but not all not-for-profits are charities.

The Charities Bill 2013 introduced a statutory definition of charity that is applicable across all Australian states and territories. This replaced the common law definition of charity that dated back to 1601.

The act states that to be a charity, an organisation must be not-for-profit, only have charitable purposes for the public benefit, not have a disqualifying purpose (a purpose that goes against these stipulations) and not be an individual, a political party or a government entity.

The other zinger with charities are tax benefits that are far beyond other non-profit groups because of their social benefit.

Deductible gift recipient status (DGR) is only granted for specific charities (and a few non-charities), allowing their donors to claim donations on their personal tax return.

For example, Guide Dogs Australia is the brand that encompasses six state-based Guide Dog organisations around Australia. They work with longstanding corporate partners for ongoing funds and rely on donations for the majority of the rest of their funding. Different states have slightly different set-ups.

What is a social enterprise?

In Australia, social enterprises do not have a legal structure, but broadly they are organisations that use commercial methods to improve an aspect of society. Social enterprises focus on creating wealth for their projects through sales and trade, rather than grants or donations, hence the commercial nature of social enterprises.

While no specific legalities surround social enterprises, it is generally understood they use the majority of profits (over 50%) to help their social cause.

CERES Fair Food, an online organic grocer and carbon-neutral food delivery service operating in Melbourne, is an example of a social enterprise.

Why are there so many overlapping organisations, structures and names?

Different organisations have different requirements and goals, which can be better supported by certain types of legal frameworks and requirements. Being a registered charity also takes time, and some groups do not see the need, especially when first starting up. Most groups fit into a range of categories and choose to focus on their work, rather than their definition.

In a nutshell …

Charities have strict guidelines about what they are and are not and can lose charity status quite easily. There are some tax benefits they get that other organisations do not.

NGOs work independently of the government, to help groups in need by providing expertise and advocating for people to the government. NGOs are often charities.

Not-for-profit groups do not work to make money, other than money used to further their own efforts and infrastructure. They can never personally or monetarily profit from their business.

Social enterprises use commercial tactics to earn funds without relying on donations.

Social enterprises use commercial tactics to earn funds without relying on donations. They do not need to use as much of their own money on their cause, but rather let their product help their cause in the process.

Peter Fray

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