Set Up a Foundation in Australia

A foundation is a type of entity that is included in the not-for-profit types of structures. Therefore, if you want to set up a foundation in Australia, you will need to observe the rules and regulations prescribed for these entities.

As a general rule, the registration of a foundation will follow the same steps for company incorporation in Australia, only that certain differences will appear, considering the not-for-profit purpose of this structure (as opposed to the commercial purpose of regular legal entities).

You can find out from our team of consultants in company formation in Australia the steps you must follow in order to incorporate a foundation.

What are the characteristics of a foundation in Australia?

If you want to set up a foundation in Australia, you must know that the structure must have a not-for-profit purpose. This applies to foundations, trusts, charities, non-governmental organizations and other types of entities. Some of the main characteristics are presented below:

1. it has a charitable purpose or an activity that is in the interest of the community (public benefit);
2. it obtains its funds through fundraising and other similar methods of raising capital;
3. it benefits from a special tax system, in the sense that the foundation can obtain tax benefits, deductions, exemptions, refunds, etc.

Why set up a foundation in Australia?

A foundation can be used as a way of raising capital for a given purpose, most likely in the benefit of the community. The most important aspect one must know is that the foundation goes through the process of company formation in Australia as a regular legal entity and that it has separate legal personality.

Therefore, its founders will be considered, from a legal point of view, separate from the foundation. In general, the foundation is used for raising capital from different sources, including the private sector or the public/governmental one.

The foundation is managed by a board of directors who will organize the strategy that must be followed by other persons working/involved in the structure. The staff is generally comprised of specialists in various fields, selected in accordance with the activity of the foundation.

What is the statutory document of a foundation?

In order to set up a foundation in Australia, its founders must sign the statutory documents. The governing document is the foundation constitution, which will set out thepurpose, the governance structure, the manner in which the funds are used, etc.

The document must abide by the legal requirements imposed by the ATO and ACNC, therefore we advise you to request legal assistance from our consultants, who are specialized in the process of company formation in Australia and in drafting corporate documents (constitutive documents, agreements, contracts, etc.).

What is a charitable foundation in Australia?

A charitable foundation will carry out activities that are prescribed by the Charities Act. Our consultants in company formation in Australia can present in-depth information related to this law. In the list below, you can find out some of the highlights of the charity sector:

• the structure is regulated by the Charities Act 2013;
• Australia has more than 600,000 not-for-profit organizations;
• charities can apply for endorsements with the Australian Taxation Office (ATO) by completing the Form NAT 2948;
• charities should register with the Australian Charities and Not-for-Profits Commission (ACNC), but those endorsed by the ATO as charities before 3rd of December 2012 were automatically registered with the institution.

The registration is voluntary, not mandatory, but entities that want to obtain tax reliefs and all the tax benefits that can be obtained from the status of a foundation are required to be registered with the ACNC before applying for tax benefits with ATO.

What are the tax concessions that are granted to charitable organizations in Australia?

Not-for-profit organizations, foundations included, can benefit from various tax reliefs. The tax concessions can be offered by ATO or by other territorial/state authorities, provided that the structures have been registered with ACNC, as stated above.

One of the main tax concessions granted to charities is the exemption on the payment of the income tax. In general, organizations are charged with the income tax on the taxable income generated, but entities registered with the ACNC and endorsed by the ATO are exempt from paying the income tax – they are also not required to submit income tax reports.

The obligation to submit various financial documents concerning the structure’s income can appear provided that ATO specifically asks an entity to do so.

This is a major difference between non-for-profit and commercial entities, as the latter must pay the income tax by default, and submit the required financial documents attesting the company’s financial situation in a tax year, therefore those who want to set up a company in Australia have to abide by different tax policies.

Another difference in taxation between investors who open a company in Australia and those who set up a foundation refers to the goods and services tax (GST). GST is the equivalent of the value added tax in the Australian tax law, and it is a tax charged on the majority of transactions carried out here.

Commercial companies usually pay the GST, unless they sell goods or provide services that are exempt from the payment of the tax. In the case of a charity, the entity can apply for a GST concession (in this situation, the charity must have an ACNC registered status).

Another tax benefit can arise from the taxation of employment – registered charities may apply for the fringe benefits tax rebate. This tax is charged for other benefits granted by an employer, outside of the standard employment benefits (for example, for the use of a work car, work telephone, etc.).

Although the law provides for the possibility to purchase a shelf company in Australia when starting a business, which provides the benefit of not concluding most of the registration steps, as they have already been completed, this is not the case with a foundation.

This is given by the fact that a shelf company in Australia is incorporated solely for commercial companies and not for special structures like foundations, charities or trusts. We invite you to contact us for legal representation.