BREAZE

STANDARD DISCLAIMER: The information given below should be viewed as a guide only and should not be used as a substitute for professional legal advice

Incorporations, Tax Deductibility, Insurance. Why bother with all this stuff?

BREAZE Committee Member, Michele, sums this up nicely...
In the paddock next door to my house stands beautiful, huge old tree. She must be well over two hundred years old. Through the intense heat and dryness of summer to the cold and howling winds of winter she stands true and strong, surviving and thriving where many other have failed. Many years ago she would have fallen to the ground, had she not started to grow roots and anchor herself firmly into the earth. Developing strong, robust and flexible roots; a solid foundation is why this tree has continued to flourish.

That’s why you bother.

For a community based group to flourish it needs to start with solid foundations. Not all of the structures you put in place may have an immediate benefit. By appropriately building foundations, you provide a stable platform from which to work and equally importantly, allow room for the organisation grow if it so chooses.

Bothering with this ‘stuff’ shows you respect those you interact with by protecting their safety, both physically and financially. For example, having insurance in place if the unthinkable should happen is a tanglible example of financially supporting your volunteers. This ‘stuff’ identifies to others your commitment and professionalism and demonstrates your capacity to ‘get the job done’.

This section provides detailed explanation about ‘stuff’. If you’re after the juicy info and lessons BREAZE learned through the process, you many want to skip to TIPS FROM THE OTHER SIDE

What is incorporation?

Incorporation is a voluntary, simple and inexpensive means of establishing a legal entity, separate from the individual members. It is particularly suitable for small, community-based groups. The association is considered by law to have a distinct identity that continues despite changes to its membership. Incorporation is a system of registration that gives an association certain legal advantages in return for accepting certain legal responsibilities

Incorporated Associations are not for profit organisations. Any profits made should be kept by the association and should not used by members for personal gain.

Benefits of incorporation

Some of the advantages of incorporation include:
• Protection of the members and office holders against personal liability for debts and other legal obligations of the organisation
• The ability to buy and sell property in the name of the organisation
• The ability to accept gifts or bequests
• Greater certainty and acceptability to potential contracting parties such as lenders, leasers, employees and suppliers of goods and services
• The ability to sue and be sued in the name of the association
• The ability to invest and borrow money
• Greater eligibility to apply for grants

Particular benefits of incorporating as an Incorporated Association under the Associations Incorporation Act 1981 (compared to a company limited by guarantee under the Corporations Law) include:
• Easier and less expensive to set up
• Less onerous regulatory obligations and office-holder duties

Disadvantages of incorporation

Some of the disadvantages of becoming incorporated include:
• The expense of becoming incorporated and meeting ongoing statutory obligations
• The necessity to comply with legal formalities and the possibility of penalties for innocent breaches of the law
• Restrictions on the ability to carry on business or trade
• Less flexibility to cope with changed circumstances

Your relevant state government or territory agency will step you through the process of becoming incorporated, just Google ‘incorporations’ in your state to get to the correct department.
In Victoria it is a simple three step process. The Consumer Affairs website will help you through the process.

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Set realistic expectations for yourself. On the whole these documents and the many others you fill in are not hard BUT they are time consuming. If you do come across a section or question you don’t understand, seek help. It is a sign of strength to recognise when you are out of your depth. BREAZE were able to seek free help from many government agencies and pro-bono professionals and we strongly recommend joining a support group such as Our Community

Well worth the $45 per year! They were able to advise us on some for the finer details, i.e. how to run a general meeting to become an incorporated body (we were REALLY inexperienced then).

Chances are you will venture outside your comfort zones. It’s OK to feel a little bit confronted -think of this process as an opportunity to learn new skills to add to your bow. BREAZE were asking for a big transformation from our community in addressing climate change, it’s reasonable to start with us.

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What you'll need first

To become an incorporated association under the Associations Incorporation Act 1981 (the Act), you must have at least five members and be a not-for-profit association. 


You will also require:
• A suitable name - your proposed name must not be too similar to an existing registered business name or a name already taken by another incorporated association or company
• A written statement of purpose - a document that sets out the proposed objectives of your association

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BREAZE had a facilitator (pro-bono, of course!) come and spend the day with the interim committee to help us create our Statement of Purpose. Through this process we were able to fully explore our hopes for the ‘about to be created’ climate change group and define our collective understanding. The formality of writing the Statement of Purpose supported clarity of thinking and encouraged succinct articulation of our goals.

For BREAZE our Statement of Purpose is a living document. At times you can be so consumed by the details of day to day tasks you are at risk of losing direction - you don’t see the forest through the trees. This is when your Statement of Purpose comes to the fore; it reminds you of your goals and helps you prioritise. Remember it was developed through a carefully considered, collective process and not under pressures from immediate, sometimes unrelated, external demands. As you would expect with a living document, we review it its relevance annually and update if necessary – through a calm considered process. BREAZE STATEMENT OF PURPOSE

HINT: BREAZE is a registered Environmental Charity. The Department of Environment, Water, Heritage and the Arts are the responsible government body; they require that an environmental organisation’s principal purpose must be:

(a) the protection and enhancement of the natural environment or of a significant aspect of the natural environment; or

(b) the provision of information or education, or the carrying on of research, about the natural environment or a significant aspect of the natural environment.” Pg 9

http://www.environment.gov.au/about/tax/reo/guidelines/index.html

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A written set of rules

A written constitution that deals with the matters set out in the Schedule to the Act. You can adopt the Model Rules, or, if your association has more specific requirements, modify the Model Rules or draft your own. For more information see Rules of an Incorporated Association.

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For ease, we went with the model rules provided by Consumer Affairs - with three exceptions. By asking around we knew we wanted to have to be a charity and be a deductible gift recipient (you can get a tax deduction if you donate money to us - more on that later). To be a charity we needed to have a dedicated public fund which meant we need to make the following two changes to the mode rules
• Make sure our Statement of Purpose included a reference the establishment of a public fund called ‘The BREAZE Fund’
• Add clauses 38 and 38 – essentially the management/taxation of the fund
Inclusion in the
INSERT LINK TO RULES OF INCORPORATION
Through Annual General Meeting or Special General Meetings, BREAZE have made other alterations to the rules of Incorporation (currently at version 3), mainly streamlining or customising processes to suit our needs. For example we have changed clause 13. (2) (a)(b)
from the standard rules
(2) Notice may be sent
(a) by prepaid post to the address appearing in the register of members: or
(b) it the member request, by facsimile transmission or electronic transmission

to
(2) Notice may be sent
(a) to the email address that appears in the register of members. This will be the default method of notification, unless the member specifically has request4d notification to be sent by post to the address appearing in the register of members.

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Steps of the incorporation process in Victoria

There are three main steps to incorporation:
Step 1
. The association must hold a meeting of which all members are given at least 21 days notice.
Step 2
. At this meeting, a majority of votes cast by members, whether personally or by proxy (if proxies are allowed), must:
a) authorise a particular person to incorporate the association. This person must be at least 18 years old and reside in the State of Victoria
b) approve a proposed statement of purposes

c) approve proposed rules that comply with the Act or approve the adoption of the model rules.

Step 3
. The person authorised to apply for incorporation must complete and lodge with the Registrar:

a) the Application for Association Incorporation form (PDF|50KB) together with the prescribed fee

b) a copy of the proposed statement of purposes
c) a copy of the proposed rules of the association (unless adopting the Model Rules unmodified, in which case a copy of the rules is not required) The rules must contain the matters specified in the Schedule to the Act

d) copies of any trusts that may affect the association
e) the application fee (for the current fee, see Fees and forms.)

 Notes 
If the association has approved the adoption of the Model Rules without any amendments, there is no need to attach a copy of the Model Rules to the application.

• the Australian Taxation Office (ATO) has additional requirements for non-profit organisations seeking exemption from income tax. It is important that you are aware of these prior to incorporation, as certain clauses may be required in the organisation’s rules. See Australian Tax Office page for non-profit organisations
• the person who lodges the application for incorporation is the first public officer of the incorporated association, unless another person has been nominated as first public officer.
• unless the rules otherwise provide, the committee members of the unincorporated association form the first management committee of the incorporated association.
• a Certificate of Incorporation will be issued by the Registrar after the application for incorporation has been accepted. This will bear the name of the incorporated association, the registration number and the date of incorporation.
• cheques must be made payable to Consumer Affairs Victoria. Receipts will only be issued upon request.
• after incorporating

Upon incorporating, you should consider:
• setting up a post office box for mail
• obtaining a common seal
• opening a bank account in the incorporated association’s name
• taking out public liability and other insurance, and
• setting up systems to record the transactions, assets and liabilities of the association.

Your association’s new name, including the word ‘Incorporated’ or ‘Inc’ must appear on all stationery and documentation.

Charity Status

A sustainable organisation needs to act sustainably (not just in the toilet paper you use). If you want to be around longer than 5 minutes you need to look after your people. Unfortunately, in a world that revolves around money you need some money to be able to look after you people, to pay for insurance and purchase toilet paper! It’s neither fair or realistic to expect volunteers can, or are able to, continually contribute 100% to the organisation - they have families, they have jobs, they have bills, they need leisure time. In a nut shell, having Charity Status - in particular deductible gift recipient endorsement and income tax exemption - makes it easier to obtain larger government grants, philanthropic donations and member donations.

1. Before you apply for Environmental Charity Status
2. Your organisation needs to be Incorporated (see previous)
3. You need an Australian Business Number (ABN) You can apply online

4. Then you can apply to become an Environmental Charity with deductible gift recipient endorsement
5. Finally you can apply to the tax office for endorsement of charity tax concession

What is a charity?

A charity is an entity established for altruistic purposes that the law regards as charitable. The Australian Tax Office (ATO) does not set the criteria to decide whether or not an organisation is a charity. To become an Environmental Charity, you apply to the Department of Environment, Water, Heritage and the Arts. They have a fabulous easy-to-use guide that steps you through the process – don’t be put off by the size, not all of it will relate to your organisation.

To check if your organisation would qualify as an Environmental Charity, work thorough the ATO NON-PROFIT ORGANISATIONS GUIDE. Well worth the time and easy-to-use - again, don’t be put off by the size, not all of it will relate to your organisation.

CHECKLIST: Is your organisation a charity?

To be a charity your organisation must:
• be an entity (corporation, unincorporated association, trust or partnership etc)
• be a trust fund or an institution
• be able to demonstrate from its constituent or governing documents and the organisation’s activities (if applicable) that it is carried on for the public benefit or the relief of poverty
• be non-profit. This means the organisation is not carried on for the profit or gain of its owners, members or other private people
• not be
- carried on for sporting, recreational or social purposes
- carried on for political, lobbying, promotional or illegal purposes
- carried on for a commercial purpose to generate surpluses, or
- a government instrumentality carrying out the ordinary functions of government
(ATO. Non-profit organisation Guide, Type of Organisation Description, Environnement, Pg 41)

Environment

Non-profit entities that operate for the public benefit to protect, preserve, care for, and educate he community about the environment are charities. Lobbying and political bodies are not charities.

Charities – examples
• conservation bodies that help protect the environment provided they are not for lobbying or political purposes
• environmental associations whose purpose is to educate the public about environmental issues
• flora and fauna conservation societies that are not political or lobbying in nature
• friends of botanic gardens
• Landcare groups and other greening organisations involved in tree-planting and revegetation
• marine conservation societies that are involved in the conservation of Australia’s coastal areas or coral reefs
• natural resource organisations that educate the public about the wise use of Australian resources, such as soil, water and forests, and
• support groups for national parks.

Non-charities – examples
• bushwalking clubs
• government instrumentalities carrying out the ordinary functions of government
• lobbying bodies even if their activities may have consequences for the environment
• outdoor recreation clubs
• political bodies
• resident action groups set up to oppose planning policies detrimental to their lifestyle, and
• watersports clubs

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An entity is not charitable if its purpose is advocating a political party or cause, attempting to change the law or government policy, or promoting a particular point of view. However, if an entity’s purpose is otherwise charitable, the presence of political, lobbying or promotional activity that is incidental to the charitable aims will not prevent it being a charity. See ATO webpage Charities – political, lobbying and advocacy activities

Before BREAZE registered as a charity we checked out the guidelines. The committee held a special meeting and decided they were comfortable to become a charity and operate within these guidelines.

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Charities are not automatically exempt from income tax. There is an endorsement system under which charities apply to the Tax Office to be income tax exempt charities. Charities also need to be endorsed if they want to access charity concessions under the goods and services tax (GST) and fringe benefits tax (FBT) laws. Endorsement provides an organisation with access to concessions. For example, an organisation that is endorsed to access income tax exemption is exempt from paying income tax, removing the need to lodge income tax returns

Applying for endorsement of charity tax concession

Before an organisation can apply for endorsement it must have an Australian Business Number (ABN).