A reference of words and terms often used in the philanthropic and not-for-profit sector.
Australia’s national charity regulator.
An ancillary fund is a legal structure which can be used to establish a tax-deductible foundation. There are 2 types of ancillary fund: private ancillary funds (PAFs) and public ancillary funds (PuAF).
All ancillary funds are established and maintained under a will or instrument of trust. The sole purpose of an ancillary fund must be to provide money, property or benefits to organisations that are endorsed as Item 1 deductible gift recipients (DGRs) – that is, gifts to funds, authorities or institutions that are deductible under item 1 of the table in section 30–15 of the Income Tax Assessment Act 1997).
PAFs – previously known as prescribed private funds – are vehicles for private philanthropy. A PAF must not fundraise.
PuAFs are public funds. This means that the public must contribute to the fund and that the majority of trustees must be representative of the public. It is a common structure for community foundations in Australia and also for fundraising foundations, but can also be used to establish other types of foundation.
Money, stock, bonds, real estate or other holdings of a foundation. Generally assets are invested and the income is used to make grants.
A sum of money made available upon the donor’s death by provision in their will. Many people leave bequests to charities. Many charitable foundations in Australia have been established by a bequest.
A capital asset is an asset of a permanent or fixed nature, such as goods, equipment, buildings and land.
An organised drive to collect and accumulate substantial funds to finance major needs of an organisation, such as a building or major repairs project. Sometimes it can indicate a campaign to raise funds for an endowment, to provide for the future needs of the organisation, but more often in Australia it is used to indicate a campaign to raise funds for a single major capital asset, usually a building.
A grant made to an organisation towards a major item of capital expenditure, such as the construction of a building. Although many trusts and foundations specifically exclude funding such appeals, there are exceptions where there is community benefit.
In philanthropic terms, a cause is defined as a principle, belief or purpose to be represented or supported.
Used where a company allies itself with a specific cause, and contributes money, time or expertise to an organisation or event for that cause in return for the right to make publicity or commercial value from that involvement. The corporate benefit is generally less overt than in a sponsorship arrangement.
A grant that is paid if the recipient organisation is able to raise additional funds from other sources, which may be used to stimulate giving from other donors. The term can also refer to fundraising, with a private trust or foundation matching dollar for dollar contributions from, for example, the local community. This is sometimes also referred to as ‘match-funding’.
Charitable endowment funds
A charitable endowment fund is a type of public fund often referred to as an ‘umbrella’ fund. Generally maintained by a trustee company or financial services company, a charitable endowment fund will be able to maintain donor accounts (sometimes referred to as ‘sub-funds’) which can be maintained in perpetuity and offer a tax deduction to donors.
The word ‘charity’ can be used to describe a type of organisation or a concept. There is also a difference between the popular definition of charity and the definition in Australian law.
In popular use, the term charity is often used as a synonym for voluntary, or not-for-profit organisations, popularly understood as organisation that raise funds for or offer support to the disadvantaged in society. However, the legal meaning of the term can differ from the popular understanding.
In legal terms, a charity is an entity established for altruistic purposes that the law regards as charitable. While the Australian Tax Office endorses organisations as eligible for charitable status, the Tax Office does not set the criteria to decide whether or not an organisation is a charity. Criteria for deciding what is a charity have been established by case law.
Some organisations that would be generally referred to by members of the public as ‘charities’ are not charities under Australian law. It is important to understand the distinction when seeking philanthropic funding, as many philanthropic bodies are limited to only funding organisations which are legally charitable – that is, those which have been endorsed as a Tax Concession Charity.
In philanthropic terms a collaborative program usually means a program which is carried out by 2 or more organisations working together.
An independent philanthropic organisation working in a specific geographic area which, over time, builds up a collection of endowed funds from many donors in the community. It provides services to the community and its donors, makes grants and undertakes community leadership and partnership activities to address a wide variety of needs in its service area.
A community foundation is a vehicle for local donors who wish to contribute their cash, trusts, bequests or real property to create permanent endowments that will benefit the community in perpetuity. Using the investment earnings on each endowed fund, a community foundation makes and builds capacity within the community to address local needs and opportunities. Their task is to build substantial, permanent funds from which grants are made to local charitable and community organisations. These funds function much like permanent community savings accounts, where the community – personified in the board and its decision-making bodies – has the say over how to distribute the earned interest.
Conditional grants involve one grantmaker seeking the involvement of others, by making their grant of a part of the project funds conditional upon the remainder being available from other sources. Proof of the conditional offer can be used in seeking funding elsewhere, or to raise a loan for the balance of funds sought.
In philanthropic terms, corporate can be used in the following ways:
- As a noun – referring to a corporation (a legal entity which has a separate identity to its members) or a company.
- As an adjective – referring to matters which have to do with a corporation.
Term used in the business sector to refer to business giving – that is, business relationships and partnerships with not-for-profit organisations.
A corporate foundation receives its income from the profit-making company whose name it may bear, but is established as a separate legal entity, usually with a permanent endowment. They often receive staff contributions and/or contributions from company profits on a regular basis. Company-sponsored foundations are different from corporate giving programs which give grants directly to charities and are usually administered through the company’s corporate affairs or public relations department.
Corporate social responsibility
Corporate social responsibility (CSR) is a descriptive term and there is currently no generally accepted definition, as the language is still evolving. Two useful definitions which cover the essential concepts are:
- The commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life. (World Business Council on Sustainable Development)
- Operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business. (Business for Social Responsibility)
The original gift and ongoing principal that forms the asset base from which a foundation operates.
Crowd-funding (or crowd-financing, crowd-sourcing, cloud-funding) is the collective cooperation, attention and trust by people who network and pool their money and resources together to support efforts initiated by other people or organisations.
Deductible gift recipient (DGR)
A deductible gift recipient (DGR) is a fund or organisation that can receive tax-deductible gifts. The deduction is claimed by the person or organisation that makes the gift. There are a limited number of categories or types of DGRs. There are requirements set by the Australian Tax Office to be endorsed as a DGR.
Some DGRs are listed by name in the income tax law; these include organisations such as Amnesty International Australia, Landcare Australia Limited and the Australian Academy of Science. For other organisations to be DGRs, they must fall within a general category set out in the income tax law. Examples include public benevolent institutions, public universities, public hospitals and school building funds.
To find out whether an organisation is a DGR, check the Australian Business Register.
Diaspora philanthropy is the action of dispersed individuals from a common culture giving back to their homeland.
The grant funds distributed by a foundation to grantseekers.
Grant funds which are distributed according to a donor or trustee’s discretion rather than by predetermined priorities.
Donor advised fund
A donor advised fund is a vehicle for charitable giving, also known as a sub-fund. In the USA this is a vehicle offered by community foundations and other commercial and not-for-profit organisations. In Australia the equivalent is a sub-fund operating under the auspices of a community foundation or other ancillary fund. It is not legally possible for an ancillary fund to guarantee or promise that they will follow the donor’s direction for sub-funds; the donor may make requests, and the ancillary fund trustees will choose whether to follow those requests.
A capital fund, usually invested in perpetuity, to provide income for grantmaking purposes.
An investment policy which specialises in environmental and socially responsible investment, and is informed by shared commitment to improve the ethics of corporate Australia and promote ecologically sustainable and socially just enterprises through judicious investment.
Ethical investment (sometimes referred to as green, socially responsible or conscious investment) comes from the desire to ensure that an investor’s investments are working in the same direction as an investor’s ethics. For many people this means investing in investments that protect the natural environment while contributing to a just and sustainable human society. Ethical investment has two sides:
- avoiding unethical investments that damage others or the environment
- promoting environmentally and socially responsible investments such as green and sustainable technologies.
Made to a project that has run successfully as a pilot project and requires a formal external evaluation before seeking major support or sponsorship. The grant effectively works as a leveraging tool, enabling the recipient to seek further funding with accurate, extensive and impartial information on their project for potential grantmakers to consider.
A family foundation is a descriptive term used to refer to private foundations that have been established by a family. They are either run by family members or managed by members of the original donor’s family with, in most cases, second or third generation descendants serving as trustees or directors on a voluntary basis.
The word ‘foundation’ has no precise legal meaning, and can be used by many different types of organisation. In philanthropic terms, it is usually used to refer to a trust designed to make grants to charities or to carry out charitable purposes. It may also be used to refer to a fund which exists to provide ongoing support to a particular organisation, or to a charitable organisation itself.
A fund is a legal vehicle which manages and/or holds trust property to make distributions to other entities or persons.
A chronological pattern of making grants, reviewing proposals and grantee notification. Some foundations make grants at set intervals – for example, quarterly, semi-annually – while others operate under a continuous cycle.
Fundraising is the practice of seeking funds for the support of a particular organisation, individual or cause.
Fundraising and philanthropy are not the same thing, although they are often confused. Put simply, philanthropy is the act of giving; fundraising is the act of asking.
The professional association for fundraisers in Australia is the Fundraising Institute of Australia.
In philanthropic terms, the word funds can refer to several things:
- In simplest terms, it is the plural of ‘fund’.
- More often, ‘funds’ are used to refer to financial resources.
A gift fund is a fund maintained to receive gifts or deductible contributions made to the fund, authority or institution for its principal purpose. An organisation must maintain a gift fund in order to be eligible for endorsement as a deductible gift recipient (DGR). For more information about Gift Funds, see the Australian Tax Office (ATO) website.
The term governance is used in a number of different ways. In philanthropic terms, it is generally used to refer to the way an organisation is guided internally, including the way in which important decisions are taken and the processes an organisation has to ensure accountability of its managers.
A government-initiated foundation is a descriptive term for a grantmaking foundation which has been established by an arm of government but is not necessarily government-controlled.
A grant is a gift (usually of money) given for the common good. Most grants are given for a particular purpose. Grants are most commonly made to not-for-profit organisations, but may also be made to individuals, often in the form of a scholarship or fellowship for study or research.
Individual or organisation that makes a grant. The term ‘grantmaker’ is a descriptive term and may be used to refer to many different types of organisation or individual.
Grantmaking is the process of providing a grant (a sum of money) to an individual or organisation so that they may carry out activities for the common good. In Australia, grantmaking frequently refers to the provision of grants to not-for-profit organisations by philanthropic foundations and companies.
A grantseeker is an individual or organisation actively seeking grants or funding from philanthropic sources.
Impact investing refers to investments made based on the practice of assessing not only the financial return on investment, but also the social and environmental impacts of the investment that happen in the course of the operations of the business and the consumption of the product or service which the business creates. An impact investor seeks to enhance social structure or environmental health as well as achieve financial returns.
A donation of goods or services, time or expertise, rather than cash or appreciated property. Also known as ‘pro bono’.
Individual donors are those people who are making donations from their personal finances, but have not established a legal vehicle for their giving.
In philanthropic terms, individual is a term used to indicate a person who is unattached to an organisation. Most Australian philanthropic foundations are unable to fund individuals except via scholarship or fellowship funds or travel grants for professional purposes.
Knowledge management is a term relating to systems which enable the effective creation, sharing, storage and application of knowledge.
This may include both explicit knowledge (that which is easily accessible and clearly articulated to anyone who reads, sees or hears it) and tacit knowledge (that which is unwritten and not openly expressed, but is understood through a synthesis of experience, shared values, and cultural understandings).
Knowledge management is important to philanthropy because of the large quantities of knowledge, which philanthropic foundations generate through their grant-making work. It can be argued that sharing knowledge is directly related to the mission and aims of most charitable foundations.
Licensed trustee company
See Trustee company.
In philanthropic terms, major support is defined as funding and/or other support which constitutes a large proportion of a project or organisation’s core costs.
A grant or gift made with the specification that the amount donated must be matched one a one-to-one basis or some other prescribed formula. See also ‘Challenge grant’.
Micro-volunteering describes a task done by a volunteer, or a team of volunteers, without payment, either online via an internet-connected device, including smartphones, or offline in small increments of time, usually to benefit a not-for-profit organisation, charitable organisation, or non-governmental organisation. Micro-volunteering is a form of virtual volunteering. It typically does not require an application process, screening or training period, takes only minutes or a few hours to complete, and does not require an ongoing commitment by the volunteer.
Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services.
A Fund established by, or named for, an individual, family, corporation or other group to carry out the charitable interests of the donor(s) or deceased/honoree.
Funds given to support a particular organisation selected by the donor at the time of the gift.
Not-for-profit / non-profit
A not-for-profit organisation is an organisation whose primary objective is something other than the generation of profit, and which does not distribute any profit to the organisation’s members. A not-for-profit organisation may have a ‘profit’ – or surplus – left over after operating costs, but whereas a for-profit business would distribute that profit to its owners, shareholders or members, a not-for-profit must use the surplus to further the purpose of the organisation and its activities.
Not-for-profit organisations are entitled to pay salaries and engage in activities which will earn money such as charging for services, selling or leasing property, and investing in shares.
Not-for-profit organisations range from sporting clubs and hobby groups to community centres, neighbourhood houses, traditional charities, disability support groups, aged care homes. There are more than 600,000 not-for-profit organisations in Australia.
A contribution given to cover an organisation’s day-to-day on-going current expenses, such as salaries, utilities, office supplies and other administrative costs.
Many charitable trusts are established in perpetuity, meaning that they are established with the intention that they will continue forever.
Whether perpetuity is desirable, or whether it is more useful to spend a foundation’s assets in the short term, is a much-debated issue in philanthropy.
Public benevolent institution (PBI)
A public benevolent institution (PBI) is a type of deductible gift recipient (DGR) whose dominant purpose is the direct relief of poverty, sickness, destitution, suffering or misfortune, and for the benefit of the community or a section of it.
PBIs are a subcategory of the ‘welfare and rights’ category listed in Division 3 of the Income Tax Assessment Act 1997. The Australian Tax Office (ATO) has issued a ruling on the definition of PBI in TR 2003/5, which is available on the ATO website.
A grant or funding program where various ‘partners’ have input into the project. In some cases, this may refer to joint funding between government and philanthropic sources. It may also refer to partners who give resources in kind.
Philanthrocapitalism is often defined as the practice of applying business methods and measures to philanthropy, or harnessing the power of the market to achieve the goals of social change. It is seen as partly championed by those who have made large fortunes in the financial markets. Philanthrocapitalists often expect financial or business returns over the long term, or secondary benefits from their investment in social programs.
Philanthrocapitalism is closely aligned to venture philanthropy and social enterprises, and definitions differ on how close the overlap is.
The planned and structured giving of time, information, goods and services, voice and influence, as well as money, to improve the wellbeing of humanity and the community.
Given to a project for the purpose of carrying out a trial, which will enable the outcomes to be evaluated before any further funding or expansion of the project. Pilot projects are often for a duration of one year.
A pilot project is generally a project which is designed as a test or trial to demonstrate the effectiveness of a full program.
Private ancillary fund (PAF)
A private ancillary fund is a legal structure which is often used by families, individuals or companies to establish grantmaking foundations. A PAF must only make grants and is not permitted to carry out charitable programs.
Private charitable fund
A private charitable fund is a privately controlled charitable trust established during the founder’s lifetime and operating solely for charitable purposes. It will usually have the power to make grants to charitable organisations, and may also have the power to apply its funds for its own charitable purposes.
- A private charitable trust is entitled to be endorsed as a Tax Concession Charity and will therefore be exempt from income tax, including capital gains tax.
- It need not lodge income tax returns unless specifically required to do so by the Australian Tax Office (ATO).
- Gifts to private charitable trusts are not tax deductible, but in some circumstances, family discretionary trusts can make distributions to private charitable trusts in a tax effective manner
- A private charitable trust must fund charitable purposes, but need not be limited to funding only DGRs.
A private foundation is a descriptive term generally used to refer to a non-governmental, nonprofit organisation established by an individual or group of individuals, which is governed by a trustee or board of trustees and which makes grants for the public benefit.
Generally a private foundation will have a corpus of funds which is invested, and the income is given out in the form of grants. Some private foundations are limited to making grants to particular organisations, or to particular geographic areas. A private foundation must be guided by the will or trust deed, which is the legal document by which the foundation came into being.
The term pro bono comes from the Latin pro bono publico, ‘for the public good’. Pro bono generally refers to the provision of professional services voluntarily and free of charge. It is most commonly used to refer to legal services, but can also refer to other types of professional service such as accounting or auditing.
In philanthropic terms, a program may be defined as:
- An area in which a foundation funds or has interests (as in program areas).
- A series of events, actions or services intended to meet a particular need.
Public Ancillary Fund (PuAF)
A Public Ancillary Fund (PuAF) is one of 2 types of ancillary funds which is entitled to endorsement as a deductible gift recipient (DGR). A PuAF collects tax deductible donations from the public which it distributes to DGRs covered by item 1 of the table in subsection 30-15 of the Income Tax Assessment Act 1997.
A PuAF has the following characteristics:
- It exists only to collect, hold and distribute gifts to item 1 DGRs and must not carry on other activities.
- The public is invited to contribute the fund.
- The public participates in the governance of the fund (usually through the majority of trustees being representatives of the public).
- It cannot make gifts to other ancillary funds.
A public fund is a tax deductible fund with three main characteristics:
- It is the intention of the founders that the public will contribute to the fund.
- The public, or a significant part of it, does in fact contribute to the fund.
- The public participates in the administration of the fund. For non-government public funds, this means that the fund must be administered or controlled by persons considered to have a degree of responsibility to the community, either because of their tenure of a public office or because of their position in the community. Among those entitled to be Responsible Persons are church authorities, judges, ministers of religion, solicitors, doctors, mayors and councillors.
Individual or organisation that receives a grant.
Other terms that fit this definition:
A responsible person as defined by the Australian Taxation Office (ATO) is an individual judged to have a degree of responsibility to the general community. The ATO requires the majority of trustees, or the majority of the board or committee of an incorporated trustee, of an ancillary fund to be Responsible Persons. A private ancillary fund (PAF) must have among its trustees or on its board of directors at least one independent person who is a Responsible Person.
The ATO’s model trust deed for PAFs defines a responsible person as an individual who:
- performs a significant public function
- is a member of a professional body having a code of ethics or rules of conduct
- is officially charged with spiritual functions by a religious institution
- is a director of a company whose shares are listed on the Australian Stock Exchange
- has received formal recognition from government for services to the community or
- is approved as a Responsible Person by the Commissioner.
In philanthropic terms, a scholarship is defined as a payment to a student to cover school fees, textbooks and other educational expenses such as travel and accommodation costs. Scholarships may be one-off or ongoing payments. Most scholarships are awarded on academic merit, and some also have conditions attached such as the university or school at which the student will study, the area of study, the economic circumstances of the recipient or the gender or race of the recipient.
Social enterprises are an innovative breed of businesses that exist to create a fairer and more sustainable world.
They could be a graphic design company creating jobs for ex-offenders, or a gym providing affordable wellbeing services to the community, or a retailer selling toilet paper and donating 50% of their revenue to charity.
Social enterprises must do 3 things:
- Have a defined primary social, cultural or environmental purpose consistent with a public or community benefit
- Derive a substantial portion of their income from trade
- Invest efforts and resources into their purpose such that public/community benefit outweighs private benefit.
(Source: Social Traders)
Social impact bond
A social impact bond, also known as a pay for success bond, is a contract with the public sector in which a commitment is made to pay for improved social outcomes that result in public sector savings. The expected public sector savings are used as a basis for raising investment for prevention and early intervention services that further improve social outcomes.
Social return on investment (SROI)
Social return on investment (SROI) is a principles-based method for measuring extra-financial value – that is, environmental and social value not currently reflected in conventional financial accounts– relative to resources invested. It can be used by any entity to evaluate impact on stakeholders, identify ways to improve performance, and enhance the performance of investments.
The SROI method as it has been standardised by the SROI Network provides a consistent quantitative approach to understanding and managing the impacts of a project, business, organisation, fund or policy. It accounts for stakeholders’ views of impact, and puts financial ‘proxy’ values on all those impacts identified by stakeholders, which do not typically have market values. The aim is to include the values of people that are often excluded from markets in the same terms as used in markets, that is money, in order to give people a voice in resource allocation decisions.
Social lending (sometimes known as peer-to-peer lending, or P2P lending) is a breed of financial transaction (usually lending and borrowing) which occurs directly between individuals (or ‘peers’) without the intermediation of a financial institution. Social lending is usually a for-profit activity.
Sponsorship is a term generally used in the context of corporate giving. It usually refers to an arrangement in which the sponsor, generally a company or individual, supports an event, activity, organisation or person through the provision of money, goods or services.
A sponsorship typically provides a tangible benefit to both the recipient (which benefits through receiving material support) and the sponsor (which benefits via enhanced public image and access to a wider audience). The recipient will usually be required to provide some service back to the sponsor, such as advertising or tickets. There is often a GST implication.
Tax concession charity (TCC)
A tax concession charity is a fund or institution which has been endorsed as charitable by the Australian Taxation Office. It is important to note that not all organisations which are tax exempt are actually tax concession charities. An organisation which has been endorsed will be in possession of a certificate from the Australian Taxation Office which states that it has been endorsed as a Tax Concession Charity, or an Income Tax Exempt Charity.
Tax deductible gifts
In order to be tax deductible, a gift must fulfil certain criteria. These include:
- The gift must be made to a deductible gift recipient (DGR).
- The gift must really be a gift.
- It must be a gift of money or a certain type of property.
- The gift must comply with any relevant gift conditions.
Some charities are not DGRs and therefore cannot receive tax deductible gifts.
A testamentary trust is a trust which has been established through a will or codicil and arises from the death of the testator. The term ‘testamentary trust’ is generic, as there are a number of different types of trust which can be established under a will.
Many Australian philanthropic foundations are testamentary trusts, which have been established for public charitable purposes. A large number of testamentary trusts in Australia are administered by professional licensed trustee companies (LTCs).
- Charitable testamentary trusts are entitled to be endorsed as Tax Concession Charities in order that they are exempt from income tax and entitled to refunds of franking credits on dividends they receive.
- A testamentary trust is generally not a deductible gift recipient (DGR) and is not necessarily legally required to make grants only to DGRs.
- Trustees of testamentary trusts may be the same persons as the estate’s executors, or they may be separately appointed.
- The trust may be established with a specific sum, assets or by committing the residuary estate to it.
In simple terms, a trust is a fund or property legally held or administered by a trustee for the benefit of others. There are many different types of trust, not all of which are for the public benefit. In philanthropic terms, a charitable trust is the legal vehicle used to hold and invest money or property which is disbursed for the public benefit to charitable causes and organisations. There are many types of charitable trust. They include:
- Testamentary trust
- Private charitable trust.
A private ancillary fund is also a trust.
A trust deed is a document which conveys the title to property to the trustee(s), and which sets out the purposes for which a trust has been formed, and the powers and obligations of the trustee(s).
In broad terms, a trustee is a person or organisation managing a trust on behalf of the person who created it. There are many types of trust, including charitable trusts (or foundations). Trustees of charitable trusts in Australia may be individuals, groups of people or organisations. The types of people who are trustees will depend on the legal structure of the trust.
A trustee company, or trustee corporation, provides a wide range of wealth management services including estate planning, administering deceased estates, managing the financial affairs of persons unable to look after their own interests, and administering charitable trusts and foundations. They are authorised under individual state or territory legislation to carry out those duties and must also comply with the relevant Trustee Act in their state or territory. Trustee corporations are supervised by the relevant Attorney General or equivalent, and are required to maintain adequate levels of capital and insurance and to carry out their duties in an ethical, professional and efficient manner.
There are 11 private trustee corporations in Australia as well as a number of state-based public trustees. The peak body for trustee corporations is the Trustee Corporations Association of Australia (TCA).
In Australia, trustee companies administer a large number of charitable trusts and foundations.
Venture philanthropy is the application of venture capital principles and practices, such as long-term investment and capacity building, to not-for-profit organisations. Venture philanthropy assists not-for-profit organisations in the plan, launch and management of new programs or social purpose enterprises.
Wealth is defined as an abundance of money and possessions. While philanthropy has traditionally been seen as an activity for very wealthy people, it is becoming accepted that there are philanthropic structures and activities which anyone can participate in regardless of wealth levels.
A will is a legal document containing directions for the disposal of a person’s property after their death. A will may include provisions for philanthropic giving, such as a bequest to a charity, or directions for establishing a testamentary trust.
Workplace giving is a process allowing employees to donate money to one or more charities via pre-tax payroll deductions (similar to salary sacrifice). The employee must consent to the deductions. The consent can be given for ongoing regular donations (usually on each pay day) or a one off donation. Charities to which donations are made via workplace giving must have deductible gift recipient (DGR) status. A DGR is an organisation approved by the Australian Taxation Office (ATO) as being entitled to receive tax deductible donations.