Presented by Vera Visevic 29 May 2018 · furniture and homewares at its Salvos Stores. 2....

Presented by Vera Visevic29 May 2018

MELBOURNE | SYDNEY | BRISBANE | CANBERRA | PERTH 1

1. Why commercialise?

2. Primary considerations in commercialising

3. What activities can NFPs undertake?

4. How much time can be spent on commercial activities?

5. How much money can be spent on commercial activities?

6. Structural considerations

7. Two case studies


http://www.google.com.au/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=0ahUKEwiRzK306ILWAhVSNrwKHUcMCdAQjRwIBw&url=http://www.resolvematters.ca/index.php?pid%3D5%26ref%3D29&psig=AFQjCNE-Z9wmageqTeGt5arWTJsBPmQU_g&ust=1504315175973532

NFPs

▪ Staying competitive

• There are approximately 600,000 NFPs in Australia

▪ Gaining and retaining members

• Increasing member expectations

▪ Corporate structures

• Federated organisations –inevitable duplication

Charities

▪ Staying competitive

• The ACNC is registering 9 new charities a day

▪ Managing cash flow

• Governments favouring funding models under which charities are paid after providing the services, such as the NDIS



The Innovation Index – Australian Not-for-Profit Sector 2015

▪ Objects/purposes of your NFP

▪ Legal implications, including loss of:

• Endorsements; or

• Tax concessions

▪ Structure / operation

▪ Costs

▪ Reputational risks


1. Commercial surplus used to further NFP purposes.

• NFPs are able to undertake commercial activities to generate a surplus to fund their NFP purposes. An NFP’s profit making from the commercial activities cannot be an end in itself.

• For example, the Salvation Army selling used clothing, furniture and homewares at its Salvos Stores.

2. Intrinsically NFP activities carried out in a commercial way.

• Commercial activities can be allowable where the activities are in line with the NFP’s purposes.

• For example, a NFP hospital charges patients for hospital stays.


3. Commercial activities directly carry out NFP purposes.

• NFPs can carry out commercial activities that relate directly to their purposes.

• For example, an organisation runs a nursery selling plants for the purpose of providing meaningful employment to people with disabilities.

4. Commercial activity by way of an investment.

• NFPs can conduct a commercial activity if that activity is simply a passive investment (preferably one that does not conflict with the NFP’s objects).

• For example:

- a homelessness charity invests its profits in stable, low-risk shares;

- a professional association buys a building. It uses one floor as its office and leases the remaining floors to third parties.


5. Commercial activities incidental to NFP purposes.

• NFPs may be able to undertake commercial operations where they are only incidental to the organisation’s primary purposes.

• For example, an organisation grows fruit to use to feed the homeless. The organisation occasionally sells surplus fruit to the public when they are not needed to feed the homeless.


▪ No hard and fast rule.

▪ My personal experience from helping NFPs get various endorsements is that an entity can spend a higher proportion of time conducting commercial activities in the start-up phase without affecting tax exempt status.

▪ However, remember not to pursue a commercial activity to the extent that it overrides the NFP’s charitable or income-tax-exempt entitling purpose.


▪ No hard and fast rule.

▪ Depends on tax exemptions.

▪ The more exemptions that a NFP has, the more difficult it will be to divert money away from its NFP purposes while still maintaining that its purposes have not changed.

▪ If the commercial activities are intrinsically part of the NFP’s purposes, then this is less of a problem than if the commercial activities are entirely unrelated to the NFP purposes.



NFP activities

CommercialactivitiesNFP Business

Separate entity

Parent NFP

Option A:

Enter into a Collaboration

Option B:

Integrate commercial activities within current

structure

Option C:

Set up a separate entity


▪ MYS received philanthropic funding to outfit a commercial kitchen and launch a food products enterprise.

▪ One year after its launch, it began selling its first product, MYS salad dressing.

▪ MYS began to increase its investment in the venture based on the sense that the business was breaking even.


▪ MYS believed it spent $3.15 to produce a bottle of salad dressing, which it then sold for $3.50.

▪ Analysis revealed that MYS had not considered the full cost of production, such as the workers’ downtime.

▪ When considering all the direct and indirect expenses, such as the kitchen manager’s salary, the cost per bottle reached $90.


Lessons to be learned

▪ Do not overlook the distinction between revenue and profit.

• If a NFP receives a donation of $100,000, all $100,000 can be applied to the pursuit of its NFP purposes.

• If a NFP generates $100,000 from a venture, some of the funds must be used to cover expenses of the venture.

• Typically, what is left over is a small portion of total sales.


▪ RSPCA Queensland has commercialised some of its operations:

• RSPCA Queensland runs pet shop ‘World for Pets’ which stocks pet accessories like collars, leads, beds etc .

• All profits from items sold by World for Pets goes toward RSPCA Queensland.

• RSPCA Queensland also offers services such as pet insurance, dog training and RSPCA Cremations known as ‘Pets at Rest’.

• ‘PetCloud’, an app that connects pet owners to pet sitters. 20% of the profits of PetCloud are donated to RSPCA Queensland.

http://www.google.com.au/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjRlIaA_IXXAhXBbrwKHcUZB5oQjRwIBw&url=http://www.canberratimes.com.au/news/rspca-pet-recap-20150327-1m8q7r.html&psig=AOvVaw3Kbv8Kj1lojYe8PMYO3epg&ust=1508821416548811


Lessons to be learned

▪ Consider whether activities undertaken for NFP purposes can be changed to become profit generating activities.

▪ Does your NFP have any activities/IP/ ideas that could have a wider application?

▪ Leverage activities/IP/ideas to generate an income.


Vera VisevicPartner, Charity & Not-For-Profit

Mills Oakley, SydneyPhone: +61 2 8289 5812

Email: [email protected]

DisclaimerThis PowerPoint presentation is intended to provide only a limited analysis of the subject matter covered. It does not purport tobe comprehensive, or to provide legal advice. Any views or opinions expressed are the views or opinions of the presenter, and notthose of Mills Oakley Lawyers as a Firm. Readers should satisfy themselves as to the correctness, relevance and applicability ofany of its content, and should not act on any of it in respect of any specific problem or generally without first obtaining their ownindependent professional legal advice.

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Presented by Vera Visevic 29 May 2018 · furniture and homewares at its Salvos Stores. 2....

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