On this page
- Grants and government funding
- What should your organisation do before applying for grants or funding?
- Where and how should your organisation apply for grants and funding?
- What should your organisation do before accepting the grant or funding?
- What happens after your organisation gets the grant or funding?
- What happens if your organisation doesn’t comply with grant or funding conditions
Grants and government funding
The term 'grant' is typically used to describe funding linked to short term project funding or the one-off provision of money. ‘Funding’ is the overall term (grants are one type of funding) and is sometimes a term used to describe longer-term agreements. These are not legal terms.
Organisations that give out grants or funding to not-for-profits (grant-makers) include:
- government bodies or statutory authorities (federal, state or local government)
- philanthropic or other grant-making organisations, and
- corporate bodies (businesses)
This page considers the main legal issues that may arise for community organisations when they apply for and receive a grant or funding.
What should your organisation do before applying for grants or funding?
There are a number of things your organisation must do before applying for a grant or funding.
Check your organisation's internal requirements
Your organisation should check its governing document (constitution or rules) to see if there are any requirements about 'funding sources'. For example, your constitution might expressly prevent the organisation applying for or accepting funding from certain types of businesses (such as tobacco or gaming companies) or even from government (some groups want to be entirely independent of government). Or your constitution may say that only a certain percentage of the organisation’s income can come from certain sources such as government.
If there are clauses that prohibit your organisation from receiving funds from outside bodies (or it is not consistent with your organisation's objects or purposes to do so), your organisation will need to comply with its constitution or rules. Alternatively, your organisation will need to make a change to its constitution or rules before applying for grants or funding from external sources.
Check the grant-makers requirements
Organisations may have different legal limitations depending on their legal structure. For example, most philanthropic organisations and many government organisations will only give grants and funds to community organisations that are incorporated.
Another example is that certain philanthropic organisations have a (legal) requirement that they can only give grants or funding to organisations that have deductible gift recipient (DGR) tax status, that are registered charities or are otherwise endorsed as an income tax exempt charitable entity.
Check the grant amount and conditions
Some funding is given as a 'donation' - for taxation purposes this means the money or property is given voluntarily with no material benefit to the donor (the person or organisation making the donation).
Visit the Australian Taxation Office (ATO) website for more information on the difference between gifts and contributions. If certain types of conditions attach to a donation, it can change the way the ATO characterises it. In these circumstance, the funding may not be regarded as a donation, and GST will be payable. This varies from grant to grant so you will need to check with the particular grant maker and your accountant.
Other funding (for example, government project grants) will have a series of conditions attached to it. When you receive grant money, your organisation will be considered to be in a contract with the grant-maker. The grant conditions will be the terms of that contract and your organisation will be under a legal obligation to comply with them.
These conditions may involve things like:
- how your organisation is to receive and spend the grant money
- the date by which your organisation's relevant project and any relevant milestones have to be completed
- what you must do with any unspent funds
- any insurance, confidentiality and privacy requirements
- the use of any logos of the grant-maker and treatment of intellectual property (for example, the right to reproduce or use reports or educational materials developed with the funding)
- how often your organisation must report to the grant-making organisation
- what kind of information your organisation must provide to the grant-making organisation in its reports, and
- whether your organisation is required to prepare audited accounts (which can be costly, especially if these are not currently obtained by your organisation)
Where and how should your organisation apply for grants and funding?
Before you apply for a government grant, always obtain a copy of any relevant grant eligibility guidelines and government policies. A knowledge of any relevant eligibility guidelines or government policies will be essential when you are interpreting and completing the grant application forms.
A government department or government agency decision about whether a grant or funding should be given to an organisation could be an 'administrative decision'. Certain limited appeal rights attach to administrative decisions. If you are unhappy with the outcome of a government grant or funding applications process, contact the government department or agency to ask about your review rights and seek legal advice.
What should your organisation do before accepting the grant or funding?
Read the conditions. If there are any conditions that you don't understand, seek external advice. Taking this step might prevent problems in the future which may arise if the condition was misunderstood or misinterpreted.
Some government funding may have conditions like complying with a legal regime that your organisation would not normally need to comply with. This may include privacy laws. This can have a significant impact on the way your organisation is run.
While news of funding is normally met with joy or even relief, there are reasons why your organisation may not want to agree to all the conditions without further negotiation, including:
- the conditions are inconsistent with your organisation's goals, purposes, values or objectives
- the conditions are too administratively onerous (for example, will receiving the grant take key resources away from the organisation's core business and require your organisation to establish various processes to carry out the terms of the grant?) Such considerations could include management, supervision requirements, accounting, auditing, record-keeping and tax registrations (for example, for GST)
- the conditions are too restrictive in terms of how you spend your money or the activities your organisation can undertake, or
- the obligations under the conditions continue too far into the future (for example confidentiality obligations)
Check conditions attached to any grant before applying for and accepting it. Your organisation may wish to seek legal or accounting advice on the financial and other possible implications that receipt of a grant (particularly a large grant) will have for your organisation.
What happens after your organisation gets the grant or funding?
It's easy to lose sight of the obligations tied to the funding when your organisation is busy using the funding to further its goals. It's a good idea to periodically review the conditions to ensure your organisation complies with them.
In general, your agreement (contract) with the grant-making organisation will end when you finish doing the project or activities for which the grant was given, or in some other manner allowed by the agreement. Your organisation may be required to provide the grant-making organisation with a final report (sometimes known as an acquittal or release report).
For more information on the GST treatment of grants money, refer to the GST section of the ATO's website. The guide provides case studies on when you may have to pay GST on a grant. To find out more about whether your organisation needs to register for GST and GST concessions see our resources on GST.
Generally, unless your organisation is exempt from paying income tax, an organisation will be required to pay income tax on grants or funding received. To find out more about income tax exemptions, see our webpage on income tax.
What happens if your organisation doesn’t comply with grant or funding conditions?
Failure to comply with these conditions may be considered a 'breach' of the contract. Your community organisation may be required to repay the grant or funding.
Common failures to comply with a grant agreement include:
- not using the funds as directed
- not returning surplus funds
- not reporting back to the grant-maker as required (for example, expenditure of funds) and
- not complying with any additional material outside of the contract itself (for example, legislation or regulations)
Failure to comply may, depending on the terms of the grant agreement:
- result in further payments not being made to your organisation
- damage your reputation with grant-makers
- make it difficult for your organisation to get other grants or funding, or
- make your organisation ineligible to apply for future grants
The content on this webpage was last updated in March 2022 and is not legal advice. See full disclaimer and copyright notice.