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Seeking funding is an ongoing challenge for many not-for-profits. You may seek funding in a number of ways. Common methods are seeking public and private funding. It's important not to forget the legal aspects of seeking funding, especially when entering into funding agreements.
Grants and government funding
Another common source of funding for not-for-profits is through philanthropic (trusts and foundations) or government grants.
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. The information is intended as a guide only, and is not legal advice. If you or your organisation has a legal problem you should talk to a lawyer before making a decision about what to do.
We also have a specific page on legal issues in grant funding agreements, including the suite of government grant agreement templates published by the Federal Department of Finance and the NSW Human Services Agreement.
What should we do before applying for grants or funding?
There are a number of things your organisation must do before applying for a grant or funding. For example, you will need to have the taxation status or legal structure that the funder requires.
Organisation's internal requirements
Your organisation should check its constituent documents (constitution or rules) to see if they contain any requirements about 'funding sources'. For example, your constitution might expressly prevent the organisation applying for or accepting funding from certain types of businesses (for example, tobacco or gaming companies) or even from government (some groups want to be entirely independent of government). Or it 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. For more information about making changes to constituent documents, see our webpage on rules and constitutions.
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. For more information on DGR go to our webpage on tax for not-for-profit organisations.
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; the funding may not be regarded as a donation, and GST will be payable. It varies from grant to grant so you will need to check with the particular grant maker and your accountant.
Other funding (government project grants, for example) will have a series of conditions attached to them. 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)
Read the conditions!
If there are any conditions that you don't understand, it's important that you 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, for example privacy laws. This can have a huge 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)
While receiving a grant is good news, it's important to 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.
It is 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 make sure that your organisation is complying 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).
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
Where and how should we apply for grants and funding?
There are many sites available to assist community organisations to find out what various government grants are available, and to help you with applications. We have included links to some below.
Before you apply for a government grant, it's always worth obtaining a copy of any relevant grant eligibility guidelines and government policies. A knowledge of any relevant eligibility guidelines or government policies will be useful when you are interpreting and completing the grant application forms.
It's worth noting that a decision by a government department or government agency in relation to 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, you should contact the government department or agency to ask about your review rights and seek legal advice.
For more information on the GST treatment of grants money, refer to the GST section of the ATO's website (see link below). The guide provides case studies on when you may and may not 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 webpage 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.
Grants and philanthropy information
Philanthropy Australia provides information about philanthropic giving and how not-for-profit organisations can seek philanthropic funding.
GrantConnect provides centralised publication of forecast and current Australian Government grant opportunities and grants awarded.