Page Contents

Understanding your Church Structure
Summary of differences between the types of entities
Denominational requirements
Structure Diagrams

Understanding Your Church Structure

Understanding the church’s structure is the first step in managing and accounting for your church activities. It will help in determining your legal obligations (including taxation), understanding who is responsible for different areas of the church, and will assist with monitoring the financial performance of different church activities.

The church can be an unincorporated entity, an incorporated association or a company limited by guarantee. The entity status of a church will determine reporting requirements, statutory requirements and treatment of specific items for accounting and other purposes.

ABN requirements

A not-for-profit organisation uses its ABN to:

• Register for goods and services tax (GST) and claim GST credits;
• Register for pay as you go (PAYG) withholding;
• Apply to the Australian Taxation Office (ATO) for endorsement as a deductible gift recipient (DGR), tax concession charity or income tax exempt fund; and
• Interact with the ATO on other taxes, such as fringe benefits tax (FBT).

Charity status

Churches (with a purpose of advancing religion) are considered charities under the Charities Act 2013 and if registered with the ACNC, are given charity status and income tax exemption.

Once registered with the ACNC, churches are considered concessional and the Australian Tax Office status makes available to them the following tax concessions:

• FBT Rebate;
• GST Concessions; and
• Refunds of Franking credits.

Detailed information on the benefits of charitable status can be found at the ATO website.

Unincorporated Association

Many churches, particularly smaller churches, operate as unincorporated entities. This essentially means that the church is not a separate legal entity to the members associated with it. Apart from the agreement to establish a church, no action is required to set up an unincorporated association.

Many churches are congregations of main stream denominations and whilst unincorporated, operate under the denominational mandate.

What is an Incorporated Association?

An incorporated association is an organisation established as a separate legal entity to its members. The entity is incorporated in accordance with legislation applicable under the state or territory where the association is based.

Operating as an incorporated association has consequences for a church and prevents distributing profits or assets for the benefit of specific people – both while it operates and when it winds up. Some advantages of incorporation are:

• Protection of the members against personal liability for debts and other legal obligations of the organisation;
• The ability to buy, own and sell property in the name of the organisation;
• Potentially greater certainty and acceptability to lenders and suppliers;
• 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; and
• Greater financial accountability to a statutory body.

Some disadvantages of incorporation include:

• Greater complexity; and
• Subjecting the church to legislation and requirements that do not apply to unincorporated associations.

Incorporated associations must also comply with certain legal requirements, including:

• An annual general meeting must be held within 5 months of the church year end;
• Annual financial statements should be prepared and lodged with the ACNC. See this page of the ACNC Website which covers the specific requirements for each state. The financial statements prepared will be required to meet the reporting requirements of the ACNC. This is covered in the ACNC section of this guide. This webpage also refers to the different audit or review requirements of the financial statements.
• The church must notify the government department that oversees the state legislation of changes to its details or any special resolutions made;
• The church must include the registered name on all notices, advertisements, publications and business documents.

What is a Company Limited by Guarantee?

A company limited by guarantee is an organisation set up as a company under federal legislation. If a company that is limited by guarantee is wound up, its members are limited to paying a guaranteed nominal amount (usually between $20 and $100). A company limited by guarantee has all of the advantages of an incorporated association discussed above but also has some additional advantages:

• It can carry out activities anywhere in Australia, not just in the state or territory where it is based; and
• It can carry on unlimited trading activities on a not-for-profit basis.

The legal requirements of a company limited by guarantee are even more onerous than those of an incorporated association. Companies limited by guarantee must comply with all of the relevant legislation in the Corporations Act 2001. A copy of the act is available on the Commonwealth of Australia Law website.

Generally a church that is a company limited by guarantee should contact the ACNC for anything relating to its charitable status and ASIC for anything relating to its corporate status.

See this section of the ACNC website for more information including, obligations to both the ACNC and ASIC.

How do we find out what type of entity our church is?

Information on the status of your church is available from the ABR website. This also contains details of taxation status.

Summary of Differences Between the Types of Entities

Denominational Requirements

Where churches are associated with a particular denomination they can have certain financial reporting obligations and there may be specific treatment required of some items, such as property, plant and equipment, investment management and salary packaging. You should consult with the relevant denominational authority to find out its specific accounting and financial reporting requirements.

The church’s financial report may also be required to be audited.

Structure Diagrams

Structure diagrams are a useful tool that can assist church members and leadership in clarifying their understanding of different areas of the church. They can also be used for future church treasurers and key personnel to quickly obtain an understanding of the church.

You may wish to include the following in your structure diagrams:

• All areas related to the church including charitable funds, opportunity shops, book shops and special interest groups;
• ABNs of each related area of the church;
• Tax treatments for each area e.g. GST treatment, PAYG withholding tax payable;
• Tax concessions available e.g. DGRs, public benevolent institutions, non-profit sub-entities;
• Contact name and phone number for the person(s) responsible for each area;
• Operating hours for ministries that deal with the public, such as opportunity shops and book shops; and
• Meeting times and places for special interest groups.

Example Structure Diagram