Not-for-profit Law
Legal help for community organisations

Grant funding

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Grants and government funding

Another common source of funding for not-for-profits is through philanthropic or government grants. In general, 'grant' is usually used to describe a one-off provision of money, whereas funding describes a longer-term agreement. Organisations that give out grants or funding to community organisations (grant-makers) include:

  • government bodies or statutory authorities (federal, state or local government)
  • philanthropic or other grant-making organisations, and
  • corporate bodies (that is, businesses).

This section is about some of 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 new DSS Streamlined Grant Agreement. 

What should we do before applying for grants or funding?

There are a number of checks your organisation needs to do make before applying for a grant or funding.

Organisation's internal requirements

Your organisation should check its constituent documents (constitution or rules) to see if they contain any requirements about 'funding sources'. 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 / rules before applying for grants or funding from external sources. For more information about making changes to constituent documents, see Not-for-profit Law's page on rules and constitutions.

Grant-maker requirements

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.  For more information on DGR go to Not-for-profit Law's page on DGR.

Grant amount and conditions

It is common for grants to 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
  • 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 do not understand, it is 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.

There are several 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
  • the conditions are too restrictive in terms of how you spend your money or the activities your organisation can undertake, and/or
  • the obligations under the conditions continue too far into the future.

While receiving a grant is good news, it is important to check conditions attached to any grant before apply 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 we get the grant or funding?

It is easy to lose sight of the obligations tied to the funding when your organisation is busy utilising the funding to further your its goals. It is 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).

What happens if we don'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, and
  • not complying with any additional material outside of the contract itself (for example, other Acts or regulations).

Failure to comply may also damage your reputation with grant-makers and make it difficult for your organisation to get other grants or funding.

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 in our Related Resources section below.

It is 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 / or seek legal advice.

GST

For more information on the GST treatment of grants money, refer to the GST section of the ATO's website (see link in our Related Resources section 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 Not-for-profit Law's GST page.

Income Tax

Generally, unless the 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 Not-for-profit Law's page on Income Tax.

Extra Resources

Grants and philanthropy information

Australian Tax Office (ATO) resources
Last Updated: 22 August 2017

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