Blog | 18/01/2017

To Pay or Not to Pay – Directors and Committee Members of Not-for-profit and Charitable organisations

The retention of directors, skilled and otherwise, on the boards of not-for-profit and charitable organisations is an important way of ensuring an organisation’s success, but can appropriate remuneration be provided to those people without jeopardising the tax concession endorsements held by a charitable organisation in particular?

Dominic McCormack of Bowden McCormack, Lawyers + Advisers, outlines the current position in the Northern Territory.

Three types of entity are commonly used in the Northern Territory for the operation of not‑for‑profit and charitable organisations.  These are:

  1. Associations under the Associations Act (NT);
  2. Aboriginal or Indigenous Corporations under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (“CATSI Act”); and
  3. Companies limited by guarantee under the Corporations Act 2001 (Cth).

It is less common for trusts to be used, although this does occur.

Upon incorporation, application will then be made to the Australian Charities and Not‑for‑profits Commission (ACNC) to seek not-for-profit and, potentially, charitable status.  The key difference between a charity and other forms of not-for-profit organisation is that a charity has been endorsed by the Australian Taxation Office (ATO) as having charitable status and thus as qualifying for charity tax concession. A common type is the Public Benevolent Institution, or PBI. It does not mean that the other forms of not-for-profit organisation cannot access tax concessions, however formal recognition is preferable. This is so as it clearly guarantees various tax concessions, the most important of which is the recognition that income tax is not payable on income generated by the organisation in a financial year.  On many occasions, the receipt of tax concession status is crucial to the operations and ongoing survival of many organisations.

While such concessions allow for the attraction of management staff due to generous salary‑packing benefits, the ability to provide remuneration to a committee member or a director of such organisations is not so well understood.


Incorporated not-for-profit organisations often apply for PBI status with the ATO through the ACNC so as to be eligible for tax concessions.  To do so, the organisation’s objects must be at least predominantly for the direct relief of poverty, sickness, destitution or helplessness.  Any other purposes and operations must be incidental only to the public benevolence or of minor extent and importance.  The consideration of whether an organisation is operating in this way is a matter of fact and degree – that is, it is an objective question.

Further, a PBI must not be carried on for the purposes of profit or gain to particular persons, including the individual members of the organisation.  So what does that mean for committee members or directors, particularly when these people may also be members and a target of the organisation’s objects?

The common law position is that committee members and directors are not allowed to be remunerated for their role unless the constitution or rule book of their organisation explicitly says so.  Given that this is the common law position, does legislation say otherwise?

Associations Act

The NT’s Associations Act is silent when it comes to the specific question of remunerating committee members.  However, section 13A does refer to reasonable remuneration of a member of the association for work done by the member, either for and on behalf of the association, and at the request of the association.  It would seem that in this instance, the common law continues to apply and therefore committee members are entitled to be remunerated provided that the organisation’s constitution says so, and the remuneration is ‘reasonable’ (with more comment on that aspect later).


With respect to Aboriginal corporations under the CATSI Act, the position is much clearer.  Here, a director of such a corporation is considered to be a “related party” and is entitled to receive remuneration.  While member approval is not required to give such a financial benefit, what the board of directors must consider is whether the giving of such remuneration is “reasonable” given:

  1. the circumstances of the corporation giving the remuneration; and
  2. the related party circumstances (including the responsibilities involved in the employment, the employee’s experience and performance record, and the employee’s length of service).  (section 287-1).

Corporations Act

The Corporations Act provides specifically that the directors of a company are to be paid the remuneration that the company determines by resolution (section 202A).  The company may also pay the directors’ traveling and other expenses that they properly incur in connection with the company’s business.  However, special provision is made in this Act for the payment of remuneration to the directors of public companies – companies limited by guarantee are considered to be public companies.

As under the CATSI Act, the Corporations Act considers a director (and their spouse) to be a “related party” of a public company.  It provides that member approval is not needed to give a financial benefit if the benefit is remuneration to a related party as an officer or employee of the public company, and to give the remuneration would be reasonable given the circumstances of the public company giving the remuneration and the related party’s circumstances (including the responsibilities involved in the office or employment) (section 211).


The ACNC’s view is that staff or responsible persons (such as board or committee members or trustees) can of course be paid for their work, but not an unreasonable amount.


It is clear, then, that the committee members and directors of not-for-profits and PBIs are entitled to receive remuneration for their respective roles.  In fact, it is in the public interest that such organisations are managed competently and diligently, while keeping as the foremost consideration the objects of the organisation as set out in their constitution or rule book.

In order to combine the common law and current legislative approaches (and adhere to the ACNC’s view), such organisations should ensure that two aspects are competently addressed in order to safeguard their tax concession status:

  1. The remuneration of committee members or directors should be explicitly provided for in the constitution or rule book; and
  2. At all times the remuneration must be able to pass the test of “reasonableness” – that is, it must take into account the circumstances of the organisation, the responsibilities involved in the employment, the employee’s experience and performance record, and their length of service.

For advice as to whether your constitution or rule book adequately provides for the remuneration of its committee members or board of directors, or if there are doubts surrounding the reasonableness of remuneration currently paid to those persons, please contact Bowden McCormack on 08 8941 6355 or email the writer at .