Not-for-profit organisations from time to time seek advice from us before embarking on an exciting new commercial or income-generating venture. Often, they are prompted to seek advice because they are concerned with ensuring that they do not compromise their not-for-profit and/or charitable status. Not-for-profit organisations must of course, by their very nature, not generate a profit for their members.

Not-for-profits can, however, carry out commercial activities and even activities intended to do little more than generate revenue. The key is to understand what is permissible, and what is not.

Word Investments Limited

A leading decision for these purposes is the High Court’s judgment in Commissioner of Taxation of the Commonwealth of Australia v Word Investments Limited [2008] HCA 55. In short, a majority of the Court held that a charitable not-for-profit is not precluded from generating profits where those profits will be put towards the pursuit of the organisation’s objects or purposes.

The case arose when Word Investments was refused a ‘charitable institution’ income tax exemption by the Commissioner of Taxation. Word Investments was an incorporated organisation established to generate profits, which it would subsequently distribute to other organisations to support the charitable and religious activities of those other organisations.

Consequently, the Commissioner of Taxation refused Word Investments’ application for an income tax exemption on the basis that the organisation was not charitable; arguing that its ‘basic function’ was to conduct business and generate profits, and not to carry out charitable or religious activities.

The High Court rejected this argument, saying that to point to the goal of the profit and isolate it would create a false dichotomy between ‘commercial’ and ‘charitable’ organisations.

The Court accepted that Word Investments’ business activities were not an object in themselves. Rather, by earning an income and passing it onto an appropriate other entity, that was in fact the means by which Word Investments achieved its own charitable objects and purposes.


The Word Investments decision confirmed that a charitable organisation can undertake commercial or income-generating activities so long as those activities are undertaken to give effect to the organisation’s charitable objects or purposes. In other words, resulting profits or revenue must be applied to those charitable objects or purposes. The decision remains authoritative to this day.

An informed decision by a not-for-profit to pursue a new commercial venture warrants an assessment both of the law and of an organisation’s specific objects or purposes (typically found in its constitution or rules).

Panetta McGrath can advise your not-for-profit organisation on any specific commercial activities you may be considering - whether your are at the early concept phase, or the activities are underway. Please contact our David McMullen at or telephone 9321 0522.