Charity vs Charitable Trust: Key Differences Explained

Oct, 14 2025

People often use the words “charity” and “charitable trust” interchangeably, but the two legal forms are quite distinct. Knowing the difference matters whether you’re starting a new non‑profit, donating money, or advising a board. Below you’ll find a plain‑English breakdown of what each entity is, how they’re set up, and why the choice can affect tax, governance, and day‑to‑day operations.

What Exactly Is a Charity?

When you hear the term charity is a non‑profit organization that pursues a charitable purpose defined by law and is registered with the Australian Charities and Not‑for‑profits Commission (ACNC). In Australia a charity must meet one of the four ‘charitable purposes’: relief of poverty, advancement of education, advancement of religion, or other purposes beneficial to the community.

Key attributes of a charity include:

• Legal status: typically incorporated as an incorporated association or a company limited by guarantee.
• Governance: run by a board of directors or committee members who act as fiduciaries.
• Public benefit: the activities must be openly available to the community, not just to a closed group.
• Tax benefits: eligible for income‑tax exemption, GST concessions, and can issue tax‑deductible receipts if it holds Deductible Gift Recipient (DGR) status.

What Is a Charitable Trust?

A charitable trust is a trust created for a specific charitable purpose, where assets are held by trustees for the benefit of the community or identified beneficiaries. Unlike a charity, a trust does not have members or shareholders; it is governed solely by its trust deed the legal document that sets out the trust’s purpose, powers of trustees, and rules for asset distribution.

Typical features of a charitable trust:

• Established by a settlor who transfers assets into the trust.
• Managed by one or more trustees individuals or a corporate body legally responsible for administering the trust’s assets.
• Beneficiaries are either a defined group (e.g., scholarship recipients) or the public at large.
• Often used for endowments, scholarships, or long‑term charitable projects.

Legal Structure and Registration

Both charities and charitable trusts must comply with Australian law, but the registration pathways differ.

Charities register directly with the Australian Charities and Not‑for‑profits Commission (ACNC) the national regulator that maintains the charity register and oversees compliance. The ACNC checks the organization’s purpose, governance, and financial reporting.

Charitable trusts are subject to trust law under the Trusts Act 1973 (VIC) (or the equivalent state legislation) and must also be listed on the ACNC register if they wish to claim tax concessions. The trust deed is lodged with the relevant state authority, and the ACNC assesses the charitable purpose during registration.

Key differences in registration:

• Charities usually need a governing constitution; trusts rely on the trust deed.
• Charities must submit an annual ACNC progress report; trusts file a separate annual return if they claim DGR status.
• Charities can have members who vote on major decisions; trusts have no members.

Governance and Management

Good governance is essential for public trust, but the roles differ.

In a charity, the board (or committee) makes strategic decisions, appoints executives, and ensures compliance. Board members are typically elected by members, and they owe fiduciary duties to the organization.

In a charitable trust, the trustees hold legal title to the trust’s assets and must act in accordance with the trust deed. There are no shareholders or members to vote, so the trust’s direction is set by the deed and any amendments approved by the settlor (if allowed).

Governance checklist:

• Charity - clear board charter, regular meetings, conflict‑of‑interest policy.
• Trust - written trustee‑appointment process, deed‑compliant investment policy, clear beneficiary identification.

Tax Treatment and Benefits

Both structures can enjoy tax exemptions, but the pathway to DGR status (the ability to issue tax‑deductible receipts) differs.

A charity that obtains DGR status from the Australian Taxation Office (ATO) can provide donors with receipts that reduce taxable income. To qualify, the charity’s purpose must align with one of the ATO’s DGR categories.

A charitable trust can also be a DGR, but the ATO evaluates the trust deed to ensure the trust’s purpose matches a DGR category. Because trusts often hold a fixed pool of assets, the ATO scrutinises how income is distributed to beneficiaries.

Tax‑related attributes:

• Income‑tax exemption - both entities can be exempt if they are ACNC‑registered charities.
• GST concessions - available to charities; trusts must apply separately if they conduct taxable supplies.
• Fringe Benefits Tax (FBT) - generally not applicable to charitable purposes for either structure.

Practical Implications for Fundraising and Operations

Understanding the structural differences helps you plan how to raise money and run programs.

Charities often have an easier time attracting public donations because they can publicly display a registered charity number and issue DGR receipts instantly. They can also apply for government grants that require ACNC registration.

Charitable trusts, especially those set up as endowments, may appeal to legacy donors who want their gifts to be preserved and used over a long period. However, the lack of a membership base can make it harder to demonstrate broad community support.

Operational tips:

• If you need to run regular commercial activities (e.g., a charity shop), a charity structure offers clearer pathways for separating profit‑making from charitable functions.
• If your aim is to manage a fixed capital fund that awards scholarships annually, a charitable trust provides a clean, purpose‑driven vehicle.
• Both structures must keep accurate financial records, but trusts often need detailed accounting of trust assets versus income distributed.

Choosing the Right Form for Your Mission

Ask yourself these questions before deciding:

1. Do you need a broad membership base that can vote on strategic direction? → Charity.
2. Is your primary goal to protect a pool of assets for a specific purpose (e.g., scholarships, research grants)? → Charitable trust.
3. Will you rely heavily on public donations and need DGR receipts right away? → Charity.
4. Do you want the flexibility to run a mix of charitable and commercial programs? → Charity.
5. Are you setting up a legacy fund where the settlor wants to retain some control over asset use? → Charitable trust.

In many cases, organisations start as a charity to build community support, then establish a charitable trust as an endowment arm. That hybrid approach captures the strengths of both forms.

Side‑by‑Side Comparison

Frequently Asked Questions