1218.0 - Standard Economic Sector Classifications of Australia (SESCA), 2002  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 13/09/2002   
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Nonprofit institutions

2.37. Nonprofit institutions (NPIs) are defined in SNA93 as 'legal or social entities created for the purpose of producing goods and services whose status does not permit them to be a source of income, profit or other financial gain for the units that establish, control or finance them'. (SNA93, paragraph. 4.54.)

2.38. SNA93 lists the following main characteristics of NPIs:

  • most NPIs are created by processes of law that establish the NPIs' separate existence from the units that establish, finance, control or manage them; the purposes of NPIs are usually set out in articles of association
  • many NPIs are controlled by associations with members who have equal voting rights and limited liability with respect to the NPIs' operations
  • profits of NPIs are retained by the NPIs and cannot be distributed to members (the term 'nonprofit institution' reflects the embargo on distribution of financial gains and is not intended to imply that NPIs cannot make a profit)
  • direction of NPIs is usually vested in a group of officers, an executive committee or a similar body elected by a majority of members.

2.39. NPIs that have registered for an Australian Business Number (ABN) are recorded in the ABS Business Register, but not all are specifically identified as NPIs for SISCA purposes. NPIs include trade unions, trade associations, social and sporting clubs, welfare and religious organisations, universities and charitable institutions. Smaller NPIs that have not registered for an ABN are out of scope of the ABS Business Register.

2.40. NPIs can be set up by governments, corporations or households. Some NPIs, particularly those established by governments, may be difficult to distinguish from government units. In such cases, the units may be predominantly funded from taxation through government subsidies or transfers and the critical determinant may be whether the establishing legislation gives the government control of the management of the unit or vests the control in an independent board or similar entity. However, the source of control of NPIs is not always clear-cut and is discussed further in Chapter 3.

2.41. NPIs are subdivided between those that are predominantly engaged in market production (called market NPIs) and those that are predominantly engaged in non-market production (called non-market NPIs). Market NPIs sell their output at economically significant prices; non-market NPIs dispose of their output free of charge or at prices that are not economically significant. However, NPIs that are created by associations of businesses in order to provide services to association members (e.g. trade associations, employer groups, industry chambers, lobbying organisations) are regarded as engaged in market production irrespective of the method of disposing of their output. Contributions made by members to such NPIs are regarded as payments for services rendered.

2.42. The distinction between market and non-market NPIs is important in determining the institutional sector to which individual NPIs are allocated. As with certain government units, difficulties may arise in deciding whether a NPI is disposing of its output at economically significant prices. Other characteristics of NPIs, additional to those specified in SNA93, are often taken into account when deciding whether a NPI is a market NPI or not. These include:
  • whether or not the NPI's revenue covers its costs of production
  • whether or not the NPI relies on government subsidies to operate
  • whether or not the NPI sells to the public at large or only to members.

2.43. As with government units, when differences between individual NPIs are minor, the requirement for consistent treatment of the same types of NPIs may be considered more important than the precise application of the rules to each NPI.

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