Trade

Trade sits at the heart of what makes a social enterprise. It is the exchange of goods or services for payment, and it is what distinguishes a social enterprise from a charity or community organisation that relies primarily on donations and grants. This is reflected in Australia's foundational research into the sector, the Finding Australia's Social Enterprise Sector (FASES) studies, and in the Classification of Social Sector Initiatives and Entities (CLASSIE), which is the national framework used to categorise social sector organisations. When Social Enterprise Australia asked the sector what makes a social enterprise, one of the clearest responses was this: social enterprises primarily trade.

In practice, trade means selling something. It might be a product, such as food, clothing, or furniture. It might be a service, such as cleaning, landscaping, aged care, or training. What matters is that there is an exchange: the enterprise provides something of value and receives payment in return. This is different from receiving a gift or a donation, where money is given freely with no goods or services provided in exchange.

Where it gets complicated is with grants. Not all grants are the same, and understanding the difference matters for social enterprises trying to demonstrate that they primarily trade. Some grants are gifts. The funder gives money to support the organisation's work without receiving anything specific in return. These are not trade. Other grants are used to purchase goods or services, for example when a government agency funds a social enterprise to deliver a specific programme or service. These are trade, because something is being exchanged. A practical guide in Australia is the Goods and Services Tax (GST). If GST applies to a grant, it is because the grant is for a good or service, which means it is trade. If GST does not apply, the grant is more likely to be a gift or donation, and therefore not trade. There are exceptions worth knowing: GST may not apply even when a grant is for goods or services if those goods or services are GST-free (such as most basic foods, some education courses, and some medical, health, and care products), if the activity is input-taxed (such as residential rent or certain financial services), or if the organisation is not registered for GST. In these cases, the practical question to ask is whether GST would apply if those exceptions did not exist. If the answer is yes, the payment is still best understood as trade.

This distinction matters for a practical reason. Many funding bodies, government programmes, and certification frameworks assess whether a social enterprise earns a substantial portion of its revenue from trade. Getting the classification right affects whether an organisation qualifies as a social enterprise under formal definitions, and whether it is eligible for certain programmes, contracts, or forms of investment. Misunderstanding what counts as trade has caused real confusion in the sector, particularly for organisations that receive a mix of government grants, service contracts, and philanthropic funding. Taking the time to understand how each revenue stream is classified, and being consistent in how that is reported, helps social enterprises present an accurate picture of their business model and strengthens their credibility with funders, partners, and government.