From 1 November 2025, the Franchising Code’s updated definition of specific purpose funds (SPFs) kicks in. It’s broader than many expect. If a franchise agreement requires franchisees to pay money to or for the franchisor/associate and that money must be used for a specified common purpose relating to operating the franchised business, you’re likely dealing with an SPF, not “just a fee”.
Historically, this has largely related to marketing funds. But now technology, conferences, training, sustainability initiatives, and other pooled, system-wide spends could be covered.
Why this matters
If a charge is an SPF, the fund administrator (usually the franchisor) must (among other things):
- prepare an annual financial statement within 4 months of year-end;
- give the statement to franchisees within 30 days of preparing it;
- have it audited within 4 months (unless a valid Code opt-out applies for that year) and provide the auditor’s report within 30 days of receipt;
- provide meaningful detail of receipts and expenses, including the % of total income spent on required categories.
Civil penalties apply for non-compliance. Labels like “at-cost fee” or “levy” won’t avoid the SPF rules if the substance says otherwise.
“Fee” vs “Fund”: a quick decision test
Ask yourself four questions. If you’re yes to all four, treat it as an SPF.
- Who controls the money?
Franchisees pay the franchisor (or associate) who controls/administers the money. - Is payment mandatory?
The franchise agreement requires the payment. - Is there a specified, common purpose?
The money is earmarked for a network-wide purpose (e.g., “national POS platform”, “annual conference”, “sustainability program”). - Does it relate to operating the business?
It supports the operation of franchise outlets (e.g., tech tools, training, brand marketing).
If any answer is no, you might be in “fee” territory instead.
Examples: how common charges stack up
Technology fee (POS licences, cybersecurity, data platform)
- Collected by franchisor from all franchisees, spent on system tech → Likely an SPF.
- Direct vendor billing (supplier invoices each franchisee; franchisor never holds funds) → Usually a fee, not an SPF.
Conference fee
- Annual network conference funded by mandatory payments to the franchisor for venue, speakers, materials → Likely an SPF (pooled for a common purpose).
- Pay-as-you-go registration paid directly by franchisees to the event organiser → Fee, not an SPF.
Training & onboarding charge
- Mandatory training levy collected centrally to deliver common programs → Likely an SPF.
- One-to-one coaching purchased by a single outlet and paid to the franchisor for that outlet alone → Usually a fee.
Sustainability/ESG levy
- Network-wide initiative (e.g., energy audits, packaging transition) funded from a required levy paid to the franchisor → Likely an SPF.
Refurbishment/program fund
- Common pool for system upgrades or coordinated rollouts → Likely an SPF.
- Outlet-specific fit-out paid to a third-party builder by the franchisee → Fee, not an SPF.
“Service fee” with bundled costs
- A general royalty/service fee with no ring-fenced, earmarked purpose → Usually not an SPF.
Caution: if you describe a slice of that fee as “for the IT platform” or similar — and treat it that way — you may have created an SPF in substance.
Structuring tips (and traps to avoid)
If it’s an SPF:
- Name the purpose clearly (e.g., “operation and enhancement of the [Brand] POS and data platform”).
- Keep a separate account, record all receipts/expenses, and prepare the annual statement (and audit, unless properly opted out).
- Disclose the purpose, contributors, rates, and permitted expense types consistently across the franchise agreement and disclosure document.
- Avoid commingling SPF funds with royalties or general revenue.
If you want it to remain a fee:
- Prefer direct vendor billing (franchisees pay suppliers directly; franchisor doesn’t collect or control the money).
- Keep it outlet-specific where appropriate (a one-to-one purchase, not a common pool).
- Don’t earmark it for a ring-fenced, network-wide purpose in your documents or communications.
A 60-second self-check
- Does the franchise agreement require franchisees to pay the charge?
- Is the money paid to (or controlled by) the franchisor/associate?
- Is it earmarked for a specific, common purpose tied to operations?
- Will the money be pooled and spent on multiple items/events over time?
If mostly yes → plan for SPF compliance (separate account, annual statement, audit/opt-out process, disclosure alignment).
If mostly no → you’re probably dealing with a fee, but still ensure the obligation is transparently disclosed.
What franchisors should do now
- Map every charge (technology, conferences, training, sustainability, refurbishments, etc.).
- Classify each as SPF or fee using the test above.
- For SPFs, set up processes (separate account, statement, audit/opt-out, governance) and tighten documents (franchise agreement + disclosure) so the purpose and permitted spend are crystal-clear.
- For fees, make sure the payment flow (e.g., direct vendor billing) and language don’t accidentally create an SPF in substance.
This article is general information, not legal advice. If you’d like us to review your charges, documents and money flows against the Code before 1 November 2025, the Legalite team is happy to help: hello@legalite.com.au