Tax Deductible Gift Recipient Reform

Deductible Gift Recipient (DGR) status is a vital element of the charitable and not-for-profit (NFP) sector in Australia. In June the Treasury Department issued a Discussion Paper to consider potential reforms, outlining a number of proposals to strengthen DGR governance arrangements, reduce administrative complexity, and ensure that an organisation’s eligibility for DGR status is up to date.

The DGR tax arrangements were introduced in 1915. They encourage philanthropy and provide vital support for the NFP sector. The DGR system has evolved, and the Treasury has been considering whether the system is as simple and transparent as it could be. There is much complexity in the many categories and criteria for DGR eligibility, with 47 general DGR categories, varying eligibility rules, four federal Government registers listing 2500 organisations, and each register being administered by a different department.

There are approximately –

  • 600,000 NFP organisations in Australia
  • 54,800 charities registered with the Australian Charities and Not-for-profits Commission (ACNC), and
  • 28,000 organisations endorsed as DGRs of which around 18% (5,000) are not registered charities, 2,800 of these being government entities.

The cost to the Government of tax deductions from DGR donations was $1.31 billion in financial 2016 – 2017.

ACNC Regulation of Non-Charity DGRs

It is proposed that those 8% of non-Government DGR’s that are not registered charities be required to become registered charities, to be regulated by the ACNC, and requested to adhere to ACNC governance standards.  If these DGR organisations are not charities, presumably ACNC might be given expanded powers to regulate them. Regulation by a single body is in our view desirable.

Removal of Public Fund Requirement

Presently, some DGR categories require organisations to establish a public fund to receive tax deductible donations.  It is proposed to remove the public fund requirements for charities and to allow DGR entities to be endorsed in multiple categories, so as to reduce complexity and red tape.

Hence the need for responsible persons (with a degree of responsibility to the general community) to manage public funds would no longer apply. Instead, only the existing ACNC requirement for a  “responsible person” as a board member or trustee would apply.  This is in our view a sensible proposal.

Rolling Eligibility Reviews

Rolling reviews would ensure that DGR organisations remain eligible for DGR status. Reviews would be carried out by the ACNC and/or Australian Taxation Office.  Each DGR might be reviewed at least once in a specified period, for example 5 years, initially via a desktop review. Organisations identified as high risk would be investigated further, and those confirmed as no longer eligible for DGR status would have their status revoked, and might also lose some of their tax concessions if their charity registration status is also revoked.

DGRs might also be required to certify that they meet the DGR eligibility requirements, as part of completing their Annual Information Statements as a registered charity.

DGR entities not presently registered as charities would be subject to regular review in the same way that charities are.

There is a danger that too frequent reviews will unnecessarily increase red tape and administrative burdens.

Submissions on the discussion paper closed on 4 August 2017.  It is not known when the Treasury will release further information or proposals.