Deductible Gift Recipient Reforms Announced: What do Charities and Not-For-Profits need to know?

Print Friendly, PDF & Email

By Vera Visevic, Partner

An announcement has been made by the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, confirming that the government will proceed to reform the administration and oversight of organisations with Deductible Gift Recipient (DGR) status. This follows the release of a discussion paper titled ‘Tax Deductible Gift Recipient Reform Opportunities’, on 15 June 2017. This paper was provided to the general public for consultation purposes, and set out a number of proposed reforms to DGR tax arrangements. The announcement, in the form of a Media Release on 5 December 2017, confirms that the government will proceed with a number of the proposed reforms.

For charities and not-for-profit organisations, obtaining DGR endorsement allows organisations to receive gifts and contributions, for which donors are generally able to claim a tax deduction. The announced reforms will have numerous implications for organisations wishing to obtain DGR endorsement, as well as the ongoing operations and obligations of DGR organisations.

What does this mean for charities and not-for-profits?

1. ‘All non-government DGRs will be automatically registered as a charity with the ACNC’

The Federal Government’s announced reform that all non-government DGRs will be automatically registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC) from 1 July 2019 means that all DGRs will be regulated by the ACNC. Registered charities are required to lodge Annual Information Statements with the ACNC, which become publicly accessible. Core information of all registered charities, such as the organisation’s governing documents, and the names and contact details of individuals on the governing bodies of the organisation, will further be published on the ACNC register. The Commissioner of Taxation will however have the power to exempt certain DGRs from being required to register as a charity.

Under the proposed reforms, if the ACNC revokes an organisation’s charity registration status, this could result in the charity no longer being eligible for DGR status, and could thus lead to the Australian Tax Office (ATO) revoking the organisation’s DGR endorsement. Compliance with the ACNC regulations will consequently be of great importance for DGRs, and as such, a 12 month transitional period will also be established to assist current non-charity DGRs in complying with ACNC regulations.

2. ‘Public fund requirements will be abolished’

Currently, organisations falling into various DGR general categories are required to establish a separate public fund for the receipt of tax deductible donations. This obligation is also required of organisations wishing to seek DGR status in more than one general category. These requirements will be removed, reflecting a recognition in the June Discussion Paper that ‘with the introduction of the ACNC governance standards, the development of more sophisticated accounting systems and electronic banking’, the necessity of maintaining a public fund has been significantly reduced.

3. ‘The DGR registers… will be integrated with the ACNC charity register’

In addition to general DGR categories, four DGR registers currently exist under which organisations can qualify for DGR status. These include the Register of Environmental Organisations (REO), the Register of Cultural Organisations (ROCO), the Register for Harm Prevention Charities (RHPC) and the Overseas Aid gift Deduction Scheme (OAGDS). These four registers will be integrated into the ACNC charity register, as opposed to the suggestion in the June Discussion Paper proposing transferral of the registers to the ATO.

As a result, only one application to the ACNC will be required to be considered for endorsement under any of the four categories. Previously, it was necessary for application to be made to the government agency administering the register. For example, with the REO, an application can take more than 12 months, with the application needing to be approved by two departments and two Ministers. Charities can expect that the reduction in government administration will result in a reduction in application processing time.

Another result is that organisations endorsed for DGR status under the four categories will no longer be required to report to both the register and the ACNC, removing duplicative reporting requirements. Rather, the existing reporting requirements of DGRs currently on the four departmental registers (such as environmental reporting requirements), will be collected by the ACNC in the Annual Information Statement.

4. ‘The ACNC will provide a central location for applications and reporting’

A result of the automatic registration of non-government DGRs as charities, the integration of the DGR registers, and the removal of duplicative reporting requirements, is that only a single application to the ACNC will be required to be considered for endorsement under any of the general DGR categories (inclusive of the four DGR registers).  Similarly, reporting for DGRs will be conducted through the ACNC, as registered charities.

5. ‘The ACNC and ATO will receive additional funding to review a greater number of DGRs for ongoing eligibility’

DGR organisations should continue to ensure that they comply with all obligations relevant for their organisation, such as ensuring that they meet reporting requirements, and comply with the ACNC governance standards (from July 2019 for DGRs not currently registered as charities).

6. ‘The Government will issue External Conduct Standards to be enforced by the ACNC’

The AUSTRAC and ACNC report of 28 August 2017, titled Australia’s non-profit organisation sector: money laundering and terrorism financing risk assessment report, recommended the Federal Government issue ‘External Conduct Standards’ to be enforced by the ACNC. The Media Release provides confirmation that the Government will issue the standards.

The object of ‘External Conduct Standards’, as set out in the ACNC Act, will be to ‘give the public (including donors, members and volunteers of registered entities) confidence that:

  • funds sent outside Australia by registered entities:
    • are reaching legitimate beneficiaries; and
    • are being used for legitimate purposes; and
    • are not contributing to terrorist, or other criminal, activities; and
  • activities engaged in outside Australia by registered entities are not contributing to terrorist, or other criminal, activities.’[1]

Complying with the External Conduct Standards will be a condition of entitlement to registration with the ACNC.[2]

7. ‘The ACNC will publish charities’ declarations of political expenditure’

Declarations of political expenditure made to the Australian Electoral Commission, and relevant criminal activities of charities’ staff or responsible persons will be published by the ACNC in the AIS, and a failure to comply may result in loss of DGR endorsement.

8. ‘The Register of Cultural Organisations (ROCO) eligibility criteria will be amended to enable organisations that promote Indigenous languages to be endorsed as DGRs.’

The expansion of the ROCO eligibility criteria to enable organisations that promote Indigenous languages to be endorsed as DGRs, explicitly recognises the promotion of Indigenous languages among the forms of cultural activity that can be supported through DGR endorsement. The Media Release states that this measure ‘will align with current policies and be a valued public statement of the heritage and living value of Indigenous languages to all Australians.’

What won’t be included in the reforms?

The Media Release has not included several proposed reforms that were included in the June Discussion Paper.

1. The unlegislated 2009-10 Budget Measure ‘Philanthropy – reforming the “in Australia” requirements that apply to tax exempt entities

In the May 2010 budget, the government responded to the High Court decision on the ‘Word Investments Case’,[3] by announcing intentions to introduce legislation requiring that income tax exempt entities must be ‘principally operated in Australia for the broad benefit of the Australian community’, and that ‘deductible gift recipients generally must be operated solely in Australia and for the broad benefit of the Australian community.’[4]

The Media Release recognised that the proposed legislation could prevent many DGRs from conducting legitimate activities outside Australia. It also recognised that the proposed measure ‘would not provide appropriate oversight of the overseas activities of exempted organisations such as overseas disaster relief funds.’ The not-for-profit sector has expressed significant concern in relation to the proposed legislation, and the restrictions that would be placed on the international operations of Australian charities.

Through the Media Release, the Minister for Revenue and Financial Services has announced that the Federal Government will no longer proceed with enacting the ‘in Australia’ requirements for tax-exempt entities.

2. Mandatory level of remediation by environmental organisations

On 4 May 2016, the House of Representative Standing Committee on the Environment made numerous recommendations in relation to environmental DGR organisations. This included a recommendation that the REO be abolished, with the administration process for endorsement as a DGR for environmental organisations be transferred wholly to the ATO. Significantly, a recommendation was also made that a minimum proportion of a REOs expenditure, must be spent on environmental remediation work. This was seen by environmental organisations as a measure to place limits on the advocacy of environmental groups.

Although the recommendations of the Committee were identified in the June Discussion Paper, the Media Release has indicated that the government will not mandate a level of remediation by environmental organisations, and that the REO will remain, being integrated with the ACNC charity register.

Environmental DGRs registered as charities will still be required to comply with the existing provisions in the Charities Act, requiring them not to promote or oppose political parties and not to engage in unlawful activities.[5]

Although the Media Release sets out the main elements of the DGR reforms, it has not been accompanied by draft legislation setting out the details of implementation. The government has however committed to consulting on the details of implementing the announced DGR reforms.

[1] Australian Charities and Not-for-profits Commission Act 2012 div 50.

[2] Ibid s 25-5(3)(b).

[3] Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204.

[4] Tax Laws Amendment (Special Conditions for Not-for-profit Concessions) Bill 2012.

[5] Charities Act 2013 s 11.

For further information, please do not hesitate to contact us.

Get the latest news insights and articles straight to your inbox, simply enter your details.




    *Required Fields

    NFPs, Human Rights & Social Impact

    Case Note: Bird v DP (A Pseudonym) [2023] VSCA 66