Organisations endorsed as a Deductible Gift Recipient (“DGR”) are entitled to receive gifts and contributions which donors are generally able to claim as a tax deduction. There are 50,908 charities registered with the Australian Charities and Not-for-profits Commission (ACNC), with around 20,000 registered charities with DGR status.
The DGR tax concession dates back to 1915 and is intended to encourage philanthropy and provide support for the not-for-profit sector. The tax concessions amount to more than $1.3 billion a year, and are estimated to rise to $1.46 billion by 2019-20.
It is critical for the board of a not-for-profit endorsed as a DGR to understand their organisation’s DGR tax concession and the basis for their organisation’s endorsement, and be cognisant of the requirements and issues that may impact the DGR status of the not-for-profit.
Overview of DGR endorsement
DGR is a tax status that an organisation applies to the Australian Tax Office (ATO) to access and when approved becomes an endorsed deductible gift recipient. To be endorsed as a DGR an organisation must fall within one of the 40 categories specified in the Income Tax Act and meet the applicable eligibility criteria.
The ACNC decides if an organisation is a charity and the subtype, not all charities are able to be DGRs.
A charity can be endorsed as a whole organisation when the entire charity falls within a DGR category, for example, a registered public benevolent institution or alternatively the part of the charity that meets the applicable criteria.
Generally, the ATO’s DGR endorsement requirements are:
- The organisation has its own ABN;
- The organisation as a whole or in part falls within a DGR category and is a not-for-profit organisation;
- The organisation has acceptable governing rules outlining that upon wind up or the DGR concession being revoked, the organisation will transfer all remaining gifts and deductible contributions to a gift deductible fund, authority or institution.
- Maintains a gift fund (if seeking endorsement of the operation of a fund or institution);
- Generally, is established and operated in Australia as defined in tax law; and
- Meets any additional requirements relevant to its DGR category
Ongoing review of the DGR endorsement
Once the DGR endorsement is granted, it is imperative that the organisation continues to meet the definition and requirements of its DGR category.
The ATO recommends that the organisation reviews its activities at least annually and prior to major changes occurring within the organisation to ensure the organisation is operating for its principal purpose outlined within the governing documents and in accordance with the general not-for-profit obligations.
The ATO has self-governance checklists to help charities conduct a review of their status and its tax obligations. Failure to meet ongoing requirements may lead to revocation of DGR endorsement.
Issues for the board of a DGR to consider
Tax Deductible Gift Recipient Reform Opportunities
The Federal Treasurer has released a discussion paper which considers potential reforms to the tax arrangements of Deductible Gift Recipients. The Discussion Paper does not seek to change the existing eligibility criteria, however outlines several proposals to strengthen deductible gift recipient governance, reduce administrative complexity and to ensure that an organisations DGR eligibility is up to date and reviewed regularly. A significant proposed reform would require DGRs to be registered with the ACNC. (Submissions closed on 14 July 2017).
Gift types and conditions
The organisation must ensure it understands the ATO gift and contribution requirements. When a donation is made to the DGR, a donor would usually seek a tax deduction. To receive such a tax deduction, requirements must be met by the organisation and include:
- Ensuring the organisation is a DGR;
- The donation must be truly a gift, made voluntarily, with the donor not expecting anything in return with the donor not materially benefiting from the gift;
- The donation must fall within as least one of the ATO “gift types” and comply with any extra gift conditions;
- Receipts must be in accordance with ATO requirements.
DGRs are not legally required to issue receipts for tax deductible gifts, however this will assist the donors claim an income tax deduction.
Fundraising events, such as golf days and gala dinners are common in fundraising, with attendees typically pay a premium to attend these events. As attendees receive a benefit they have not technically made a gift; however they still may be able to claim a portion of their contribution as a tax deduction.
For a contributor to claim a tax deduction as an individual, the amount they paid to attend the event must be more than $150 and the benefit they receive in return must be:
- No more than $150, and
- No more than 20% of the value of the contribution
In addition, the organisation must meet local government fundraising, ATO requirements and provide appropriate receipts.
Record keeping and notifying the ATO of changes
The organisation must keep records that explain all transactions and other acts relevant to the organisation’s status as a DGR. The records must show that all gifts and deductible contributions of money or property made to the organisation were used only for the principal DGR purpose. Further, it must keep adequate accounting and other records for seven years to meet ACNC record-keeping obligations.
In addition, organisations are required to update the ATO when key changes occur, which include key personnel changes, notification of the DGR being wound up or ceased, the DGR no longer being entitled to endorsement as a tax concession charity or as a deductible gift recipient. The organisation must also update the Australian Business Register of any changes, as required.
Key considerations for the board of a DGR
- Is the organisation’s DGR status reviewed annually?
- Does the organisation operate in accordance with its objects, DGR requirements and the ACNC?
- Has the board considered the organisation’s DGR status prior to any change of services?
- Has the board considered the Tax Deductible Gift Recipient Reform Opportunities Discussion Paper?
- Does the organisation understand its obligations, particularly in regard to advocacy?
- What is the impact of a merger and amalgamation on the organisation’s DGR endorsement?
- What is the organisations process to update the ATO as required?
- Are the organisations details with the ATO up to date?
- Does the organisation maintain adequate records?
- Can your organisation be structured to meet the DGR concession?
- Does the charity’s governing deed include the appropriate wind up or DGR revocation clauses?
To ensure the organisation’s DGR endorsement is protected the board must understand their organisation’s DGR tax concession, review requirements and issues that may impact the DGR status.