Deductible Gift Recipient Tax Reform
The Australian Treasury has issued a discussion paper on proposals to reform the Deductible Gift Recipient (DGR) regime, with a particular focus on requiring all non-government DGRs to be registered charities with Australian Charities and Not-for-profit Commission (ACNC). The paper identifies that governance and reporting standards of such charities, would then be enhanced. The paper raises particular issues concerning advocacy.
The current regime
It is common for DGRs to also be registered charities. However, government entities which are DGRs are not eligible charities and other not-for-profits which are DGRs may not be charities.
Organisations can seek endorsement under the 47 general categories contained in the Income Tax Assessment Act 1997 (Cth), or apply to be specifically listed in that Act. Additionally, DGRs can apply for endorsement in one of four categories, for which registers are maintained by separate respective Government departments:
- Overseas aid, through Department of Foreign Affairs and Trade;
- Harm prevention, through Department of Social Services;
- Environmental, through the Department of Environment and Energy; and
- Cultural, through Department of Communications and Arts (“the four registers”).
Environmental organisations, not presently registered with ACNC, are not subject to the ACNC guidance on advocacy, which only permits advocacy as ancillary to a primary charitable purpose, and not a primary purpose.
Certain DGRs are required to establish and maintain a public fund to receive tax deductible donations. If a DGR is endorsed in a number of categories, multiple and separate public funds must be operated. The paper questions why.
Presently, once a DGR is endorsed, its ongoing eligibility to retain DGR status is not reviewed. The paper queries whether a rolling cycle of reviews should be introduced.
The recommendations include that:
- All DGRs except government entities should become registered charities with ACNC; ie any existing non charitable DGR’s may lose their DGR status
- Administration of the four registers should be transferred to ATO;
- Public fund requirements of DGRs should be removed, and that it should be possible for a single charity to be endorsed across multiple categories; and
- Regular reviews of an organisation’s eligibility to DGR status.
Additionally, the paper acknowledges that private ancillary funds may have concerns with the recommendations for privacy reasons, notwithstanding ACNC rights to withhold or remove some information from the register.
The paper repeats all the recommendations of the Parliamentary Inquiry into the Register of Environmental Organisations (May 2016) suggesting they could be applied to all non charitable DGR’s, but with particular focus on advocacy trends, endorsing in particular, that Inquiry’s recommendation that environmental organisations be required to prove minimum 25% expenditure from their public fund on remediation, with a hint that such a percentage possibly be increased to 50%
Notably missing from the paper, is any discussion of expanding the existing categories for DGR eligibility
In support of handing the four registries to ATO, this would streamline the process and reduce delays by eliminating double reporting. The experts could transition to the ATO.
Red Tape and Removal of Public Fund Requirements
This would eliminate the need for sub-committees of people who have a degree of responsibility to the community but would require some rationalising of the definition of “responsible” persons and “entities” which differs between the ATO for DGRs and the ACNC for charities.
Endorsement of the DGR in Perpetuity?
We consider a “review” of a DGR should only arise if the organisation is brought to the attention of either ACNC or ATO or as part of the current ACNC regulatory regime. However, the paper specifically queries whether the eligibility of DGRs should be subject to a regular review process, eg possibly every 5 years.
We await issue of any bill for consideration .