Tax deductible gift recipient reform opportunities
WHO SHOULD READ THIS
- Registered charities, not-for-profits, social enterprises, philanthropists, impact investors, community service providers, accountants, investment advisers, and lawyers.
THINGS YOU NEED TO KNOW
- The Australian government is consulting with stakeholders on the legal, regulatory and compliance issues involving Australia’s deductible gift recipient framework. Submissions on the Discussion Paper are due on 14 July 2017.
WHAT YOU NEED TO DO
- Review the Discussion Paper and, if applicable, prepare and lodge a submission before 14 July 2017 – and be sure to let us know your thoughts.
The Commonwealth Treasury’s Discussion Paper issued on 15 June 2017 is a necessary step towards reducing red tape, strengthening governance and transparency, and reforming Australia’s fragmented and unnecessarily complex tax deductible gift framework.
On 15 June 2017, the Commonwealth Treasury issued a Discussion Paper on potential reforms to Australia’s legal, regulatory, and compliance framework for organisations and funds that are endorsed as deductible gift recipients (DGRs).
A DGR endorsed organisation is entitled to provide income tax deductible receipts for philanthropic gifts and contributions. Many organisations rely on this status in order to fund the charitable services and public activities that are vital to many communities.
There are currently 51 distinct DGR categories. The initial application, Government regulator, and ongoing eligibility may vary considerably depending on the category pursued.
Organisations may apply directly to the Australian Charities and Not-for-profits Commission (ACNC) to obtain charitable endorsement and to access the associated charitable tax concessions. For public benevolent institutions and health promotion charities, the ACNC will assess and endorse the organisation under the relevant ‘sub-type’, which forms the basis of the DGR endorsement by the Australian Taxation Office (ATO).
Some entities may apply to the ATO directly for DGR endorsement. Others must apply to a Commonwealth Government Department for registration for separate listing or on one of the four DGR registers, before they can be endorsed as a DGR, namely:
- the Department of Communications and the Arts, which administers the Register of Cultural Organisations
- the Department of the Environment and Energy, which administers the Register of Environmental Organisations
- the Department of Social Services, which administers the Register of Harm Prevention Charities, and
- the Department of Foreign Affairs and Trade, which administers the Overseas Aid Gift Deductible Scheme and register.
Although being listed on a register will entitle an organisation to be a DGR, the eligibility, application process, timing for approval, and ongoing regulatory compliance framework differs in each case. In our experience, some applications may take over one year to receive final approval from the point of lodgment.
The Discussion Paper also raises the long-standing public fund requirement to ensure that the relevant board or committee meets the minimum ‘responsible persons’ threshold, which remains an unnecessary administrative burden for many organisations and a particular barrier to philanthropic gifts in regional and remote Australia.
The overall framework is disjointed, overly complex, and lacks transparency. The case to maintain the status quo of the registers being administered by separate Government departments is increasingly less justified, particularly since the introduction of the ACNC, Governance Standards, and obligation to submit Annual Information Statements.
Summary of reforms
In order to address these issues (among others), the following reforms have been proposed for consultation and discussion:
- all DGRs could be required to be registered and regulated by the ACNC (other than government entities, which cannot be charities)
- the ACNC could revoke an organisation’s registration status, and consequently the ATO would revoke the organisation’s DGR status, if one of the grounds for revocation under the ACNC Act were to exist
- to simplify the application process for DGRs, the administration of the four DGR registers could be transferred to the ATO. Those organisations that do not fall within the four registers would still be able to apply to the Minister Revenue and Financial Services for specific listing
- the public fund requirement for DGRs that are charities could be removed and DGR entities could apply to be endorsed across multiple categories
- regular reviews could be undertaken by the ACNC and/or ATO to ensure an organisation’s DGR status was up to date and to provide confidence to donors wishing to claim tax deductions for donations. In addition, DGRs could be required to certify annually that they meet the DGR eligibility requirements, with penalties for false statements, and
- the ACNC’s guidance for registered charities (and subsequently for DGRs) would help these organisations to understand their obligations, particularly for certain types of advocacy. The ACNC has already developed guidance on advocacy so DGRs that are not currently registered charities should refer to this resource.
Written submissions on the issues raised in the Discussion Paper must be submitted no later than 14 July 2017. We are more than happy to assist with drafting the necessary submissions if you wish to submit a response to Treasury.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.