Charity Donation Rules Go Under Microscope

By Andrew Heaton

(image via Salvation Army)

All organisations who offer tax deductible donations throughout Australia could be forced to register as charities as part of an overhaul of rules relating to the tax deductibility of charitable donations.

Releasing its discussion paper last week, the Treasury department said current rules and processes through which organisations obtain deductible gift recipient (DGR) status had become overly complex and were not guaranteeing required levels of accountability.

As part of its proposals for reform, Treasury has suggested that all organisations who hold DGR status register as charities with the Australian Charities and Not-for-Profits Commission (ACNC) and be subject to the reporting and accountability requirements associated with registered charity status.

This, it said, would rectify a situation whereby around eight percent of the organisations that enjoy DGR are neither government entities nor registered charities which are subject to the oversight requirements.

Such a requirement would also ensure that an organisation would automatically lose its DGR status in cases where it has its charity status revoked, Treasury said.

Other proposed reforms include:

  • Transferring that administration of four different DGR registers which are run by four different departments to a singular agency in the Australian Taxation Office (ATO).
  • Having the ACNC clearly set out rules applying to registered charities, particularly about the type of advocacy in which that is allowable for registered charities.
  • Removal of requirements which exist for various DGR categories to establish a public fund to receive deductible donations.
  • Having either the ACNC or the ATO conduct a rolling review (for example every five years) to ensure that organisations which hold DGR status continue to meet the requirements to be eligible in respect of this status.

Critical for charities in their fundraising activities, deductible gift recipient status enables organisations to receive tax deductible gifts and contributions from donors.

Where they provide gifts or donations to a charity or other organisation which holds this status, donors are able to claim an allowable deduction in respect of the value of that amount for income tax purposes.

Whilst this is considered to be beneficial from a public interest viewpoint in order to encourage people to give to beneficial causes, it effectively means that Australian taxpayers are in part subsidising the cost associated with these donations.

Indeed, according to the paper, the cost of the Commonwealth’s contribution to funding of DGR activities through this concession amounted to $1.31 billion in 2016-17 – an amount which is expected to increase to $1.56 billion by 2019-20.

The review was initiated following Coalition frustration over the use of funding by some environmental groups who hold DGR status to mount legal challenges against the Adani coal mine in Queensland – a situation which some members of the Coalition felt had meant that these groups had effectively used taxpayer funding for obstructionist purposes.

In its report, Treasury outlined a number of concerns with the current system.

First, it said the system suffered from a lack of accountability.

This arose largely because around eight percent of DGRs were neither government bodies nor registered as charities and were therefore not subject to the oversight by the ACNC which applies to registered charities.

On a related note, there was no ongoing monitoring of DGR recipients and no periodic checking to ensure that organisations who hold DGR status continued to meet the eligibility criteria associated with this status.

Treasury also expressed concern about a lack of clarity in regard to the type of advocacy activities which organisations – particularly environmental organisations – can undertake without compromising their DGR status.

In regard to environmental DGR recipients, the Income Tax Assessment Act 1997 dictates that these must have a principal purpose of protecting or enhancing the environment or about providing research and information about the environment.

In its report, Treasury suggested that the ACNC should set clear rules in this area which apply to registered charities for the DGRs which become new registered charities under the proposal outlined above.

Finally, Treasury says the application process for DGR recipient status is overly complex and can take more than a year to complete.

Under the current system, DGRs can be registered under one of four different registers maintained by four different departments involving 47 different categories, it said.

One way to help alleviate these pressures, it said, would be for a singular agency in the ATO to assume responsibility for the maintenance of each of the registers.

In addition, organisations wishing to apply for DGR status could do so at the same time in which they apply to be a registered charity by simply indicating to the ACNC that they also wished to apply to the tax office for this status – thus reducing the need for them to undergo separate application processes for charity registration and DGR status.

In a statement, Finance Minister Mathias Cormann said the government was seeking options to improve compliance arrangements within the DGR system.

“In recognition of Government assistance and the benefits deductible gift recipient (DGR) organisations provide, the Government wants to ensure that compliance arrangements support continued trust and confidence in the not-for-profit (NFP) sector, while also minimising the burden of red tape,” Cormann said.

“There are around 28,000 DGR organisations in Australia. DGR status entitles donors to claim tax deductions on their donations. These tax concessions are in excess of $1.3 billion per year and are a significant part of the Government’s efforts to encourage philanthropy and provide support for the NFP sector.”

Submissions in response to the paper close on July 14.

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