Key Takeaways:
- the deductible gift recipient (DGR) regime is in urgent need of reform;
- charities with DGR status receive more from philanthropic foundations and donors than regular charities;
- as part of these #fixDGR reforms, the government has announced a new DGR category;
- we are monitoring these legislation changes and expect more #fixDGR reforms in coming years to ‘level the playing field’ of philanthropy and charitable giving in Australia.
Why DGR reform is needed
Giving to a charity with DGR status is the ‘charity of choice’ for most Australians. For the simple reason, give $2 or more to a DGR and receive a tax deduction for your donation.
As lawyers we have experienced the long-standing contortion of trying to fit a non-DGR charity ‘square peg’ into the proverbial DGR 'round-hole'. Most charitable purposes don’t fit and mystery surrounds those that do.
The Productivity Commission, Inquiry Report “Future foundations for giving” released to the public on 18 July 2024 (Report), found that the DGR system and the arrangements that determine which entities can access DGR status is not fit for purpose, is poorly designed, overly complex, has no coherent policy rationale and creates inefficient, inconsistent, unbalanced and unfair outcomes for charities, donors and the community.
Philanthropy suffers. Reform is needed.
New DGR category announced
We have advised many Municipal Councils and Community Groups on the establishment of ‘hybrid’ entities, with mixed activities, that can both give funding to community organisations and operate their own programs for the benefit of their locality.
In the latest reforms announced by government, such ‘hybrid’ entities have been recognised as making a valuable contribution to our society and enabling legislation is in place for such groups to be endorsed as DGRs.
What are they?
The new community charities DGR category is a hybrid giving (ancillary fund/foundation) and also doing (charity entity) organisation and encompasses the many existing neighbourhood and local council based community foundations.
Community charities/foundations are locally led social infrastructure platforms designed to invest in community development, build capacity and adapt solutions to a local context. They are effective because communities have first-hand knowledge of the issues affecting them, a pre-existing network of relationships built on trust and the ability to harness local resources to create transformative change from the bottom-up.
The detail:
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A Community Charity/Foundation must:
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- provide money, property or benefits to entities that have DGR status (other than
ancillary funds and other community charities)
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- engage in a principal activity or pursuing a principal purpose under one or more of the DGR charity general categories
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- be registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC)
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- be named in a ministerial declaration
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- agree to comply with the ministerial guidelines (currently in Draft), outlining requirements for governance, record keeping and allowed activities
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- meet the requirements or special conditions of the DGR categories in which it operates
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- follow the reporting and other obligations for registered charities
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- distribute at least 4% of the market value of its net assets each financial year
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- may also give money to an entity that is not a DGR however it must ensure the other entity uses the money in a way that is consistent with the purposes of the community charity so that it is within permissible DGR purposes
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- similar to ancillary funds (philanthropic giving foundations), must have an investment strategy
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The new DGR category will initially only apply to a small number of existing community charities, specifically 28 organisations affiliated with Community Foundations Australia. Additional organisations could be brought within scope in the future.
Have your say – consultation on draft guidelines
Responses to the public consultation on the Draft Guidelines can be submitted up until 3 December 2024. All the information can be found here.
How can we help?
Is your organisation seeking DGR status or are you wanting start a philanthropic foundation or other type of charity?
Please contact Dan Saunders, Senior Associate or Jonathan Teh, Principal. We would be happy to provide more detailed advice tailored to your circumstances and objectives or to assist with the establishment of your charity.
Subscribe to these alerts to be provided our updates on #fixDGR reform.