What is the new Act?
The Treasury Laws Amendment (Refining and Improving Our Tax System) Act 2023 (Cth) has outlined many changes for Environmental Organisations in terms of their status as a charity. While most of the Act has recently come into force, the section pertaining to Environmental Organisations will only come into force on January 1 2024.
What is a DGR and how does it apply here?
DGR status means that organisations can receive gifts of money or property from donors and issue a tax-deductible receipt. This allows those who gave the gifts to claim it as a deduction when filing their income tax return. It encourages more philanthropy, as people may donate more with the incentive that they can claim their donations back. This, in turn, supports the growth of DGRs. Environmental Organisations are eligible for Deductible Gift Recipient (DGR) status. This is because under the Income Tax Assessment Act 1997 (Cth) (ITAA), one of the categories for qualifying as a DGR is if you are a public fund listed on the Register of Environmental Organisations, the REO.
What does the Act do?
The process for Environmental organisations applying to be a DGR is currently administered by the Department of Climate Change, Energy, the Environment and Water (DCCEEW). However, such applications to this Department are significantly slower than applications for organisations in other DGR categories; currently, it can take up to two years. This Act intends to streamline the application and reporting requirements and reduce DGR approvals from up to two years to around one month. This will occur by transferring administration of Environmental Organisation DGRs to the Australian Taxation Office (ATO), which administers all other categories of DGR. The ATO currently administers 48 of the 52 categories under which an organisation may be eligible for endorsement as a DGR. This Act transfers the four organisations administrated outside of the ATO, to the ATO. Included in these four are environmental organisations. The Act includes many changes to Environmental Organisation’s status, and are outlined as follows:
Change 1: Gift fund
Currently, all endorsed environmental organisations are currently endorsed to have a public fund (section 30-120)(a) ITAA 97). The change is that endorsed environmental organisations may maintain a gift fund instead of a public fund. This is a less restrictive category of fund. Organisations can voluntarily continue with the more restrictive obligations associated with a public fund if they choose. This change will also feature with Cultural Organisations and Harm Prevention Charities.
Change 2: Register of Environmental Organisations
The Environmental Secretary no longer needs to maintain the REO, and those organisations’ eligibility as a DGR no longer depends on being on that register. Instead, the Act will transfer administration of the REO from the DCCEEW to the Australian Taxation Office (ATO).
Change 3: Statistical information about gifts
Statistical information about gifts made during an income year no longer need to be provided to the Environment Secretary (as they will no longer be maintaining the register). The ACNC and ATO receive the necessary information via other mechanisms, like the entity’s charity register.
Change 4: Winding up provisions
Currently, new environmental organisations must transfer surplus assets and funds to another organisation on the register. The change to s 4a is that new environmental organisations must have winding up provisions providing that when their gift fund is wound up, surplus assets are transferred to another DGR. This can be a more limiting winding up provision that provides for surplus assets to be transferred to a specific kind of DGR. If the organisation is a registered charity, the winding up provision must provide that surplus assets are transferred to a registered charity with similar purposes.
While this intended fast-tracked time frame is indeed desirable, in our experience, being approved for DGR status may take longer than one month. However, this Act will go a long way to improving the lengthy process for Environmental Organisations applying for DGR status.
