The New Process to Register for Tax-Deductible Donations: How Your Charity Might Be Affected

Currently, certain charities have the status which allows them to receive tax-deductible donations.

This status provides a significant advantage to charities insofar as it allows donors to make larger donations, with pre-tax dollars. For donors in the top marginal tax bracket (currently 45%), this represents a substantial benefit to the fundraising efforts of any particular charity. 

The status which allows charities to receive tax deductible donations is known as ‘Deductible Gift Recipient’, or DGR, status. 

There are some complexities and unnecessary bureaucratic steps in this process, for some charities, that a recently proposed reform by the Treasury Department aims to alleviate.

Not all charities qualify for DGR status, and there are 52 categories of charity which are recognized under the Income Tax Assessment Act 1997 (Cth), as giving rise to DGR status if a charity falls into one of the categories. 

Usually, the practical process of registering for DGR status, as a charity, is for the Australian Charities and Not-for-Profit Commission to provide your charity’s details to the ATO, which then assesses whether your charity is eligible for DGR status, and, if so, adds your charity to the DGR register, allowing donors to claim tax deductions.  

However, for four of the 52 categories of eligible DGR charities, this assessment is not performed by the ATO, but rather by other government departments. This is the case for the following categories of charity:

• Cultural Organisatioons
• Environmental Organisations
• Harm Prevention Charities
• Overseas Aid Organisations

This two-track system has long been fraught with delays, specifically due to the other government departments entrusted with assessing these ‘special’ categories.

Currently, the waiting time for assessment in one of these categories is up to two years.

A published reform proposal (The Treasury Laws Amendment (Measures and Consultion) Bill 2023) sets out measures to eliminate these ‘satellite’ departments from playing a role in the assessment process, and cut waiting times to one month.

The Treasury Laws Amendment (Measures and Consultation) Bill 2023: Deductible Gift Recipient Registers Reform (Cth) (‘DGR Bill’) significantly changes the administration of Deductible Gift Recipient status. The Bill is intended to bring a level of consistency across all DGR categories and simplify the application process for those seeking DGR status. 

The relevant amendments repeal the powers of the satellite Ministers and governmental departments and transfer responsibility to the ATO entirely. Generally, the existing rules as to how entities seeking DGR status are affected will be preserved under the amendments as the changes primarily affect government administration. 

Practically, endorsed organization will be required to maintain a gift fund in which a charity’s gifts must be received. This is in contrast to the current system by which organisations are endorsed for the operation of a public fund. Further, new environmental organisations and harm prevention charities must have winding up provisions providing that when their public fund is wound up, surplus assets are transferred to another DGR status charity.

Feedback and submissions for this proposal are open until 19 February 2023. You can find out more here.