Is DGR reform on the horizon? Unpacking the 'Future Foundations of Giving' Report

The Government released the Productivity Commission’s final report from its philanthropy inquiry, Future Foundations for Giving, in July 2024. The aim of the inquiry was to provide recommendations to the Federal Government on how to boost donations to charities to help achieve the Government’s target of doubling philanthropic giving by 2030.  

The Commission made 19 recommendations, focusing on four main areas:

·        improving the system that determines which charities have access to tax deductible donations;

·        improving access to philanthropic networks for Aboriginal and Torres Strait Islander people;

·        enhancing the regulatory framework for charities and ancillary funds; and

·        improving public information on charities and donations.

At the time of release, the Government announced that it will consider all but one of the Commission’s recommendations. On 5 December 2024, the Government announced a few minor changes as ‘first steps’ in response to the Commission’s report. However, the Government has still not responded to the more significant recommendations for overhauling the DGR system nor given any indication when it may do so.

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Overhauling the DGR system

A key principle adopted by the Commission was that all Australian taxpayers co-invest in and subsidise charities through the deductible gift recipient (DGR) system and a key finding was that the DGR system is not fit for purpose and should be reformed so it can provide the greatest net benefit to the community.  The Commission found that the current arrangements that determine which entities can access DGR status are poorly designed, overly complex and have no coherent policy rationale. They suggested that reform is necessary to increase fairness, simplicity, and transparency, and to reduce both inconsistent outcomes and the time it takes to seek endorsement.

Following these principles, the Commission assessed each of the 14 charity registration subtypes used by the Australian Not-for-profits and Charities Commission (ACNC) to determine which charity subtypes should be eligible for DGR status and recommended that charities registered under most subtypes should come within the scope of DGR system. The criteria they used were whether activities would generate community-wide benefit, whether subsidising philanthropy provides benefits over other types of government funding, and whether there is a low risk of donations being converted to private benefit for donors.

The Commission estimated that if its recommendations are implemented, the number of ACNC-registered charities with DGR status would increase from about 25,000 (about 40%) currently to about 30,000 to 40,000 (50% to 65%).

The recommendations propose to extend DGR status to charities with the following purposes:

·        preventing disadvantage;

·        promoting human rights or reconciliation;

·        injury prevention;

·        promoting public interest journalism;

·        animal welfare; and

·        advocacy activities in furtherance of other included charitable purposes, such as social welfare and human rights organisations that advocate for policy change.

Charities with multiple purposes such as both prevention and relief of distress and disadvantage, health promotion, harm prevention and similar activities that don’t fit neatly into an existing DGR category should become eligible for DGR status if the recommendations are implemented.  This should make it easier for many First Nations and community-based charities to become DGRs.

The Commission recommended that charities with subtypes of advancing religion and advancing industry should be ineligible for DGR status and there should be exclusions applicable to some subtypes, including:

·        advancing education, including that the DGR category for religious education in government schools should be withdrawn; and

·        advancing social or public welfare, including that some aged care, early childhood education and care and other education activities other than PBIs should not have DGR status.

Notably, the Commission recommended that school building funds should no longer receive DGR endorsement.¹ However, the Government has announced that it is not considering this recommendation.

The Commission recommended that the DGR system should not be extended to classes of non-government entities that are not registered with the ACNC, such as community sport organisations.

Increasing trust and confidence in the charity sector

The Commission noted that improving regulation and the ability for regulators and donors to observe how donations are used can increase public confidence and encourage charitable giving. While the Commission did not assess the effectiveness of the ACNC, it has recommended reforms to the ACNC’s enforcement powers and to create a more consistent approach to regulating charities.

The Commission recommended that the concept of ‘basic religious charity ’be removed so that all charities are regulated in a consistent manner and are required to comply with the governance standards and reporting requirements.²

The Commission recommended that the ACNC should be given power to:

·        require a charity to provide information necessary to determine whether it is a ‘federally regulated entity’ (and therefore subject to the full scope of the ACNC’s regulatory powers);

·        require a charity to provide evidence of distribution or intended distribution of assets upon revocation of charity registration;

·        better enforce its powers such as by allowing the ACNC to make applications to state or territory courts for orders regarding the administration of charities regardless of their legal structure - this will require working with state and territory governments to pass necessary legislation; and

·        issue rulings in the same manner as the Commissioner of Taxation to support certainty in regulatory outcomes.

The Commission highlighted the importance of a nationally consistent approach to fundraising regulation across the Commonwealth, States and Territories and recommended a more formal and comprehensive approach to embed coordination and cooperation between different regulators. The Commission also stated that continuing to work towards nationally harmonised fundraising is important as a means of reducing regulatory burdens for charities.

On 20 February 2025, the ACNC Advisory Board expanded its membership from 8 to 15 members. The Government announced that this serves to expand representation on the Board from all states and territories, with the goal of aligning with the Commission’s recommendations to create a consistent national approach to regulation and policy for charities.

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Ancillary funds to become ‘giving funds’

The Commission found that while ancillary funds are crucial for distributing funds to the community over the long term, enhanced regulation is needed so they more effectively encourage giving to the community. The Commission recommended that ancillary funds should be renamed to ‘giving funds’ to better reflect their purpose and that ancillary funds will be allowed to smooth their annual distributions over three years to provide greater flexibility to fund capital works or large projects. On 5 December 2024, the Government announced that it will make these changes. The Commission also recommended that that the minimum distribution rate for ancillary funds should be set at between 5% and 8%. However, sector bodies have raised concerns about the unintended consequences of such a change and the Government has announced that it will be consulting on this recommendation.

All cash donations will be tax deductible

The other minor change recommended by the Commission and announced by the Government on 5 December 2024 is the removal of the $2 threshold for claiming a tax deduction.³‍

The Commission’s recommendations, if substantially implemented, have the potential to rationalise and simplify the DGR system for the benefit of charities and the community. However, as yet, substantial reform is not apparent on the horizon.

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¹ There are about 5,000 school building funds with DGR status.

² About 17% of charities self-identify as a basic religious charity and 83% of BRCs are small.

³ This threshold has not changed since it was set at £1 in 1927, but £1 then is equivalent to about $100 today.

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