Proposed DGR Endorsement Reform set to streamline tax endorsement for Environmental, Harm Prevention, Cultural, and Overseas Aid Charities

Seeking Deductible Gift Recipient (DGR) status allows donors to claim a tax deduction on their gifts and contributions to the charity.  There are 52 categories of DGR and an organisation must meet certain criteria to achieve endorsement as a DGR. The ATO is responsible for the endorsement of all categories. For a number of organisations, they are entitled to DGR endorsement so long as they have an Australian Business Number, have a wind-up clause in their organisation’s rules or constitution for the proper distribution of surplus assets, are registered with the ACNC as a charity, and have a purpose that falls into one of the DGR categories. 

For 4 DGR categories; specifically environmental organisations, harm prevention charities, cultural organisations, and overseas aid organisations, acquiring DGR endorsement is typically slower and more complicated. These organisations must seek approval by government departments responsible for assessing and advising the relevant Treasury Minister and the relevant Minister for that department to direct the departmental Secretary to add the organisation to the register. This process currently can take up to two years.

The Assistant Minister for Competition, Charities and Treasury, Andrew Leigh, stated that this may mean that these charities rely upon the “good graces” of the Minister and the government of the day rather than simply meeting a set of defined rules and requirements for DGR endorsement. This process tends to take much longer than the process for other charities and inflicts stricter reporting requirements on top of other ACNC and ATO reporting.

The Proposed Changes

Under the proposed Treasury Laws Amendment Bill 2023: Deductible Gift Recipient Registers Reform, the process for acquiring DGR status for these organisations will drastically change. The responsibility for administration and decision making of environmental organisations, harm prevention charities, cultural organisations, and overseas organisations will transfer to the ATO and consequently the powers of the Minister and departments that currently facilitate the registration process will be repealed. The registers for the organisations will be abolished as will the reporting requirements. 

It is proposed that endorsed organisations must maintain a gift fund, rather than a public fund, and gifts must be received by the organisation’s gift fund. To assist in the transition, it is proposed that the public funds will satisfy the requirements of a gift fund.

All new organisations seeking DGR endorsement will be required to have a wind-up clause dictating the distribution of surplus assets in their gift fund to another DGR, rather than transferred to another organisation on the register. To assist in the transition, it is proposed that the amending legislation will provide for the transfer of surplus assets to a fund, authority or institution to which gifts can be deducted under Division 30 of the Income Tax Assessment Act 1997.  

Further changes for Overseas Aid Organisations 

The DGR scheme relating to overseas aid organisations has the most significant changes from the previous legislative scheme. Currently, the Department of Foreign Affairs and Trade will assess the eligibility of organisations who wish to become a ‘approved organisation’ for DGR endorsement purposes against the following criteria:

1. The organisation must have a voluntary governing board;
2. Must be registered with the ACNC and comply with ACNC Governance Standards;
3. Must be established for the relief of people in a country declared by the Minister for Foreign Affairs to be a developing country. To determine this point, the organisation must:

•           deliver overseas aid; 
•           have the capacity to manage and deliver overseas aid;
•           deliver such activities in partnership with other in country organisations based on the principles of           cooperation, mutual respect, and accountability; and 
•           manage child protection and terrorism risks. 

The above listed criteria generally will not change under the proposed bill and will be reframed as the ‘principal purpose test’ which is locked into the legislation. This means, to receive DGR endorsement as an overseas aid organisation, the organisation’s principal purpose must be to deliver development or humanitarian assistance activities (or both) to a developing country in partnership with organisations in the country, based on principles of cooperation, mutual respect and shared accountability. This also means that the overseas aid organisations will no longer be under the administration of the Foreign Affairs Minister. These organisations will instead be assessed for DGR endorsement by the ATO. 

The Foreign Affairs Minister will continue to have the power to declare a country to be a developing country. Countries on the official development assistance recipients list, which is maintained by the Organisation for Economic Co-operation and Development’s Development Assistance Committee, will also be considered developing countries under the proposed amendments. This would expand the number of countries which overseas aid organisations can currently provide for. 

What does this mean for my charity? 

These changes are intended to make all the requirements for almost all DGR categories consistent, reduce red tape on organisations, and simplify and speed up the process for those singled-out organisations. 

The Exposure Draft of the Bill is currently open for public consultation until the 19^th of February 2023. Interested parties are invited to comment on this consultation by emailing charitiesconsultation@treasury.gov.au. 

We will be closely following the consultation and Bill progress and will provide updates, as needed. However, if you have any questions in the meantime, please contact reception@nfplawyers.com.au.

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