Deductible Gift Recipient (DGR) tax arrangements – Treasury releases discussion paper to commence a review of this important segment

This discussion paper considers potential reforms to the Deductible Gift Recipient (DGR) tax arrangements. DGR status allows an organisation to receive gifts and contributions for which donors are able to claim a tax deduction. The DGR tax arrangements are intended to encourage philanthropy and provide support for the not-for-profit (NFP) sector. This paper outlines a number of proposals to strengthen the DGR governance arrangements, reduce administrative complexity and ensure that an organisation’s eligibility for DGR status is up to date. Interested parties are invited to comment on the proposals outlined in this paper.

[Treasury website – DGR discussion paper; FJM; LTN 111, 15/6/17]

Extract from Discussion Paper

Issues

1. DGR concessions were first provided in 1915. The DGR system has evolved over the years and it is timely and appropriate to consider whether the system is as simple and transparent as it could be, so that DGRs can easily understand and meet their obligations. There are now 51 general categories (which includes the four registers).
2. There are concerns that the application process for obtaining DGR status is too complex. There are different processes for organisations that are already registered as charities and those that are not. Organisations that are seeking registration as charities can apply to the ACNC, and indicate on the ACNC’s charity registration form that they want the ATO to assess their eligibility for one of 47 general DGR categories. Organisations that are not registered as charities can apply directly to the ATO for DGR endorsement. Organisations can apply for entry to one of four DGR registers – there are over 2,500 organisations on these registers. These registers are administered by (a) The Department of Foreign Affairs and Trade administers the Overseas Aid Gift Deduction Scheme and register; (b)  The Department of Social Services administers the Register of Harm Prevention Charities;  (c) The Department of the Environment and Energy administers the Register of Environmental Organisations; (d) The Department of Communications and the Arts administers the Register of Cultural Organisations.
3. The categories and registers have evolved over time, broadly seeking to align the activities of DGRs with community expectations and to ensure the tax concessions deliver clear public benefits. When first developed, it was considered that the registers required subject specific assessment of eligibility by their respective departments. But in practice, the four registers adopt a more involved process for DGR applicants and obtaining DGR status under the register arrangements can take over a year for some applications.
4. Organisations that do not fall within one of the 47 general categories or four registers may apply to be considered for specific listing with the Minister for Revenue and Financial Services. There are currently only around 190 specifically listed organisations as they have been granted DGR status in ‘exceptional circumstances’. DGR organisations with a specific listing may not be subject to a sunset clause or registered with the ACNC and are effectively granted DGR status in perpetuity, without being subject to governance standards or the other requirements of the ACNC legislation.
5. The majority of DGRs are endorsed without a sun-setting date, and they are not subject to regular review of their eligibility status. With the growing stock of DGR organisations, the system would benefit from regular reviews to ensure an organisation’s DGR status is up to date.
6. Certain types of DGRs are also required to establish a public fund to receive tax deductible gifts and contributions. Public funds added additional governance requirements to address risk particular to certain categories. The establishment of a public fund requires the nomination of a ‘responsible person’ as defined by the ATO and there is some confusion with the ACNC’s different definition for ‘responsible person’. DGR organisations in regional and rural parts of Australia often face difficulties in nominating a responsible person. This creates an additional procedural barrier for these types of DGRs, without necessarily improving governance. The public difficulties in nominating a responsible person. This creates an additional procedural barrier for these types of DGRs, without necessarily improving governance. The public fund requirements may therefore be unnecessary for DGRs that are charities and subject to ACNC governance standards.
7. There are also concerns that some charities and DGRs undertake advocacy activity that may be out of step with the expectations of the broader community, particularly by environmental DGRs which must have a principal purpose of protecting the environment. 
8. Broadly, the various requirements for DGR eligibility are directed at ensuring the activities of DGRs deliver benefits to the Australian community. However, requirements may be overlapping and inconsistently applied across organisations. Transparency and accountability regarding the eligibility of DGRs, which can change the scope of their activities over time, is also lacking.

Summary of proposed reforms

1. To strengthen the governance arrangements, reduce administrative complexity and to help ensure an organisation’s DGR status is up to date, this paper considers a number of possible reforms:

• All DGRs could be required to be charities registered and regulated by the ACNC (other than government entities, which cannot be charities).
• The ACNC’s guidance for registered charities (and subsequently for DGRs) help these organisations to understand their obligations, particularly for certain types of advocacy. The ACNC has already developed guidance on advocacy so DGRs that are not currently registered charities should refer to this resource.
• The ACNC could revoke an organisation’s registration status, and consequently the ATO would revoke the organisation’s DGR status, if one of the grounds for revocation under the ACNC Act were to exist.
• To simplify the application process for DGRs, the administration of the four DGR registers could be transferred to the ATO. Those organisations that do not fall within the four registers would still be able to apply to the Minister Revenue and Financial Services for specific listing.
• The public fund requirement for DGRs that are charities could be removed and DGR entities could apply to be endorsed across multiple categories.
• Regular reviews could be undertaken by the ACNC and/or ATO to ensure an organisation’s DGR status was up to date and to provide confidence to donors wishing to claim tax deductions for donations. In addition, DGRs could be required to certify annually that they meet the DGR eligibility requirements, with penalties for false statements.
• The reforms outlined above would address many of the issues identified by the House of Representatives Standing Committee’s REO inquiry. Further discussion of the REO inquiry recommendations are detailed below under the heading – Parliamentary Inquiry into the Register of Environmental Organisations.