Giving Bootcamp - Tax Deductible Giving

Deductible Gift Recipients (DGRs)

•  A DGR is an organisation that is entitled to receive income tax-deductible gifts.

•  DGRs are either endorsed by the Australian Tax Office (ATO) or listed by name in the tax law.

•  You may not claim a tax deduction for donations made to organisations without DGR status – but that doesn’t mean you shouldn’t be giving to them.

Some Facts

•  There are approximately 25,000 DGRs in Australia (a small proportion of Australia’s 600,000 plus not-for-profit groups)

•  44% of DGRs are public benevolent institutions (not-for-profit organisations for the direct relief of poverty, sickness, suffering, distress, misfortune, disability or helplessness)

•  18% of DGRs are school or college building funds

•  Only 36% of eligible charitable donations are actually claimed through the tax office. (As at 31/10/2008. Source: ATO)

Busting Some Myths

•  “Charities” or good causes do not automatically receive DGR status.

•  Just because an organisation doesn’t have DGR status, doesn’t automatically make it any less “charitable”, worthy or trustworthy than organisations that do have DGR status.

•  DGR status is not a measure of whether an organisation deserves financial support.

•  DGR status is not a measure of the long-term viability of an organisation.

Why some organisations seek DGR status

Many grantmakers and philanthropic bodies can only give to DGRs, and some tax-conscious individuals will only donate to DGRs, making it an attractive status for a not-for-profit organisation to have.

But it’s not easy to get. The application process can be onerous and expensive (legal and accounting advice is recommended) and there are a number of obligations that the organisation will need to meet on an ongoing basis.

Getting DGR status is therefore beyond the financial and administrative means of many worthy not-for-profit organisations.

Even those that do have the means may still miss out if they do not fit into the narrow and antiquated definition of “charity” (see The Problems – below).

DGR ENDORSEMENT

Organisations that wish to have DGR status can either:

•  Apply for DGR endorsement by the ATO; or

•  Lobby the Federal Government to be listed by name in the tax legislation.

There are two types of DGR endorsement by the ATO:

•  Where an organisation is endorsed as a whole;

•  Where an organisation is endorsed for a fund, authority or institution that it owns or includes. For example, a school may not be a DGR itself but may have a building fund that has DGR status. In order to claim a tax deduction for a donation to the school, the donation must go into that particular DGR-approved fund.

There are 40 DGR categories set out in the income tax law, including:

•  health promotion charities

•  school building funds

•  scholarship funds

•  public benevolent institutions

•  overseas aid funds

•  registered cultural and environmental organisations, and

•  public libraries, museums and art galleries.

THE PROBLEMS

Archaic Foundations

To determine if an organisation fits into a DGR category, it must have a ‘charitable purpose’.

The problem is that ‘charity’ has never been defined in Australian legislation. To determine if an organisation is a charity you have to look at the “spirit and intendment” of the Preamble to the Statute of Elizabeth (1601) or be an alogous to one of its purposes. E lizabeth thought that Charity was: 

•  the reliefe of aged, impotent and poore people;

•  the maintenance of sicke and maimed Souldiers and Marriners , Schooles of Learning, free schools and schollers in universities;

•  the repaire of bridges, portes , havens, causewaies , churches, sea- bankes and highwaies ;

•  the educacion and prefermente of Orphans;

•  the maintenance of Howses of Correction;

•  providing dowries for the Mariages of poor Maides ;

•  the supportation , aid and help of persons decayed;

•  the relief or redemption of Prisoners or Captives of the Turk;

•  and the aid or ease of any poor inhabitants concerning payment of fifteens, setting out of Souldiers and other Taxes

We are still bound by these narrow concepts defined 409 years ago and 10,000 miles away.

Many government-initiated inquiries have recommended that the definition of charity be modernised and defined by statute.

Unfortunately, to date, no Australian government action has been taken to adopt these recommendations.

Some resulting anomalies

SPORTING ORGANISATIONS

The encouragement of sport undeniably benefits communities and improves the health and general wellbeing of participants, but currently that’s not enough to get sporting organisations DGR status.

CASE STUDY: The Northern NSW Football Limited (NNFL)

The NSW Administrative Decisions Tribunal recently held that this not-for-profit organisation had a dominant purpose that went beyond the mere encouragement of sport and that it was therefore a “charity” entitled to certain payroll tax and stamp duty exemptions. On appeal, however, the decision was reversed. An 1885 decision that held that “gifts for the encouragement of a mere sport will not be charitable” was applie d

“POLITICAL” ACTIVITIES

An organisation with a charitable purpose that is critical of the government may lose its DGR status. An organisation whose main purpose is charitable may be allowed to get away with some political lobbying if it is a minor and ancillary aspect of their work (though the scope of this concession can vary from time to time and government to government). However, trying to influence the government is not considered a charitable purpose under the spirit and intendment of the government of Elizabeth.

CASE STUDY: Aid/Watch

Aid/Watch is an independent membership-based organisation founded in 1993. Its stated purpose is to act as a watchdog on aid, trade and debt, working with communities in the global south. To fulfil this mission, it researches, monitors and campaigns about overseas aid programs run by the Australian Government. Aid/Watch was fully endorsed as a charitable institution with DGR status. But in 2006, according to the ATO, Aid/Watch engaged in “political” activities. The ATO withdrew its DGR status. The “political” activities included campaigning the government to put pressure on the Burmese regime and raising concerns about the developmental impacts of the US-Australia Free Trade Agreement.

Aid/Watch won special leave to appeal to the High Court. The High Court heard the appeal in June, but, at the date of publishing, has yet to hand down its decision.

In May 2010, a Private Members Bill (The Tax Laws Amendment Bill (Public Benefit Test)) was introduced by Senator Nick Xenophon. If passed, the Bill, which is being considered at a Senate Economics Legislation Committee hearing, would require religious and charitable institutions to meet a ‘public benefit test’ to justify their exemption from taxation. In his second reading speech to Parliament, Senator Xenophon said the Bill was designed to ensure re- examination of the tax-exempt status of the Church of Scientology.

Philanthropy Australia CEO Gina Anderson says the Bill could result in all DGR-endorsed organisations having to prove public benefit, potentially on an annual basis, in order to retain their status. She says the result would also add an administrative and resource cost to the Australian Taxation Office, with the potential cost of an appeal mechanism for disallowed charities that may pass into the court system.

Over in the UK, the Charities Commission has been requiring church-run schools and hospitals and care facilities to cater for the needs of the public, as opposed to the wishes of the trustees: some private schools, for example, have been told to give out more scholarships, or to share facilities with other less well provided for local schools, if they wish to keep their charitable status.

Back home, that’s not necessary; as a spokesman for the Australian Catholic Bishops Conference told the Senate inquiry, "Caring for rich people is as charitable as caring for poor people…. It's not so much the wealth of the people that you are looking after, it's whether those you are looking after are other than yourself, that's the test of charity."