Deductible Gift Recipient reforms have occurred – here’s what you need to know

Long-awaited reforms to the Australian government’s Deductible Gift Recipient (DGR) registers have now come into effect, easing administrative burdens for cultural, environmental, harm prevention and overseas aid charities. However, most organisations will not benefit from these reforms until they make key changes to their governing documents.

Why were the reforms introduced?

As flagged in our article last year, in early 2023 the Australian Government introduced reforms to ease the administration of four categories of DGR. These four DGR categories were administered by the following Australian Government departments:

  • Register of Cultural Organisations – Department of Infrastructure, Transport, Regional Development, Communications and the Arts
  • Register of Environmental Organisations – Department of Climate Change, Energy, the Environment and Water
  • Register of Harm Prevention Charities – Department of Social Services
  • Overseas Aid Gift Deductibility Scheme – Department of Foreign Affairs and Trade

On establishment, new organisations had to apply to the relevant department for DGR endorsement and obtain the written approval of two Ministers – a process which often took years to finalise. These organisations were then subject to ongoing administrative and reporting requirements, including submitting annual audited accounts to the relevant department, providing statistical information about donations and operating a public fund.

What has changed?

A streamlined endorsement process
From 1 January 2024, these four registers were abolished. These DGR categories are now administered by the Australian Taxation Office (ATO). The ATO is now assessing applications for DGR endorsement, with processing times reduced to months or even weeks. Charities whose applications were not finalised before 1 January 2024 have been notified that the ATO will complete the assessment of their applications. All new applications must be made directly to the ATO.

Reduced reporting requirements
Established organisations no longer need to provide additional statistical returns and audited accounts to the ATO. Instead, it is sufficient to comply with their Australian Charities and Not-for-profits Commission reporting requirements.

Simpler administration
Importantly, organisations in these DGR categories will no longer be required by legislation to operate a public fund to receive all DGR gifts (and income generated from those gifts). Instead they may be able to operate a simpler gift fund (discussed further below).

Reduced membership for environmental organisations
Finally, the requirement for an environmental organisation to have membership consisting of either at least 50 individual members or only body corporate members has been abolished. This means that environmental organisations that have a body corporate sole member could consider seeking to adopt an alternative, simpler governance model (where the board and members are the same individuals). New environmental organisations can also be established with this simpler model.

Organisations were previously required to issue receipts for gifts and deductible contributions in the name of their public fund. From 1 January 2024, all receipts must be issued in the name of the organisation.

What is the difference between a public fund and a gift fund?

Public funds must comply with certain ATO requirements, including having a separate bank account and being operated by a management committee. The management committee must constitute at least three people, a majority of whom must satisfy the ATO’s responsible person test (as set out in paragraph 21 of Tax Ruling TR 95/27) – being individuals with a degree of responsibility to the community, typically with a professional occupation. For many organisations, this means that the public fund cannot be operated directly by the organisation’s board, but requires a separate management committee. Further, some organisations find it challenging to recruit sufficient individuals to the management committee that meet the responsible person test.

Gift funds don’t need their own committee of management or their own bank account. Instead, the organisation operating the gift fund needs to have clear accounting practices in place to track the funds and ensure that they are used appropriately. This can significantly streamline the organisation’s administration.

Can we now convert our public fund into a gift fund?

Despite the reforms, organisations still need to follow the requirements set out in their governing documents (their Constitution or Rules) if those requirements are compatible with the new laws. In particular, any public fund clause in an organisation’s governing document must be amended and replaced with a gift fund clause before the organisation can cease to comply with the public fund management committee requirement.

How we can help

If you’ve been planning on setting up a cultural, environmental, harm prevention or overseas aid charity, the process is now significantly more streamlined. We can help you get established. 

If you operate an existing cultural, environmental, harm prevention or overseas aid charity, we can help you understand the implications of these changes, as well as amend your governing document to take advantage of the new flexibility in relation to gift funds.

Contact our Charity and Not-for-profit law team for more information on how we can help your organisation.

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Please contact us for more detailed and tailored help.

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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.