On 19 January 2023, the Treasury released an exposure draft bill and explanatory memorandum relating to reforms of the Deductible Gift Recipient (DGR) registers currently administered by Australian Government departments. The draft bill is a key step in a reform process initially announced over five years ago and should lead towards simpler and more efficient administration for some categories of DGR.
There are currently 52 DGR categories set out in Division 30 of the Income Tax Assessment Act 1997 (Cth) (ITAA). Each category has its own eligibility criteria. Applications for endorsement for 48 of these DGR categories are made to the Australian Taxation Office (ATO), sometimes via another government agency such as the Australian Charities and Not-for-profits Commission (ACNC).
However, four DGR categories are currently administered in a different manner by Australian Government departments, these are:
- 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.
Currently, entities must apply directly to these departments in order to obtain DGR endorsement. Each department has a distinct set of eligibility requirements, and applications for DGR endorsement are managed independently using different platforms and following different processes.
Ultimately, the relevant Treasury Minister and the Ministers responsible for each respective department must approve each application. These applications can take up to two years to be processed, whereas applications to the ATO can often be completed within one month.
What are the proposed reforms?
The proposed reforms seek to transfer the practical administration of these DGR categories from the government departments to the ATO.
The proposed reforms would abolish the powers of the Ministers and the departments to facilitate and approve registrations, and would abolish the registers themselves. Eligibility criteria for entities seeking DGR endorsement would largely remain unchanged. However, applicants would no longer need to include some previously required provisions in their governing documents such as a requirement to provide statistical information about gifts to the secretary of the endorsing department.
Additionally, for Cultural Organisations, Environmental Organisations and Harm Prevention Charities, the proposed reforms also seek to replace the current requirement to maintain a public fund, with the slightly less onerous obligation to maintain a gift fund.
Section 30.130 of the ITAA provides that a separate bank account is not required for a gift fund and does not require a gift fund to be managed by a management committee with a majority of individuals who meet the ATO’s ‘responsible persons’ test.
This is good news for current DGRs as administrative burdens relating to opening a separate bank account will be alleviated and the board or executive would be able to manage the gift fund directly without the need for a separate management committee, comprising ‘responsible persons’.
The proposed reforms for overseas aid organisations are slightly more significant. Currently, the eligibility criteria for DGR endorsement is predominantly contained in guidance material that is published by the Department of Foreign Affairs and Trade with a focus on the organisation’s activities. Much of the eligibility criteria is preserved in the proposed reforms, however the language is expressed in a manner that focuses on the principal purposes of the organisation: they must have a “principal purpose of delivering development or humanitarian assistance activities (or both) in developing countries, and must deliver those activities in partnership with organisations in the country, based on principles of cooperation, mutual respect and shared accountability.”
If the reforms are enacted, existing DGRs will (irrespective of the clause in their governing document) be able to transfer assets in a winding up to another DGR with similar purposes, rather than another DGR on the relevant register. They will also be able to replace the public fund requirement in their governing document with a more flexible gift fund requirement.
Deadline for consultation submissions
Treasury is engaging in a process of consultation with regards to the proposed reforms and has invited the public to comment on the matters set out in the exposure drafts. Submissions are open until 19 February 2023.
How can we help?
Please get in contact with our team of charity and not-for-profit law experts if you’d like to discuss the proposed reforms with us in greater depth.
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