The Australian Government has announced reforms aimed at addressing its broader objective of doubling philanthropic giving in Australia by 2030.
The reforms focus on two key areas:
These reforms come as a response to recommendations made in the Future Foundations for Giving inquiry conducted by the Productivity Commission, as well as proposals contained in the sector-led Not-for-profit Sector Development Blueprint.
To better reflect the role of public and private ancillary funds in facilitating charitable giving, the reforms propose to rename public ancillary funds and private ancillary funds to ‘public giving funds’ and ‘private giving funds’ respectively.
Under the proposed reforms, the Government will set a minimum annual distribution rate of 6% of net assets for both public and private ‘giving funds’ (the current rate is 4% for public ancillary funds and 5% for private ancillary funds).
Giving funds must distribute a minimum share of their assets each year to qualify for tax concessions. Raising the distribution rate aims to direct more philanthropic capital to operating charities in the short term while still allowing funds to maintain capital and earn investment returns.
Treasury analysis indicates that a fund earning market returns and distributing 6% of net assets annually could operate for decades even without new contributions. In practice, many funds already exceed this level, with about two-thirds of public funds and half of private funds distributing more than 6% in recent years. The average distribution rate for private ancillary funds in the period from 2000 to 2021 was 8% and for public ancillary funds in the period from 2011 to 2021 was 15.3%.
The reforms will also allow giving funds to smooth distributions over a three-year period. This change is intended to provide greater flexibility for funds supporting larger or multi-year charitable initiatives. This will enable giving funds to make large distributions in a single year and then distribute less than the minimum distribution rate in the subsequent two years. This may be particularly beneficial where funds are supporting major projects or responding to short term needs.
The new minimum distribution rate will apply from the first financial year following amendments to the giving fund guidelines. Existing giving funds will also benefit from a two-year transition period before the new distribution rate must be met.
This initiative is similar in concept to changes made to the ancillary fund guidelines in 2020 that permitted ancillary funds that exceeded the minimum distribution rate in the 2019-2020 and 2020-2021 financial years to distribute lower amounts in subsequent years. Those changes were intended to promote philanthropic giving during the COVID-19 economic downturn.
The Government has recently endorsed 34 new community charities as deductible gift recipients.
Community charities are locally focused charitable trusts or incorporated bodies that support community initiatives by distributing funds, property or benefits to organisations endorsed as DGRs. For instance, they may support a wide range of initiatives, including:
Importantly, previously DGR endorsement was only available for discrete categories (e.g. only environment, or only cultural activities), requiring organisations pursuing broad purposes to establish and operate more than one DGR endorsed entity. Community charities are more flexible, as they can incur expenditure in support of all DGR purposes and are not confined to one category, allowing them to direct tax-deductible donations to a wide range of charitable causes.
The measures aim to strengthen the philanthropic ecosystem by encouraging more timely distributions from giving funds while expanding the number of organisations able to access DGR status and attract tax-deductible donations. For charities, foundations and philanthropic donors, the reforms may have implications for fund governance, distribution strategies and eligibility for tax-deductible giving structures.
Our Charity and Not-for-profit team advises charities, philanthropic foundations and donors on the legal and regulatory framework governing tax-deductible giving in Australia.
We can assist with:
If your organisation operates, or is considering establishing, a giving fund or seeking DGR endorsement, our team can help you understand the implications of these reforms and ensure your structure remains compliant.
Please contact us for more detailed and tailored help.
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.
Moores Practice Leader, Rebecca Lambert-Smith and Associate Yoni Ungar, sit down in a Moores Q&A to discuss the new reforms to the Australian government’s Deductible Gift Recipient (DGR) registers.
These new reforms will ease the 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. If your organisation may be able to take advantage of the flexibility these new reforms provide, we have detailed some of the key information 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.
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:
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.
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.
Receipts 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.
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.
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.
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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