How to Challenge an ATO Revocation of DGR Status

Introduction

For any charity, holding Deductible Gift Recipient (DGR) endorsement from the Australian Taxation Office (ATO) is crucial for securing donations. This status allows an organisation to receive a deductible gift, providing a significant incentive for donors and supporting its financial viability. However, the ATO has commenced the revocation of this endorsement for any organisation that fails to meet new eligibility criteria, such as being a registered charity with the Australian Charities and Not-for-profits Commission (ACNC).

An adverse ATO decision does not have to be the final outcome, as your organisation has the right to dispute the revocation. This guide outlines the formal process for challenging such a decision, explaining the strict eligibility to lodge an objection and the critical steps involved in building your case. Due to the complexities of tax law and the severe consequences of losing DGR status, consulting a not-for-profit lawyer is essential to effectively manage the dispute.

Understanding DGR Endorsement & ATO Eligibility Determination

The Critical Difference Between DGR & Charity Status

Understanding the distinction between charity status and DGR endorsement is crucial for any not-for-profit organisation. The ACNC is responsible for registering an organisation as a charity, while the ATO is the separate government body that grants DGR endorsement. This endorsement is a specific tax concession allowing an organisation to receive a deductible gift or donation.

While being a registered charity is a necessary first step for most organisations seeking DGR status, it does not guarantee endorsement. Not all charities are eligible for DGR endorsement, as the eligibility criteria are much more specific.

To qualify for DGR endorsement, an organisation must fit into one of the DGR categories outlined in the Income Tax Assessment Act 1997 (Cth). There are more than 50 distinct DGR categories, each with its own set of detailed requirements. These categories cover a wide range of purposes, including:

• Health and education
• Research and environmental protection
• Welfare and rights
• Cultural organisations
• Animal welfare charities

An organisation’s principal purpose and activities, often defined as its charitable purpose, must align precisely with the criteria of a specific DGR category to achieve endorsement from the ATO.

Why the ATO is the Authority You Must Fight Regarding Revocation

The ATO holds the sole authority to assess, grant, and revoke DGR endorsement. This power is entirely separate from the ACNC’s role in managing charity registration.

Consequently, an organisation can remain a registered charity with the ACNC but still face the revocation of its DGR status by the ATO if it fails to meet tax law requirements. The ATO periodically reviews organisations to ensure they continue to satisfy the eligibility criteria for their specific DGR category.

If a review finds that an organisation no longer complies, the ATO has the power to issue an ATO decision to revoke its endorsement. When this occurs, the organisation will receive a formal notice explaining:

• The reasons for the revocation
• Its right to a review

Because the ATO is the body that makes the decision, any dispute or objection against the revocation must be directed to them. The process of lodging an objection is formal and requires a detailed response to the issues raised by the ATO.

Given the complexity of tax laws governing DGR eligibility, consulting a not-for-profit lawyer is essential to effectively challenge an ATO decision and protect your organisation’s status.

Common Reasons for DGR Revocation & the Financial Impact on Your NFP

Failure to Meet New DGR Reform Criteria or Loss of ACNC Registration

A primary reason for the ATO revoking an organisation’s DGR status is the failure to comply with recent legislative reforms. Since 14 December 2021, most non-government DGRs are required to be registered as a charity with the ACNC to maintain their endorsement.

This reform extended the charity registration requirement to numerous DGR categories that were previously exempt. Affected organisations were given a transitional period to meet the new eligibility criteria.

Consequently, if your organisation fails to secure or maintain its registration as a charity with the ACNC, the ATO may proceed with the revocation of your DGR endorsement.

The Financial Catastrophe & What Revocation Means for Your Donors

The revocation of your DGR endorsement triggers immediate and severe financial consequences for your not-for-profit. The most significant impact is on your fundraising capabilities, as your organisation will no longer be entitled to receive tax-deductible gifts. This means donors cannot claim a tax deduction for their contributions, which can drastically reduce your income stream.

Following a revocation, your organisation has several immediate obligations, including:

Obligation	Key Requirements
Remove DGR References	Erase all mentions of tax-deductible donations from your website, marketing materials, and public communications.
Confirm Funding Eligibility	Be aware of losing eligibility for funding from grant-makers and philanthropic bodies that require DGR status.
Transfer Surplus Assets	Transfer any surplus gifts, deductible contributions, and related income to another eligible DGR organisation.

Given the complexity of these obligations, particularly the requirement to distribute surplus assets, it is crucial to consult a not-for-profit lawyer. Seeking professional advice can help your organisation manage the process correctly after receiving a notice of revocation from the ATO.

The Dispute Pathway & How to Lodge Your Objection to an ATO Decision

Eligibility to Lodge an Objection & Understanding Time Limits

If your charity disagrees with an ATO decision to revoke its DGR endorsement, you have the right to challenge it by lodging an objection. To be eligible, your organisation must file the objection within the strict time limits set by the ATO.

Generally, the time limit for lodging an objection against an ATO decision is 60 days from the date you receive the notice of the decision. The start of this period is typically counted from when the assessment or notice was given to you or your representative.

It is crucial for your organisation to act promptly to preserve its right to dispute the revocation. However, if your charity has missed the 60-day deadline, it is still possible to request an extension of time. This request must be made in writing and included with your objection, explaining the reasons for the delay. The ATO will then consider your request and inform you in writing whether an extension has been granted.

Steps to Lodge a Formal Objection Against an ATO Decision

Lodging a formal objection is the final opportunity to convince the ATO to reverse its decision before the matter escalates to litigation. The process requires careful preparation and attention to detail, as the burden of proof rests on your organisation to demonstrate that the ATO’s decision regarding your DGR endorsement is incorrect.

To lodge a valid objection against the revocation of your DGR status, your charity should follow these key steps:

Step	Key Actions & Requirements
Prepare a Written Objection	Draft a formal objection letter or use the specific ATO dispute form. The document must be signed, dated, and clearly state that it is an objection.
Provide Detailed Reasons	The submission must be comprehensive, explaining all reasons for disagreeing with the ATO decision and directly addressing the issues raised for the revocation.
Gather Supporting Evidence	All claims must be substantiated with strong supporting documentation to prove the organisation continues to meet the eligibility criteria for DGR endorsement.

Given the complexity of tax law and the importance of a well-structured argument, consulting a not-for-profit lawyer is essential. A legal professional can help prepare a compelling objection, ensure all procedural requirements are met, and significantly improve the chances of a successful outcome.

Seeking an External Review at the ART & the Federal Court for Your Charity

Appealing to the ART vs the Federal Court as a Strategic Choice

If the ATO disallows your objection, your charity has the right to seek an external review of the ATO decision. This means you can escalate the matter to either the Administrative Review Tribunal (ART) or the Federal Court of Australia. Choosing the right forum is a critical strategic decision, as each venue has distinct processes and powers that can significantly impact the outcome of your dispute over DGR endorsement.

The ART is generally a less formal, more flexible, and lower-cost option for resolving a dispute. It can review both questions of fact and law, giving it broad scope to re-examine the entire case. In contrast, the Federal Court operates under stricter legal processes and its review is typically limited to questions of law only.

When making your choice, key differences to consider include:

Factor	Administrative Review Tribunal (ART)	Federal Court
Scope of Review	Can reconsider all facts and legal arguments, re-examining the entire case.	Review is typically limited to questions of law only, focusing on whether the law was applied correctly.
Discretionary Powers	Can exercise the Commissioner’s discretion to remit penalties.	Cannot exercise the Commissioner’s discretion to remit penalties.
Cost Orders	Does not have the power to order the unsuccessful party to pay the other’s legal costs.	Has broad powers to order the unsuccessful party to pay the other’s legal costs.

Given these differences, it is essential to consult a not-for-profit lawyer to determine which forum is most advantageous for your organisation’s specific circumstances.

Understanding the Risks & Costs of Further Appeals

Proceeding with an external review or further appeals carries significant financial risks and legal complexities. Litigation is an expensive and time-consuming process, and the costs can quickly outweigh the amount of tax in dispute.

If your charity is unsuccessful in its appeal, it risks not only paying its own legal fees but also being ordered to cover the ATO’s legal costs.

Should either your organisation or the ATO be dissatisfied with the decision from the ART or the Federal Court, a further appeal to a higher court, such as the Full Federal Court, is possible. However, these appeals are strictly limited to questions of law, meaning the facts established in the initial hearing cannot be re-argued.

This makes the initial preparation and presentation of your case fundamentally important.

The high costs and inherent risks of litigation underscore the importance of seeking professional legal advice early. A not-for-profit lawyer can help your charity:

• Assess the merits of its case,
• Understand the potential costs,
• Make an informed decision about whether to proceed with an appeal against the revocation of its DGR status.

Proving Your Entitlement to DGR Endorsement & the Importance of Legal Advice

How to Prove Your Entitlement to DGR Endorsement Under Tax Law

When lodging an objection against an ATO decision to revoke your DGR status, the burden of proof rests entirely on your organisation. It is your charity’s responsibility to demonstrate that the ATO has made an incorrect assessment regarding your DGR endorsement.

To successfully challenge a revocation, you must provide comprehensive evidence showing that your organisation continues to meet all the specific eligibility criteria under tax law. This involves proving compliance with a range of requirements, which may include:

Requirement Area	Details of Proof Required
Meet a Specific DGR Category	Demonstrate that the organisation’s principal purpose and activities align with one of the DGR categories in the Income Tax Assessment Act 1997 (Cth).
Satisfy the ‘in Australia’ Condition	Show that the organisation was established and is operated principally within Australia.
Adhere to Specific Tests	For certain categories (e.g., “public benevolent institution“), prove the charity’s main purpose is providing benevolent relief to people in need.

The Importance of Consulting a NFP Lawyer for Your Dispute

Engaging a not-for-profit lawyer early in the dispute process is critical, highlighting why a lawyer is essential to effectively challenge an ATO decision. The legal requirements for maintaining DGR endorsement are complex, and a lawyer can provide critical guidance from the initial risk review stage, helping to prevent the dispute from escalating.

A lawyer can assist your charity in preparing a compelling and well-structured objection. This support is vital for meeting the burden of proof, as it ensures your arguments are clearly articulated and supported by the necessary evidence.

Professional legal advice can significantly improve your chances of a successful outcome and help manage the process before it progresses to expensive and time-consuming litigation in the ART or the Federal Court.

Conclusion

Challenging an ATO decision to revoke your DGR endorsement requires a clear understanding of the dispute process, from lodging an objection within strict time limits to potentially seeking an external review. Successfully overturning a revocation depends on proving your charity continues to meet the specific eligibility criteria for its DGR category under tax law.

Given the complexities involved and the significant financial impact of losing DGR status, it is crucial to seek specialised legal advice tailored to your organisation’s needs. For assistance, contact the expert not-for-profit lawyers at LawBridge to help protect your charity’s endorsement.

Frequently Asked Questions