Australian Charities: Your Comprehensive Guide to Deductible Gift Recipient (DGR) Endorsement and ACNC Requirements

Introduction to DGR Endorsement for Your Australian Charity

For many involved in the Australian charitable sector, understanding Deductible Gift Recipient (DGR) status is essential. This special tax designation, administered by the Australian Taxation Office (ATO), enables eligible organisations to receive tax-deductible donations, a crucial factor in attracting support and enhancing financial stability for a charity.

The process of obtaining and maintaining DGR endorsement can be complex for an Australian charity. This guide aims to clarify the key aspects of DGR status, including the roles of both the Australian Charities and Not-for-profits Commission (ACNC) and the ATO, to help your organisation understand the requirements and processes involved in securing this important endorsement for receiving tax deductible donations.

What is Deductible Gift Recipient Status & Why is it Important for Your Australian Organisation

Understanding Tax Deductible Donations & DGR Benefits for Your Charity

DGR status is an endorsement by the ATO that allows an organisation to receive gifts for which donors can claim a tax deduction. This means when a person or organisation makes a donation to a DGR-endorsed charity, they may be able to reduce their taxable income by the amount of the gift, provided the donation is $2 or more.

This tax incentive makes your Australian charity more attractive to potential supporters and can encourage more frequent or larger donations.

The benefits of obtaining DGR endorsement extend beyond individual donations:

• It enables your organisation to access funding from certain grant-makers and philanthropic bodies
• Many funding entities restrict their grants to organisations with this specific endorsement
• It helps in developing a robust fundraising strategy
• It contributes to ensuring long-term financial sustainability

The Roles of the ACNC & ATO in DGR Endorsement

Understanding the distinct roles of two key regulatory bodies is essential for any Australian organisation seeking DGR status:

The ACNC:

• Serves as the national regulator of charities
• Is responsible for registering organisations as charities
• Assesses an organisation’s charitable purpose
• Ensures organisations meet ongoing governance standards

The ATO:

• Is the government body responsible for endorsing organisations as DGRs
• Assesses DGR applications against specific criteria outlined in tax law for various DGR categories

While ACNC charity registration is a prerequisite for most organisations to be eligible for DGR endorsement, it is important to note that not all registered charities qualify for or obtain DGR status.

Exploring the Types of DGR Endorsement Available to Your Australian Charity

Whole-Entity DGR Endorsement Explained

When an Australian organisation seeks DGR endorsement, one option is whole-entity DGR status. This type of endorsement means that all aspects of the charity’s operations fall within an approved DGR category, making all eligible donations to the organisation tax deductible.

Whole-entity DGR status is often suitable for larger institutions where the entire organisation’s activities align with a specific DGR category. For instance, public hospitals or universities typically receive this type of endorsement, as their core functions generally meet the DGR eligibility criteria.

This comprehensive endorsement simplifies the donation process, as any qualifying gift to the organisation itself is eligible for tax deductibility for the donor.

Partial-Entity DGR Endorsement for Specific Funds Authorities or Institutions

Alternatively, an Australian charity may obtain partial-entity DGR endorsement. This form of DGR status applies only to a specific fund, authority, or institution that the organisation operates, rather than the entire entity.

This distinction is crucial for organisations whose broader activities may not all qualify for DGR status. Under a partial-entity DGR endorsement:

• Only donations made directly to the specifically endorsed fund, authority, or institution are tax deductible for donors
• General donations to the charity itself are not tax deductible
• The organisation can attract tax deductible donations for specific DGR-eligible projects or components

For example, a charity might operate a building fund that is DGR endorsed. In this scenario, only donations designated for that building fund would be tax deductible, not general donations to the charity itself. This arrangement allows organisations to secure tax-deductible contributions for specific DGR-eligible initiatives, even if the charity as a whole does not meet the criteria for whole-entity DGR status.

Key DGR Eligibility Criteria for Your Australian Organisation

The Necessity of ACNC Charity Registration for DGR Status

For most non-government organisations, a crucial step towards obtaining DGR endorsement is being registered as a charity with the ACNC. This requirement underscores the link between charitable status and the ability to offer tax deductible donations.

Since 14 December 2021, legislation mandates that a fund, authority, or institution must generally be a registered charity to be eligible for DGR endorsement. However, there are specific exceptions to this rule.

The requirement to be an ACNC registered charity does not apply if the organisation is:

• An Australian government agency
• Operated by a registered charity or an Australian government agency
• An ancillary fund
• Specifically listed by name in tax law

These exceptions cater to particular types of entities where ACNC charity registration is not deemed a prerequisite for DGR status. For all other non-government entities, securing ACNC registration is a fundamental part of the DGR eligibility criteria.

Meeting Specific DGR Category Requirements & the ‘In Australia’ Condition

To achieve DGR endorsement, your Australian organisation must satisfy the specific criteria of one of the DGR categories outlined by the ATO. Each category has distinct requirements based on the organisation’s purpose and activities, such as health, education, or environmental protection.

It is essential to identify the appropriate DGR category and ensure your organisation’s objectives and operations align with its specific conditions.

Furthermore, a general DGR eligibility rule is the ‘in Australia’ condition. This typically means the organisation must be established and operated within Australia. While some DGR categories permit an organisation to have purposes and beneficiaries outside Australia, particularly for activities in developing countries, the entity itself must maintain its primary establishment and operational base in Australia.

For instance, if most of an organisation’s board members, donors, and assets are located overseas, it may not meet the ‘in Australia’ condition. Some DGR categories, such as those for Australian war memorial funds or public funds for religious instruction in government schools, require that their purposes and beneficiaries are exclusively within Australia.

Establishing & Managing a Gift Fund for Your Charity

For certain DGR categories, particularly if your organisation is seeking partial-entity DGR status for a specific fund, authority, or institution it operates, establishing and managing a dedicated gift fund is a key eligibility criterion.

This gift fund must be maintained solely for the principal charitable purpose of the DGR-endorsed part of your organisation. All tax deductible donations intended for that specific purpose must be directed exclusively to this gift fund.

The rules governing gift funds are strict; no other types of money or property can be held within the gift fund. This ensures that all contributions are used in line with the approved charitable purpose for which DGR endorsement was granted. The requirement to operate a gift fund helps maintain transparency and accountability in how tax deductible donations are managed and utilised by your Australian charity.

Essential Governing Document Rules Including Revocation Clauses

An organisation’s governing document plays a critical role in meeting the eligibility criteria for DGR endorsement. This document must contain acceptable rules regarding how surplus gifts and deductible contributions will be handled if the organisation winds up or its DGR endorsement is revoked.

Specifically, it needs to include a revocation clause that dictates the transfer of any remaining DGR assets. These rules ensure that, in the event of winding up or revocation of DGR status, any surplus funds or property originally received as tax deductible donations are passed on to another eligible DGR.

If the DGR entity was also a registered charity, these assets might need to be transferred to another charity with similar charitable purposes. The ATO and the ACNC provide guidance on suitable wording for these clauses, which must be clearly outlined in your charity’s governing rules.

How Your Australian Organisation Can Apply for DGR Endorsement

Applying for Deductible Gift Recipient Endorsement if Your Charity is Already Australian Charities and Not-for-profits Commission Registered

If your Australian organisation is already a registered charity with the ACNC and wishes to obtain DGR endorsement, the application process is straightforward:

• The process is managed directly with the ATO
• Your charity will need to complete and submit the ATO’s specific DGR application form

Upon receiving your application, the ATO will assess your charity’s eligibility for DGR status. This assessment is based on the specific criteria associated with the relevant DGR category your organisation is applying under, ensuring that your charity meets all requirements to receive tax deductible donations.

Applying for Charity Registration & DGR Endorsement Simultaneously

For an Australian organisation that is not yet registered as a charity, it is possible to apply for both ACNC charity registration and DGR endorsement concurrently. This combined approach offers several advantages:

• The application is submitted through the ACNC’s charity registration application form
• It streamlines the process for new entities seeking DGR status
• It reduces the administrative workload by managing both processes simultaneously

If the ACNC approves your charity registration, they will then forward the relevant information from your application to the ATO. The ATO is responsible for the final DGR endorsement decision, enabling your charity to receive tax deductible donations.

Information Your Organisation Needs for the Deductible Gift Recipient Application

When applying for DGR endorsement, particularly if applying simultaneously with ACNC charity registration, your Australian organisation will need to provide specific information. This ensures the ATO and ACNC have the necessary details to assess your eligibility for DGR status.

Key details required for the DGR application include:

• An Australian Business Number (ABN): Your organisation must have an ABN, and the name on the application must exactly match the ABN registration
• Type of DGR endorsement: You must specify whether you are seeking endorsement for the charity as a whole or for a particular fund, authority, or institution it operates
• DGR category item number: Identify the specific DGR category item number you are applying under, which can be found in the ATO’s DGR table
• Desired DGR endorsement date: The application will require you to state the date from which you are seeking DGR endorsement to commence
• Governing document: A copy of your organisation’s governing document must be provided. This document should outline the charity’s purpose, how it operates, and critically, include an acceptable revocation clause detailing how surplus DGR assets will be handled if endorsement is revoked or the entity winds up. You will need to provide the specific clause number in your application
• Contact and structural information: Detailed contact information, including an address and a primary contact person, along with information about your organisation’s legal structure, is also necessary

Conclusion

Obtaining and maintaining DGR endorsement is a critical consideration for many Australian charities, enabling them to receive tax deductible donations and enhance their financial sustainability through the support of the ACNC and ATO. Understanding the eligibility criteria, application processes, types of DGR status available, and ongoing compliance obligations, including recent administrative changes, is essential for any Australian charity seeking or holding this valuable endorsement.

Understanding the complexities of DGR status and ACNC requirements can be challenging, the expertise of our not-for-profit lawyers will guide you on your charity’s specific circumstances. Contact LawBridge today to explore our specialised not-for-profit legal services and ensure your organisation is well-positioned to achieve its philanthropic goals.

Frequently Asked Questions for Australian Organisations Preparing Deductible Gift Recipient Applications