Decoding the New ATO Guidance for Community Charities and DGR Status

Introduction

In 2024, the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Act 2024 (Cth) (‘Treasury Laws Amendment Act’) introduced community charity corporations as a new category for a deductible gift recipient. Following the Taxation Administration (Community Charity) Guidelines 2025 (Cth) (‘Community Charity Guidelines’), the Australian Taxation Office (ATO) issued guidance in October 2025 clarifying how an organisation can achieve and maintain deductible gift recipient status.

Securing this endorsement allows a charity to receive donations that are deductible from a donor’s assessable income, reducing their overall income tax. This article explains the eligibility criteria, endorsement process, and governance expectations for community charities so directors and legal advisers can establish these entities.

Interactive Tool: See If You Qualify for Community Charity DGR Status

What Is A Community Charity Corporation?

Community Charity: The Concept

As established by the Treasury Laws Amendment Act, a community charity is an organisation formed for specific philanthropic purposes, allowing it to seek deductible gift recipient (DGR) status.

Under Section 30-110 of the Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’), a community charity must have two mandatory purposes:

• Providing support to other DGRs: The charity must provide money, property, or benefits to other DGRs. This support must be for the recipient DGR’s own charitable purposes. These distributions cannot be made to other community charities or to ancillary funds.
• Engaging in DGR activities: The charity must also engage in activities that align with the principal activity or purpose of another DGR. This excludes activities of ancillary funds, other community charities, or specifically listed DGRs.

Comparison Against Trust-Based Community Charities

A community charity can be structured as either an incorporated body or a trust. A community charity corporation operates as a company, whereas a community charity trust must be established under a will or an instrument of trust, as outlined in Section 9 of the Community Charity Guidelines.

The governing structure also differs between the two. A corporation is managed by its corporate directors, while a trust is managed by its trustee, which must be a constitutional corporation.

Both structures are subject to strict governance rules. Section 12 of the Community Charity Guidelines requires the governing documents of both community charity corporations and trusts to prohibit indemnifying directors or trustees for any loss or liability resulting from:

• A deliberate breach of duty
• Dishonesty
• Gross negligence or recklessness

ATO Guidance On Eligibility Criteria

What The New ATO Guidance Covers

In October 2025, the Australian Taxation Office (ATO) released updated guidance clarifying the structural and operational requirements for community charities seeking DGR status under the new legislative framework.

The guidance provides important details on several key areas for any organisation wanting to become a community charity. It specifically outlines:

• Eligibility Criteria: The guidance specifies the structural and operational standards an entity must satisfy before it can apply for endorsement as a community charity.
• Governance Expectations: It reinforces that community charities must adhere to the Treasury Minister’s Guidelines, which set out minimum standards for governance and conduct.
• Endorsement Process: The ATO provides an overview of its approach to the endorsement process, including the required documentation and circumstances where endorsement might be refused or revoked.

Mandatory Purposes & Eligibility Criteria

To be endorsed as a community charity with DGR status, an organisation must meet strict criteria. A community charity must be established and operated only in Australia, as required by Section 10 of the Community Charity Guidelines.

The core eligibility requirements for a community charity include:

• ACNC Registration: The organisation must be registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC).
• Ministerial Declaration: The entity must be specified in a ministerial declaration before the ATO can grant endorsement.
• Exclusive Operation: The organisation must operate exclusively for its required philanthropic purposes.

Finally, as outlined earlier, the organisation must satisfy the mandatory purposes under Section 30-110 of the ITAA 1997 by providing support to, or engaging in the principal activities of, other eligible DGRs.

The Endorsement Process & Document Pack List

Steps In The Endorsement Process

Securing DGR status for a community charity involves a multi-stage process with several government bodies, often requiring the assistance of DGR endorsement lawyers.

Each step must be completed successfully for your organisation to be endorsed, and the process requires engagement with Treasury, the ACNC, and the ATO.

The key stages to becoming a community charity with DGR endorsement are:

1. Submit a proposal to the minister: The first step is to prepare and submit a proposal to the relevant minister to be specified in a ministerial declaration. The ATO cannot endorse your charity without this declaration.
2. Register with the ACNC: Your organisation must be registered as a charity with the ACNC. This can be done before submitting the ministerial proposal, but it is a mandatory requirement before the ATO can grant DGR endorsement.
3. Apply to the ATO for endorsement: Once your charity is named in the ministerial declaration and registered with the ACNC, you can apply to the ATO for DGR endorsement.
4. Maintain endorsement: After receiving endorsement, the community charity must continue to comply with all relevant guidelines and obligations to maintain its status.

The Required Document Pack List

When preparing your proposal for the minister, it is recommended to include a comprehensive set of documents to demonstrate that your entity is ready for DGR endorsement. While the minister does not decide on the compliance of your governing documents, providing this information offers assurance.

Your document pack should contain the following:

• Entity Information: This includes the legal name of the organisation, its Australian Business Number (ABN), a copy of the trust deed or constitution, and the certificate of incorporation or registration.
• Entity Purpose: A clear description of the charity’s purpose or purposes, supported by specific references within the governing documents.
• Governing Documents: These must feature compliant clauses for winding up and director or trustee liability. They should also detail the minimum annual distribution requirements and confirm that the entity operates in Australia.
• Donation Estimates: Provide an estimate of the donation amounts your community charity expects to receive annually for the next five years if granted DGR status. This should break down the sources of funds, such as from individuals, businesses, or ancillary funds.
• Philanthropic Character: Include details about the entity’s activities and the public benefit it provides to the community. If available, add links to the organisation’s website or annual reports.
• Contact Details: The name and telephone number of a primary contact person for the proposal.

Governance Expectations For Directors & Accountants

Core Governance Expectations

Community charities must adhere to strict operational standards outlined in the Community Charity Guidelines to maintain their DGR status. These governance rules ensure transparency and accountability.

Key operational requirements for a community charity include:

• Regular self-reviews: An organisation should conduct regular reviews to ensure it continues to meet the eligibility criteria for DGR endorsement.
• Maintaining accounting records: Under Section 15 of the Community Charity Guidelines, a community charity must keep proper accounts for all receipts and payments and retain these records for at least five years.
• Submitting annual returns: The charity is required to submit annual returns for each financial year, which includes lodging an income tax return.
• Minimum annual distribution: Section 13 of the Community Charity Guidelines requires a community charity to make distributions equal to at least 4% of the market value of its net assets from the end of the previous financial year.

Board Checklist

The Community Charity Guidelines imposes specific duties on the corporate directors of community charity corporations. These responsibilities are designed to ensure prudent management and compliance.

Directors of a community charity should ensure they meet the following obligations:

• Exercise prudent care: Section 11 of the Community Charity Guidelines mandates that directors must exercise the same degree of care, diligence, and skill that a prudent individual would when managing the affairs of others.
• Avoid indictable tax offences: An individual who has been convicted of an indictable taxation offence is prohibited from serving as a director of a community charity corporation, as specified in Section 11 of the Community Charity Guidelines.
• Prepare annual financial reports: In accordance with Section 16 of the Community Charity Guidelines, the organisation must prepare a financial report for each financial year that complies with accounting standards.
• Arrange audits: Section 17 of the Community Charity Guidelines requires the charity to have its financial report and compliance with the guidelines audited each financial year by a registered company auditor.
• Maintain an investment strategy: Section 18 of the Community Charity Guidelines requires a community charity to prepare and maintain a current written investment strategy. This document must detail the charity’s investment objectives and the methods it will use to achieve them.

Conclusion

The introduction of community charity corporations has created a new pathway for an organisation to gain DGR status, with recent ATO guidance clarifying the requirements. To achieve and maintain this status, directors must understand the strict eligibility criteria, multi-stage endorsement process, ongoing governance obligations, and common mistakes to avoid.

Adhering to these detailed requirements is critical for any organisation seeking to become a community charity. For practical legal guidance tailored to the not-for-profit sector, contact our DGR status lawyers at LawBridge today to ensure your organisation successfully establishes its DGR status.

Frequently Asked Questions