Community Charity DGR Rules in 2026: What Australian Foundations Need to Know

Introduction

The May 2026 federal budget introduced a Deductible Gift Recipients (DGR) reform that removed the ministerial declaration requirement from the community charity DGR process. This legislative change reduces administrative delays for community charities, Australian charities, and local giving funds seeking deductible gift recipient endorsement from the Australian Taxation Office (ATO) and the Australian Charities and Not-for-profits Commission (ACNC) across all DGR categories.

This article explains the new DGR rules for a community foundation or charity establishing community charity corporations or trusts. It outlines the updated application sequence, vehicle comparisons, and the governance standards required under the Taxation Administration (Community Charity) Guidelines 2025 (Cth) (‘Community Charity Guidelines‘) to maintain a community charity DGR category.

Interactive Tool: Check If Your Charity Meets the New DGR & Governance Rules

The 2026 DGR Reform & Vehicle Comparison for Philanthropic Organisations

Differences Between Community Charities & Ancillary Funds

A key distinction between community charities and ancillary funds lies in their operational scope. Community charities with DGR status possess broad operational capabilities, allowing them to engage in activities across all DGR categories. This flexibility enables them to directly pursue various charitable purposes.

Ancillary funds, in contrast, generally have a more limited function. Their primary purpose is to provide money, property, or benefits to other DGRs. Under Section 30-110 of the Income Tax Assessment Act 1997 (Cth), a community charity’s mandatory purposes include not only providing for other DGRs but also engaging in activities that are the same as another DGR. 

This capacity for direct involvement in charitable work sets community charities apart from the more restricted, flow-through role of ancillary funds.

Trust Versus Corporation Structures for Local Giving Vehicles

When establishing a local giving vehicle as a community charity, philanthropic organisations can choose between two primary legal structures:

• a trust, defined under Section 426-117 of the Taxation Administration Act 1953 (Cth); or
• a corporation, defined under Section 426-180 of the Taxation Administration Act 1953 (Cth).

Regardless of the structure chosen, certain fundamental requirements must be met to achieve and maintain DGR status. Both structures must satisfy specific foundational conditions:

• Registered Charity Status: the entity must be a registered charity with the ACNC, as stipulated in Section 9 of the Community Charity Guidelines.
• Australian Operations: the charity must be established and operated exclusively in Australia, a requirement detailed in Section 10 of the Community Charity Guidelines.

Setup Requirements & Governance Clauses for Australian Foundations

Mandatory Purposes & Philanthropic Character Rules

As noted earlier, Section 30-110 of the Income Tax Assessment Act 1997 requires a community charity to be established for specific purposes. These include:

• Providing money, property, or benefits to another DGR for its own DGR purpose, and this does not include distributions to ancillary funds or other community charities;
• Engaging in activities or purposes that are the same as those of another DGR, excluding ancillary funds, other community charities, or entities with a specific listing.

A community charity may also have the purpose of establishing other DGR entities, provided they are not another community charity or an ancillary fund.

In addition to these mandatory purposes, Section 8 of the Community Charity Guidelines requires a community charity to maintain a philanthropic character. This involves operating as a vehicle for philanthropy and adhering to principles of transparency and accountability to the public.

Compliant Liability & Revocation Clauses

The governing documents of a community charity must contain specific clauses to ensure compliance and protect its assets, a process our not-for-profit lawyers can assist you with.

A compliant winding up or revocation clause is necessary. Section 9(3)(b) of the Community Charity Guidelines requires that, upon winding up or ceasing to be a community charity, all of its net assets must be transferred to another DGR that aligns with the charity’s original purposes.

The governing rules must also include specific liability clauses. Section 12 of the Community Charity Guidelines prohibits a community charity from indemnifying its trustees, directors, employees, officers, or agents for losses or liabilities resulting from:

• a deliberate act or omission known to be a breach of duty;
• dishonesty; or
• gross negligence or recklessness.

The Step-by-Step ACNC & ATO Application Sequence for Charity Trustees

ACNC Registration Process for New Entities

Organisations that are not yet registered as a charity can apply for both charity registration and DGR endorsement at the same time, and our charity DGR endorsement lawyers can guide you through this combined application.

During the application, you will need to specify the DGR category your organisation is applying for. If the ACNC approves your charity registration, it will forward the relevant information from your application to the ATO to process the DGR endorsement request.

ATO Endorsement Process & The Removed Ministerial Declaration Step

For a charity already registered with the ACNC, the path to becoming a DGR involves a direct application to the ATO. As introduced earlier, the 2026 federal budget reform simplifies this process by removing the requirement for a ministerial declaration.

Previously, a community charity had to submit a proposal to the relevant minister and be specified in a ministerial declaration before it could apply to the ATO for DGR endorsement. The removal of this step reduces red tape and allows eligible community charities to proceed directly with their application to the ATO.

Local Community Examples & The Bondi Beach Relief Funds

Community charities serve as important vehicles for local giving, particularly in response to community crises. An example of this is the action taken to support the Jewish community following the terrorist attack at Bondi Beach on 14 December 2025.

The Jewish Community Foundation and Australian Jewish Funders were named in a ministerial declaration, which enabled them to seek DGR endorsement as community charities. This status allows them to receive tax-deductible donations to provide relief and support to those affected.

Operational Rules & Minimum Distribution Rates for NFP Executives

The Four Percent Minimum Annual Distribution Rule

To maintain DGR status, a community charity must adhere to a minimum annual distribution rate. Under Section 13 of the Community Charity Guidelines, a charity is required to make distributions equal to at least four percent of the market value of its net assets from the end of the previous financial year.

An exemption applies to newly established organisations. Section 13(2) of the Community Charity Guidelines states that no distribution is required during the financial year in which the community charity is established or during the four subsequent financial years. 

This grace period allows new charities time to build their asset base before the distribution requirement takes effect.

A distribution can take several forms, as defined in Section 13(3) of the Community Charity Guidelines, including:

• The provision of money, property, or benefits to an eligible DGR;
• Expenditure incurred by the charity in the direct course of furthering its purpose.

Asset Valuation & Financial Reporting Obligations

Community charities are subject to strict rules regarding asset valuation to ensure their financial state is accurately represented. Section 14 of the Community Charity Guidelines mandates that the market value of a charity’s assets, besides land, must be estimated at least annually. 

The market value of land must be estimated at intervals of no more than three financial years by a qualified valuer or the Commissioner.

In addition to asset valuation, there are specific financial reporting and auditing requirements. A community charity must:

• Keep proper accounts of all receipts, payments, and financial dealings and retain these records for at least five years;
• Prepare a financial report for each financial year that complies with accounting standards;
• Arrange for a registered company auditor to audit its financial report and compliance with Community Charity Guidelines annually.

An exception to the full audit requirement exists for smaller charities. Under Section 17(3) of the Community Charity Guidelines, if a charity has revenue and assets of less than three million dollars in a financial year, it may choose to have its reports reviewed rather than fully audited.

Investment Strategies & Limitations for Legal & Compliance Professionals

Arm’s Length Transactions & Separation of Assets

Community charities must create and follow a current investment strategy, as required by Section 18 of the Community Charity Guidelines. This strategy must be documented in writing and should outline the charity’s investment goals and the methods it will use to achieve them. All investment decisions must be made in accordance with this strategy.

The investment strategy must consider several key factors to ensure responsible management of the charity’s assets, including:

• The risk and likely return from the charity’s investments, considering its objectives and cash flow needs.
• The overall composition of the investments and the risks associated with a lack of diversification.
• The liquidity of the investments in relation to the charity’s expected cash flow requirements.
• The charity’s ability to meet its current and future liabilities.
• Compliance with Australian laws and the charity’s status as a registered charity.
• Any material conflicts of interest, whether actual or perceived.
• The terms and conditions related to any gifts made to the charity under a will.

Under Section 19 of the Community Charity Guidelines, all investments must be conducted on an arm’s length basis. Furthermore, Section 19(5) of the Community Charity Guidelines mandates that the assets of the community charity must be kept separate from all other assets. 

An exception exists for licensed trustee companies or public trustees of a State or Territory, which are permitted to operate common funds for investment purposes.

Prohibited Benefits to Founders & Donors

To prevent community charities from providing financial benefits to related parties, Section 19(4) of the Community Charity Guidelines prohibits a charity from acquiring assets from, or providing loans or other financial assistance to, certain individuals and entities, including:

• Founders of the charity and their relatives.
• Donors to the charity and their relatives.
• Trustees or corporate directors of the charity.
• Directors, officers, agents, members, or employees of a trustee or community charity corporation.
• Associates of any of these entities.

An exception to this rule is allowed if the transaction is an arm’s length commercial transaction, or if its terms are more favourable to the charity than what would be expected in an arm’s length deal.

Section 20 of the Community Charity Guidelines further reinforces these restrictions. It forbids a community charity from entering into any uncommercial transaction, unless it is directly in furtherance of the charity’s purpose. 

Additionally, Section 20(3) of the Community Charity Guidelines prohibits a charity from providing any benefit, directly or indirectly, to founders, donors, trustees, or their associates, other than reasonable expenses and remuneration as permitted under Section 21 of the Community Charity Guidelines.

Conclusion

The 2026 DGR reform simplifies the endorsement process for community charities by removing the ministerial declaration requirement, reducing administrative delays for philanthropic organisations. These changes are accompanied by strict governance, operational, and investment standards under the Community Charity Guidelines that Australian foundations and local giving funds must follow.

Establishing a community charity under these updated rules requires careful planning to ensure compliance with all legal obligations. If you need guidance on setting up a community foundation or ensuring your organisation meets the new DGR requirements, contact our DGR compliance lawyers at LawBridge.

Frequently Asked Questions