Resolving DGR Disputes: A Guide to New Charity Categories & Reforms

Introduction

Recent deductible gift recipient (DGR) reforms have significantly altered the landscape for many charities seeking to attract tax-deductible gifts. These changes, which include the introduction of new categories and the transfer of administrative oversight to the Australian Taxation Office (ATO), are designed to streamline the application process. For any charity, understanding these updates is crucial to successfully obtaining and maintaining DGR endorsement and ACNC requirements.

This guide provides strategic information for DGRs on managing the endorsement process, with a focus on how to manage a charity dispute following a negative decision from the ATO or the Australian Charities and Not-for-profits Commission (ACNC). Because the requirements for DGR endorsement can be complex, seeking advice from a not-for-profit lawyer is an important step in ensuring your application is correct and preparing for a potential appeal.

New DGR Landscape: Community, Environmental & Cultural Charities

Understanding the Community Charity Corporation Category

A community charity corporation is a not-for-profit entity with broad purposes, allowing it to engage in a range of activities that fall under other general categories for a DGR.

To receive DGR endorsement, an organisation must first be specified by name in a ministerial declaration. This involves submitting a written proposal to the Treasury for consideration.

However, even with a ministerial declaration, the entity is not automatically endorsed as a DGR. It must also:

• Be a registered charity with the ACNC
• Be established for specific allowed purposes

The permitted purposes for a community charity corporation are strictly defined and include:

• Providing money, property, or benefits to other DGRs for their DGR purposes, excluding ancillary funds or other community charities
• Engaging in a principal activity or pursuing a principal purpose that is the same as another DGR category
• Establishing one or more DGR entities, provided they are not community charities or ancillary funds

Changes to Environmental & Cultural Organisation Requirements

In1 January 2024, significant DGR reforms have altered the DGR endorsement process for environmental and cultural organisations. Administrative responsibility for these DGR categories has been transferred from other government departments directly to the ATO. This change is designed to streamline the application process and reduce administrative complexity.

A key amendment is the removal of the requirement for these organisations to operate a public fund. Instead, they are now required to maintain a simpler gift fund to receive deductible gifts. The distinction is important:

Fund Type	Key Characteristics & Requirements
Public Funds	Previously required a separate management committee, with a majority of members being individuals with a degree of responsibility to the community (e.g., professionals). This often meant the organisation’s board could not directly operate the fund.
Gift Funds	Do not require a separate management committee or bank account. The charity only needs clear accounting practices to track the funds, which simplifies administration.

Existing environmental and cultural organisations with public fund clauses in their governing documents must amend them to a gift fund clause to benefit from this new flexibility. Consulting a not-for-profit lawyer is advisable to ensure these changes are made correctly.

Additionally, the requirement for an environmental organisation to have at least 50 individual members has been abolished.

Common Reasons for DGR Endorsement Refusal for NFPs

Failing to Meet the Principal Purpose Requirement

An organisation seeking DGR endorsement must demonstrate that its principal purpose, a key component of its overall charitable purpose, aligns with one of the specific DGR categories. The ATO conducts a holistic assessment to determine an entity’s main or dominant purpose by reviewing:

• its governing documents,
• activities,
• operational history, and
• control structure.

For example, a cultural organisation must have the principal purpose of promoting a specified cultural form, such as literature, music, or visual arts. However, an organisation focused on general social support for an ethnic community would likely not qualify under this category.

Similarly, an environmental organisation must have a primary purpose of protecting and enhancing the natural environment. Activities related to cultivated parks, zoos (unless for species preservation), or cultural heritage sites would not meet this requirement.

A mismatch between an organisation’s stated objects and its actual activities is a frequent cause for the refusal of a DGR endorsement.

Issues with the In Australia Condition & Constitutional Corporation Status

All organisations applying for DGR status must satisfy the ‘in Australia’ condition. This means the organisation must:

• be legally established and primarily operated within Australia, and
• have its strategic and operational decisions made mainly in the country.

While an organisation’s purposes and beneficiaries can be located overseas, the entity itself cannot be established and controlled from another country.

Furthermore, specific DGR categories have strict structural requirements. For instance, a community charity corporation must be a constitutional corporation, which is typically:

• a company registered with the Australian Securities & Investments Commission (ASIC), or
• a body corporate incorporated in a territory.

Failure to be established under the correct legal structure is a clear reason for an application to be denied.

The Requirement for Charity Registration with the ACNC

For most non-government entities, registration as a charity with the ACNC is a precondition for obtaining DGR endorsement. It is important to note that being a registered charity does not automatically grant DGR status; it is a separate endorsement that must be applied for through the ATO.

This requirement ensures that an organisation first meets the legal definition of a charity and complies with ACNC governance and compliance standards before it can be endorsed to receive tax-deductible gifts.

If an organisation fails to secure or maintain its charity registration with the ACNC, it will not be eligible to be endorsed as a DGR. Given these complexities, consulting a not-for-profit lawyer can help ensure all constitutional and registration requirements are met before submitting an application.

Responding to a DGR Application Rejection from the ATO

Requesting an Internal Review of the Decision

If your application for DGR endorsement is refused, the ATO will provide a written explanation for its decision. The first step, therefore, is to request an informal review to try to resolve the matter quickly.

To initiate this process, you should:

• Contact the ATO case officer who handled your application
• Submit your full reasons for seeking a review in writing

This informal approach allows for a direct discussion to address any misunderstandings or provide clarification.

Lodging a Formal Written Objection

Should the informal review not resolve the issue, your charity has the right to lodge a formal written objection to the ATO’s decision. This is a more structured process, and specific legal requirements must be met for your objection to be valid.

Your formal objection must:

• Be submitted in writing
• Be signed and dated
• Be lodged with the ATO within 60 days from the date on the decision notice
• Provide a full explanation of the reasons for your objection.

After you lodge your objection, the ATO will issue a formal decision with a detailed explanation. If there are significant delays in receiving an initial decision, you can request that your application be treated as refused—this will trigger your formal review rights.

Seeking Legal Advice from a NFP Lawyer

The process of applying for DGR status can be complicated. Accordingly, seeking assistance from a lawyer specialising in not-for-profit law is highly recommended, particularly if your DGR endorsement application has been rejected.

Engaging a legal expert can save your charity considerable time and money in the long run. Specifically, they can:

• Help you understand the eligibility criteria
• Assess the ATO’s reasons for refusal
• Ensure your objection is correctly prepared
• Advise on whether amendments to your governing documents are needed to comply with the requirements for your chosen DGR category.

By involving a lawyer early, you improve your chances of a successful outcome on review.

Appealing to the Administrative Appeals Tribunal & Federal Court

Applying for a Review by the Administrative Appeals Tribunal

If your charity is dissatisfied with the outcome of a formal objection lodged with the ATO, you have the right to apply for an external review. This next step involves taking your case to the Administrative Appeals Tribunal (AAT), which will conduct an independent review of the ATO’s decision regarding your DGR endorsement.

The review process is not limited to decisions made by the ATO. A similar procedure applies if the ACNC refuses to register your organisation as a particular type of charity, such as a public benevolent institution.

Given that an AAT application is a formal legal proceeding, it is highly advisable to consult a not-for-profit lawyer to ensure your case is presented effectively.

Understanding the Role of the Federal Court in DGR Disputes

Beyond the AAT, another avenue for challenging a negative decision is to appeal to the Federal Court of Australia. It is important for any charity to understand that this is a very expensive option that involves significant legal costs and resources.

Due to the financial implications and the legal complexity of Federal Court proceedings, this step should be considered carefully. Seeking specialised legal advice from a not-for-profit lawyer is essential to understand the potential costs, risks, and likelihood of success before committing to this course of action.

Preparing Evidence to Support Your Community Charity Appeal

When appealing a decision for a community charity corporation, success hinges on providing clear evidence that your organisation meets all the specific eligibility criteria. A thorough appeal requires compiling comprehensive documentation to support your claim for DGR endorsement.

Key evidence required to demonstrate your eligibility includes:

Evidence Category	Description & Requirements
Governing Documents	Your organisation’s constitution or rules must clearly outline its objects, not-for-profit status, and appropriate winding up and revocation clauses.
Director Agreements	You must provide copies of the agreement from each director, in the approved form, confirming they will comply with the rules in the Taxation Administration (Community Charity) Guidelines 2025 (Cth).
Ministerial Declaration	Evidence that your charity is specified by name in a ministerial declaration that is currently in force is a mandatory requirement.
ACNC Registration	You will need to show that your organisation is a registered charity with the Australian Charities and Not-for-profits Commission (ACNC).

Maintaining DGR Endorsement & Managing Gift Funds 

Conducting Regular Self-Reviews of Eligibility

Once your organisation has DGR endorsement, you must continue to meet the requirements for that specific category. The ATO recommends that all DGRs review their eligibility at least annually, as well as whenever there are significant changes to the organisation’s structure or activities.

Changes that may affect your DGR endorsement and trigger the need for a review include:

• Starting new programs or services that are outside your usual scope of work
• Entering into auspicing arrangements with other organisations
• Making amendments to your purposes, structure, or the location of your activities

These types of changes could mean your organisation no longer meets the principal purpose requirements for its DGR category. To assist with this process, the ATO provides worksheets that can guide your self-review.

If you find that your charity is no longer entitled to DGR endorsement, you must notify the ATO in writing as soon as possible. Consulting a not-for-profit lawyer can help ensure your organisation remains compliant with its ongoing obligations.

Complying with Gift Fund & Record Keeping Obligations

Certain DGR categories, such as cultural and environmental organisations, are required to maintain a gift fund. A gift fund is established to hold all tax-deductible gifts of money or property and must be used only for the organisation’s principal purpose.

Unlike a public fund, a gift fund does not require a separate management committee or bank account. However, it does demand clear accounting practices to track all transactions.

Properly administering deductible gifts is crucial for maintaining DGR endorsement. When your charity receives a donation, you must issue a receipt that includes:

• The name and Australian Business Number (ABN) of your organisation
• The name of the donor
• A statement confirming the receipt is for a gift

Furthermore, all DGRs must keep adequate accounting and other records that detail all transactions relevant to their status. These records must be maintained for at least five years after the completion of the related transaction.

Failure to comply with these record-keeping and gift fund obligations can result in penalties or the revocation of your DGR endorsement. A not-for-profit lawyer can provide valuable assistance in setting up and managing your gift fund correctly.

Conclusion

Recent DGR reforms have reshaped the requirements for DGR endorsement, introducing new categories and streamlining the application process under the ATO. Understanding the specific eligibility criteria, from principal purpose rules to ACNC registration, is essential for any charity seeking to receive tax-deductible gifts, and a clear pathway exists to dispute a negative decision if your application is refused.

If your charity is facing challenges with its DGR endorsement or needs guidance on the recent amendments, seeking specialised legal advice is a critical step. LawBridge’s experienced not-for-profit lawyers offer trusted expertise to help your organisation successfully manage the application process or appeal a negative decision. Contact us today to ensure your charity is correctly positioned to secure and maintain its DGR status.

Frequently Asked Questions