2026 Federal Budget: Tax Reform for Charities & Philanthropic Trusts

Introduction

The 2026 Federal Budget introduces significant tax reform and compliance changes affecting charities, philanthropic trusts, and organisations with Deductible Gift Recipient (DGR) status. These measures, including amendments to the Income Tax Assessment Act 1997 (Cth) (‘ITAA97‘), will reshape aspects of philanthropic giving in Australia and impact how charitable donations from various trust structures are treated.

This article explains the key budget measures for board members, executives, and advisers in the charitable sector. It covers streamlined DGR endorsement processes, the new minimum tax on discretionary trusts, and upcoming compliance obligations such as the Payday Super reforms commencing on 1 July 2026.

Interactive Tool: Check How the 2026 Tax Reforms Impact Your Charity & Trust

DGR Endorsement Changes for Charity Executives

Elimination of the Ministerial Declaration Requirement

The 2026 Federal Budget introduces a significant tax reform that streamlines the process for community charities seeking DGR endorsement. Previously, an organisation was required to be specified in a ministerial declaration before it could be endorsed by the Australian Taxation Office (ATO).

This requirement will be removed, eliminating a step in the endorsement process. The change is designed to reduce red tape and decrease approval times for eligible community charities. With the removal of this step, applications for DGR endorsement as a community charity can be made directly to the ATO.

Trust Tax Reform Impacts on Philanthropic Fund Managers

The 30 Percent Minimum Tax on Discretionary Trusts

The 2026 Federal Budget introduces a significant tax reform affecting discretionary trusts, including family trusts often used for charitable donations. From 1 July 2028, a minimum tax of 30 percent will apply to the taxable income of these trust structures.

While public and private ancillary funds remain income tax-exempt, this new measure will impact non-charitable discretionary trusts. A key consequence for philanthropic giving is how tax credits are treated: the credit for tax paid by the trust is non-refundable to beneficiaries. 

This means that if a tax-exempt charity receives income from a discretionary trust, it cannot claim back the 30 percent tax paid by the trust, effectively taxing the charitable donation.

Capital Gains Tax Changes Affecting Philanthropy

New capital gains tax (CGT) rules are set to alter the landscape for philanthropic giving in Australia. Commencing 1 July 2027, the existing 50 percent CGT discount will be replaced by cost base indexation for assets held for more than 12 months. This change is coupled with the introduction of a 30 percent minimum tax on net capital gains.

The disposal of capital assets is often a time when individuals make substantial charitable donations or establish giving funds, such as private ancillary funds. A higher effective tax rate on capital gains has the potential to reduce the amount of funds available for philanthropic purposes. 

This change, combined with previously announced increases in distribution rates for giving funds, may lead to a decrease in the establishment of new funds in the coming years.

Compliance Updates for NFP Board Members

Synchronisation of Director Information with the ACNC Register

The 2026 Federal Budget includes a significant funding allocation to streamline regulatory systems. As part of this initiative, $136.1 million is dedicated to upgrading Australia’s business registers over two years, starting from 2026–27.

This funding will support stronger digital authentication measures and improve the synchronisation between the Australian Securities and Investments Commission (ASIC) and the Australian Charities and Not-for-profits Commission (ACNC) registers. 

A key reform involves linking Director IDs to ASIC’s Register, which will enhance data accuracy and integrity. For charities, this improved synchronisation aims to streamline compliance processes across different regulatory systems.

Implementation of Payday Super Reforms

From 1 July 2026, charities and other employers will be required to pay superannuation contributions at the same time as salary and wages. This change replaces the existing quarterly payment cycle. 

Under the ‘Payday Super’ regime, contributions must be paid into an employee’s super fund within seven business days of their payday.

These reforms are intended to help employees’ savings grow through earlier compounding and make it easier to track super payments, reducing the risk of unpaid super. 

The rules define ’employee’ broadly, capturing a wide range of individuals who work for an organisation. This includes:

• Full-time, part-time, and casual staff
• Paid directors
• Contractors who are engaged mainly for their labour
• Entertainers

Group Reporting Frameworks for Charity CFOs

Mechanisms for Group Reporting & Bulk Lodgement

The ACNC provides frameworks to reduce the administrative tasks for charities that are part of complex group structures. These mechanisms are designed to streamline the annual reporting obligations that such organisations face.

Two main pathways are available to ease this administrative burden:

• Group Reporting: This allows a group of registered charities to submit a single annual information statement and financial report for the entire group, rather than one for each individual charity.
• Bulk Lodgement: This option permits multiple charities to lodge their individual reports at the same time through a single online process.

Entity Type Considerations for Complex Group Structures

Choosing the appropriate reporting pathway depends on the specific operational and legal structure of the charity group. 

For entities managing complex arrangements, such as those with multiple trust structures impacted by the 2026 tax reform, evaluating the right approach is an important governance decision, making it wise to seek legal advice for NFP governance.

Charities should consider which mechanism best suits their circumstances. The decision between group reporting and bulk lodgement involves assessing factors related to the group’s structure, financial integration, and administrative capacity.

Practical Actions for Legal & Tax Professionals

Payroll System Adjustments for Payday Super

In light of the ‘Payday Super’ reforms commencing 1 July 2026, legal and tax professionals should advise clients to prepare for the transition away from quarterly superannuation payments. 

It is important to review existing payroll systems, contractor arrangements, and cash flow processes to ensure they align with the new requirement to pay super at the same time as wages. This review should account for the broad definition of an ’employee’ for superannuation purposes.

Annual Reporting & Self Assessment Obligations

With the end of the financial year approaching, it is a good time to remind taxable not-for-profit (NFP) organisations of their obligation to prepare and lodge income tax returns. These organisations must pay income tax on any taxable income.

For NFP organisations that self-assess as income tax-exempt under Division 50 of the ITAA97, the annual NFP self-review return is typically due by 31 October each year. Professionals should ensure their clients are aware of this deadline and have the necessary processes in place to complete their self-review accurately.

Conclusion

The 2026 Federal Budget introduces critical tax reform for the charitable sector, impacting DGR endorsement, charitable donations from a discretionary trust, and key compliance obligations. These measures will reshape philanthropic giving in Australia and alter how charities and various trust structures manage their tax and reporting duties.

To prepare for these significant shifts, contact the specialist not-for-profit lawyers at LawBridge for practical legal guidance. Our team can help your NFP address its specific organisational needs and ensure you are ready for the new tax and regulatory framework.

Frequently Asked Questions