How can Community Charities get DGR Status via the ACNC Without Ministerial Declaration?

Introduction

Community charities hold a unique position among Australian charities, with the ability to operate across all deductible gift recipient (DGR) categories. Historically, gaining DGR endorsement under this category involved a significant preliminary step, as an entity had to be named in a ministerial declaration before it could apply to the Australian Taxation Office (ATO).

A reform announced in the 2026 Federal Budget has removed this requirement, streamlining the path to DGR endorsement for community charities. This article explains the new application process, the eligibility criteria for community charities, and the ongoing governance rules required to maintain DGR status.

Interactive Tool: See If Your Charity Qualifies to Apply Directly for DGR Status

The 2026 Federal Budget Reform for Community Charities

The Previous Ministerial Declaration Process

Historically, community charities seeking DGR status faced a specific procedural requirement. The ATO could not grant DGR endorsement under the community charity category unless the organisation was first specified in a ministerial declaration. 

This meant that before applying to the ATO, the entity had to submit a proposal to the relevant minister for consideration.

The minister held the discretion to decide which entities were included in the declaration. Being specified in a ministerial declaration was a critical preliminary step, but it did not automatically guarantee that the ATO would approve the DGR endorsement. The organisation still needed to meet all other eligibility criteria.

Direct Applications to the ATO

The 2026 Federal Budget introduced a significant reform to the DGR endorsement process for community charities. The government announced the removal of the requirement for a ministerial declaration, streamlining the application pathway for organisations seeking DGR status as community charities.

As a result of this reform, applications for DGR endorsement can now be made directly to the ATO. This procedural change is expected to reduce the approval times considerably for this specific DGR category, making the process more efficient for applicant community charities.

Eligibility Criteria for Community Organisations

Requirements for a Community Charity Trust or Corporation

To be eligible for DGR endorsement as a community charity, an entity must have a specific legal structure. It needs to be either a community charity trust or a community charity corporation. These structures are defined in the Taxation Administration Act 1953 (Cth).

According to item 13.1.1 of the table in subsection 30-105(1) of the Income Tax Assessment Act 1997 (Cth) (‘ITAA97‘), a community charity trust must be established and maintained under a will or an instrument of trust. Similarly, item 13.1.2 specifies that a community charity corporation must be operated as a charity. 

Both types of entities must also be registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC).

Mandatory Purposes & Philanthropic Character

Community charities must be established with purposes that align with the requirements of the ITAA97. Section 30-110 of the ITAA97 outlines that these organisations must have mandatory purposes, which include:

• Providing money, property, or benefits to other DGRs, excluding ancillary funds or other community charities.
• Engaging in activities that are the same as those of other DGRs.

In addition to these specific purposes, a community charity must maintain a philanthropic character. Section 8 of the Taxation Administration (Community Charity) Guidelines 2025 (Cth) (‘Community Charity Guidelines‘) states that a community charity must be philanthropic in character and act as a vehicle for philanthropy. This involves being open, transparent, and accountable to the public. 

The governing rules of the organisation must clearly state its purposes, as required by Section 9 of the Community Charity Guidelines.

Registration & Endorsement Requirements for Charities

Mandatory Registration with the ACNC

To obtain DGR status, most non-government organisations must be registered as a charity with the ACNC. This requirement applies to all general DGR categories, including community charities. An entity must complete its charity registration before the ATO can endorse it as a DGR.

This rule has been in effect since 14 December 2021 and is intended to improve governance and oversight across the sector. There are specific exceptions to this requirement, including:

• Ancillary funds
• DGRs that are specifically listed by name in the tax law
• Australian government agencies

The ‘In Australia’ Condition

A community charity must be established and operated solely in Australia to qualify for and maintain DGR endorsement. This is known as the ‘in Australia’ condition. Section 10 of the Community Charity Guidelines specifies that the entity must be based and run within the country.

However, this rule does not prevent a community charity from providing support to overseas activities. A charity can still make distributions to another DGR that operates outside of Australia, as long as the community charity itself maintains its establishment and operations within Australia.

Governance & Operational Rules for Community Organisations

Minimum Annual Distribution Requirements

Community charities must adhere to specific distribution rules to maintain their DGR status. Under Section 13 of the Community Charity Guidelines, a community charity is required to distribute at least 4% of the market value of its net assets each financial year. This calculation is based on the market value at the end of the preceding financial year.

There is an exception for newly established community charities. No minimum annual distribution is required during the financial year in which the charity is established, nor for the four subsequent financial years. 

This grace period allows new organisations time to build their asset base. A distribution can take several forms, including:

• Providing money, property, or benefits to another eligible DGR.
• Incurring expenditure in the direct course of furthering the charity’s purpose.

If a community charity fails to meet the minimum distribution requirement, and the shortfall is greater than $1,000, a penalty of 30 penalty units may apply. 

The Commissioner of Taxation has the authority under Subsection 13(7) of the Community Charity Guidelines to reduce the minimum annual distribution rate for a particular financial year upon application, considering factors such as market conditions and the charity’s investment strategy.

Financial Reporting & Audit Obligations

Community charities are subject to strict financial reporting and auditing standards, and navigating these complex rules often requires guidance from experienced not-for-profit lawyers. Section 15 of the Community Charity Guidelines requires them to keep proper accounts of all receipts, payments, and financial dealings, and to retain these records for at least five years.

Each financial year, a community charity must prepare a financial report that shows its financial position in accordance with Australian accounting standards, as stated in Section 16 of the Community Charity Guidelines. This report must also disclose any transactions with founders, donors, trustees, or their relatives and associates.

Section 17 of the Community Charity Guidelines mandates that the financial report and the charity’s compliance with the guidelines must be audited annually by a registered company auditor. An exception exists for smaller community charities with both revenue and assets of less than $3 million for a financial year. 

These smaller entities may have their report and compliance reviewed instead of fully audited, unless the Commissioner directs otherwise.

Investment Strategies & Limitations

Community charities must manage their investments according to a formal strategy and specific limitations. Section 18 of the Community Charity Guidelines requires each community charity to prepare, maintain, and implement a written investment strategy. 

This strategy must outline the charity’s investment objectives and methods, regarding:

• The risk and likely return from investments;
• The diversification of the charity’s investments;
• The liquidity of investments; and
• The charity’s ability to meet its liabilities.

Section 19 of the Community Charity Guidelines imposes several limitations on investments:

• All investments must be made and maintained on an arm’s length basis.
• A community charity is prohibited from giving security over its assets, with limited exceptions, such as guaranteeing a loan for the benefit of another DGR.
• The assets of the community charity must be kept separate from all other assets.

Furthermore, Section 20 of the Community Charity Guidelines prohibits community charities from entering into uncommercial transactions unless they are in direct furtherance of the charity’s purpose. 

The guidelines also forbid providing any direct or indirect benefits to founders, donors, trustees, or their relatives and associates.

Closure & Revocation Rules for Charities

Transfer of Surplus Assets to Another Deductible Gift Recipient

When a community charity winds up or has its DGR endorsement revoked, it must transfer its remaining assets to another eligible entity. Section 24 of the Community Charity Guidelines specifies that all net assets must be provided to another DGR in line with the charity’s purposes.

This rule ensures that assets intended for charitable purposes continue to be used for that objective. For community charities that are also registered with the ACNC, any transfer must be to another DGR that has similar objects and is charitable at law. This applies to:

• Surplus gifts;
• Deductible contributions; and
• Any money received from those contributions.

Required Clauses in Governing Documents

To ensure compliance with asset transfer rules, a community charity must include specific clauses in its governing documents. These documents, such as a constitution or trust deed, need to contain an acceptable winding up clause. 

This clause mandates the transfer of surplus gifts and contributions to another DGR upon the winding up of the charity or revocation of its DGR endorsement.

According to Section 9(3)(b) of the Community Charity Guidelines, the governing rules must clearly state that upon winding up or ceasing to be a community charity, all net assets will be provided to a DGR with purposes that align with the charity. This ensures that the charitable assets are protected and continue to serve the community.

Conclusion

The 2026 Federal Budget reform has simplified the path for community charities to gain DGR endorsement by removing the requirement for a ministerial declaration. While applications can now be made directly to the ATO, organisations must still meet stringent eligibility criteria and adhere to ongoing governance and operational rules to maintain their DGR status.

For tailored legal guidance on the DGR endorsement process and ensuring your organisation’s compliance, contact the specialist not-for-profit lawyers at Law Bridge today.

Frequently Asked Questions