Australian Religious Charities Seeking Deductible Gift Recipient (DGR) Status Eligibility Explained

Introduction

For many charitable organisations in Australia, achieving Deductible Gift Recipient (DGR) status is highly beneficial, as it allows donors to claim tax deductions for their contributions, thereby encouraging support. However, religious charities, despite being a common type of charity registered with the Australian Charities and not-for-profits Commission (ACNC), often face specific hurdles because the purpose of ‘advancing religion’ is not, in itself, a recognised DGR category under Australian tax law.

Consequently, understanding the eligibility requirements and potential pathways to obtaining DGR status is crucial for religious organisations seeking this endorsement. This guide provides clarity on the general conditions for DGR eligibility, including the requirement for most entities to be a registered charity, and explores how religious charities might still qualify for DGR endorsement, often through specific funds they operate or by meeting criteria for other charitable subtypes.

Understanding Deductible Gift Recipient Status

What Deductible Gift Recipient Status Means

Deductible Gift Recipient (DGR) status allows an organisation to receive donations that donors can claim as tax deductions. This provides a significant incentive for individuals and organisations to donate, making DGR endorsement highly sought after by charities and not-for-profits.

Key benefits of DGR status include:

• Donors can claim tax deductions for gifts of $2 or more against their taxable income
• Organisations can promote their DGR status to potential donors
• Enhanced fundraising capabilities due to the tax incentives offered

This official recognition signifies to potential donors that their contributions may be tax-deductible, potentially increasing the level of financial support the organisation receives.

Who Endorses DGR Status

The Australian Taxation Office (ATO) is responsible for granting DGR status. They assess applications from organisations to determine if they meet the specific eligibility requirements for one of the DGR categories outlined in tax law.

While the ATO handles DGR endorsement, the ACNC has a separate but related role – registering organisations as charities. It’s important to note that charity registration is now a prerequisite for most DGR endorsements, although the ACNC and ATO perform distinct functions in the regulation of the not-for-profit sector.

Types of DGR Endorsement Available

There are two primary ways an organisation can receive DGR endorsement from the ATO. Understanding these distinctions is crucial for charities, including religious organisations.

The available types of endorsement are:

• Endorsement for the organisation as a whole: This applies when the entire entity meets the criteria for a specific DGR category. Donations made to the organisation itself are generally tax-deductible.
• Endorsement for a specific fund, authority, or institution: This occurs when only a particular part of the organisation qualifies under a DGR category. Examples include specific building funds or relief funds operated by the organisation. In this case, only donations made specifically to that endorsed fund, authority, or institution are tax-deductible, not donations made to the organisation generally.

If an organisation operates multiple funds or institutions that qualify for DGR status under different categories, it must seek separate endorsement for each one.

General DGR Eligibility Requirements

The Registered Charity Requirement for DGR Endorsement

A significant change impacting DGR status occurred on 14 December 2021. Since this date, legislation requires most non-government funds, authorities, or institutions seeking DGR endorsement to be registered charities with the ACNC.

This reform aims to enhance governance and oversight within the not-for-profit sector. The requirement applies to the majority of general DGR categories. However, there are specific exceptions where charity registration is not mandatory for DGR endorsement:

• Australian government agencies
• Ancillary funds (both public and private)
• Organisations specifically listed by name in the tax law

Organisations falling under these exceptions can still be endorsed as DGRs without being registered charities. For all others, ACNC charity registration is now a prerequisite for obtaining or maintaining DGR status.

Religious Charities and DGR Status

Advancing Religion Is Not a DGR Category

Australian tax law outlines numerous categories under which an organisation might qualify for DGR status. However, religious organisations should note that there is no specific DGR category for the charitable purpose of ‘advancing religion.’

While advancing religion is recognised as a charitable purpose for registration with the ACNC, this recognition does not automatically grant eligibility for DGR endorsement from the ATO.

Why Most Religious Charities Are Not Directly DGR Eligible

The absence of ‘advancing religion’ as a DGR category has significant consequences for religious organisations. This means that:

• Religious organisations whose primary or sole purpose is the advancement of religion generally cannot obtain DGR status based on that purpose alone
• Donations made to such charities for their general religious activities are typically not tax-deductible for donors

This distinction is crucial for religious charities to understand when considering their tax status and fundraising strategies.

Pathways to DGR Status for Religious Organisations

DGR Endorsement for Specific Funds Authorities or Institutions

While a religious organisation may not qualify for DGR status based solely on its purpose of advancing religion, specific parts of the organisation might be eligible. The ATO allows for DGR endorsement of particular funds, authorities, or institutions operated by a charity, provided these specific entities meet the criteria for an established DGR category.

This means that even if the parent religious charity itself isn’t endorsed, donations made specifically to an endorsed fund, authority, or institution it operates can be tax-deductible for the donor.

For organisations operating multiple funds or institutions that qualify under different DGR categories, separate DGR endorsement must be sought for each one. Importantly, any DGR funds received can only be used for the specific DGR-endorsed purpose, not for the broader activities of the religious organisation.

Examples of Eligible Funds Operated by Religious Charities

Religious charities often operate various programs or initiatives through specific funds that may align with recognised DGR categories. Obtaining DGR endorsement for these funds provides a pathway to receive tax-deductible donations for those specific activities.

Some examples of funds commonly operated by religious organisations that could potentially be eligible for DGR status include:

• School Building Funds: Public funds established solely to acquire, construct, or maintain buildings used as schools or colleges (Item 2.1.10, Income Tax Assessment Act 1997 (Cth)). This can include ministry schools or colleges, subject to specific requirements outlined in Taxation Ruling TR 2013/2 and subsequent case law like The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) [2021] FCA 136.
• Public Funds for Religious Instruction: Funds maintained solely to provide religious instruction in government schools within Australia (Item 2.1.8).
• Australian Disaster Relief Funds: Public funds established solely to provide relief for people in Australia affected by disasters (Item 4.1.5).
• Necessitous Circumstances Funds: Public funds set up to provide relief to individuals in Australia experiencing financial hardship falling short of a modest standard of living.
• Public Benevolent Institutions (PBIs): A religious organisation might operate a distinct PBI arm eligible for DGR status, as discussed further below.
• Public Funds for Family Counselling or Marriage Education: Funds dedicated solely to providing family counselling, family dispute resolution, or marriage education services under the Marriage Act 1961 (Cth) (Item 8.1.1).

Eligibility Through Other Charitable Subtypes like PBI

Another potential route for a religious organisation to gain DGR status involves registering with the ACNC under multiple charitable subtypes. If the organisation qualifies under a subtype that is eligible for DGR endorsement, such as being a Public Benevolent Institution (PBI), it may obtain DGR status for the organisation as a whole.

A PBI is defined as a non-profit institution organised for the direct relief of:

• Poverty
• Sickness
• Suffering
• Distress
• Misfortune
• Disability
• Destitution
• Helplessness

To qualify as a PBI, an organisation’s main purpose must be providing this benevolent relief. While PBIs are a subset of charities, not all charities are PBIs.

If a religious organisation’s primary purpose aligns with providing benevolent relief, it might qualify as a PBI and consequently be eligible for DGR endorsement. Its religious activities would need to be considered incidental or ancillary to its main benevolent purpose. For example, an organisation providing housing and food to the homeless (benevolent relief) while operating consistently with its faith’s values could potentially qualify as a PBI.

Basic Religious Charities and DGR Implications

What Defines a Basic Religious Charity

A Basic Religious Charity (BRC) is a specific category recognised by the ACNC. To qualify as a BRC, a registered charity must be registered solely under the charity subtype of ‘advancing religion’.

Furthermore, the organisation must meet five additional strict criteria. If a charity meets all six requirements, it qualifies as a BRC, which results in reduced reporting obligations to the ACNC, such as not needing to submit annual financial reports.

The six criteria a charity must meet are:

• It must only be registered with the ACNC under the ‘advancing religion’ subtype
• It cannot be incorporated under specific legislation like the Corporations Act 2001 (Cth) or state/territory Associations Incorporation Acts
• It cannot have received ACNC approval to report as part of a group for the reporting period
• It must meet specific conditions related to DGR endorsement
• It must not have received government grants exceeding $100,000 in the current or previous two reporting periods
• It must meet requirements related to participation in the National Redress Scheme if applicable

How DGR Endorsement Affects Basic Religious Charity Status

DGR endorsement significantly impacts whether a religious organisation can be classified as a BRC. A charity cannot be a BRC if the organisation as a whole is endorsed as a DGR.

However, a charity might still qualify as a BRC if it only operates specific funds, institutions, or authorities that have DGR endorsement. This is permissible only if the total revenue generated from all these DGR-endorsed parts is less than $500,000 for that particular reporting period.

Applying for DGR Endorsement

The Application Process Through Australian Charities and not-for-profits Commission and Australian Taxation Office

The procedure for applying for DGR endorsement varies depending on your organisation’s current registration status with the ACNC. You can verify if your organisation is already a registered charity by searching the ACNC Charity Register.

The application process follows two distinct paths:

• If your organisation is already a registered charity with the ACNC, you must apply for DGR endorsement directly to the ATO using their specific DGR application form.
• Conversely, if your organisation is not yet registered as a charity, you can apply for both charity registration and DGR endorsement concurrently through the ACNC’s charity registration application.

Although the ATO retains responsibility for DGR endorsement decisions, the integrated process for non-registered charities means you only need to complete the ACNC form. The ACNC will then forward the necessary details to the ATO upon successful charity registration.

Essential Governing Document Requirements

When applying for DGR endorsement, particularly through the ACNC registration process, it is crucial that your charity’s governing document meets specific requirements. The document must contain an appropriate clause, often referred to as a revocation clause.

This clause outlines how any surplus DGR funds or assets will be distributed to another eligible DGR organisation in two scenarios:

• If your charity winds up
• If its DGR endorsement is revoked by the ATO

You will need to identify the specific clause number in your application.

Conclusion

While ‘advancing religion’ alone does not qualify for DGR status, obtaining this endorsement offers significant advantages for religious charities in Australia. Eligibility can often be achieved through specific DGR-endorsed funds or by meeting the criteria for other charitable subtypes like PBIs, provided all requirements, including being a registered charity, are met.

Assessing the specific requirements and the best route to DGR eligibility demands careful consideration of your organisation’s structure and activities. Our not-for-profit lawyers will help you understand DGR complexities, contact LawBridge today to leverage our trusted expertise and ensure your religious charity explores all potential avenues for DGR endorsement effectively.

Frequently Asked Questions