The Not-for-profit and charity legal landscape has many associated buzzwords; one of the most prevalent phrases being “DGR status”. DGR status is a concept that is particularly attractive to charities that rely solely or partly on donations from organisations or members of the public to fund its operations, but not every charity is eligible to obtain DGR status. This article will identify what DGR status is, different types of DGR status, the eligibility requirements for obtaining DGR status, and the benefits of a charity obtaining DGR status.
What is “Deductible Gift Recipient Status”?
Deductible Gift Recipient (‘DGR’) status describes the Australian Taxation Office’s (‘ATO’) endorsement of a particular entity as a Deductible Gift Recipient. The primary benefit of being endorsed as a DGR is that DGR status enables donors who make donations to the DGR to claim those donations against their income tax, which often incentivises donors to make larger or more frequent donations to the entity.
Entities that are applying for DGR status can either apply for:
- Whole-entity DGR status (where the entity in its entirety and all its operations fit within a specified DGR category); or
- Partial-entity DGR status (where the entity in its entirety does not fit into a specified DGR category, but a distinct fund, authority or institution that it operates does).
Donors can only claim income tax deductions on donations they have made to a DGR, or the DGR-endorsed fund/authority/institution operated by the entity. For example, if a non-DGR charity operates a DGR-endorsed building fund, any donations made to the charity in general will not be tax-deductible; however, any donations made specifically to the building fund will be tax-deductible.
At the time of writing, there are approximately 52 different types of DGR categories endorsed by the ATO for which an entity may register, each classified into the below groups:
- Health
- Education
- Research
- Welfare and Rights
- Defence
- Environment
- The family
- International affairs
- Sports and recreation
- Cultural organisations
- Fire and emergency services
- Ancillary funds
An additional four categories are regulated and granted endorsement by other governmental departments. These include:
- Cultural Organisations
- Environmental organisations
- Harm prevention charities
- Overseas aid funds
Eligibility Requirements for Deductible Gift Recipient Status
Any entity applying for DGR status must comply with the eligibility requirements of the particular category under which it is seeking DGR status. Furthermore, as of December 2021, funds, authorities or institutions seeking DGR status must also satisfy the broad eligibility requirements by being either:[i]
- A charity registered with the ACNC (read more about ACNC charity registration here )
- An Australian Government agency; or
- Operated by a registered charity or an Australian government agency.
NB: This does not extend to ancillary funds or entities listed specifically as DGRs under taxation law.
DGRs must be operated and established in Australia, although its purposes and beneficiaries can lie internationally for some categories. However, some DGRs, such as public funds for providing religious instruction in government schools or an Australian war memorial fund, must have purposes and beneficiaries contained exclusively within Australia.
Some DGR categories will also require an entity, as a prerequisite to being granted DGR status under that category, to obtain pre-approval from particular government departments (e.g. overseas aid funds require pre-approval from the Department of Foreign Affairs and Trade).
Gift Funds
Where an entity does not have full-entity DGR status but instead seeks to obtain DGR status for a particular fund, authority or institution it operates, the entity must maintain a gift fund to be used only for that fund’s/authority’s/institution’s primary purpose. All money or gifts donated to the entity for the purposes anticipated by the gift fund must be made to that gift fund, and no other types of money or property can be held by the gift fund.
Furthermore, upon the DGR fund/authority/institution winding up or having its DGR status revoked, the entity will be compelled to transfer all remaining assets to another DGR fund/authority/institution. If the DGR fund/entity was a registered charity, the remaining assets held by the fund/entity may need to be transferred to another charity (DGR fund, authority or institution) with similar charitable purposes.[ii]
Revocation of Deductible Gift Recipient Status
The ATO may revoke DGR status of an entity if:
- The fund/entity no longer has entitlement to be endorsed as a DGR;
- The fund/entity fails to provide documents or information as requested by the ATO; or
- The fund/entity fails to provide specified information on its receipts for tax-deductible gifts and contributions.[iii]
If a change in the structure or operations of the DGR will have the effect of making the DGR ineligible for DGR status, the DGR bears the responsibility to report its ineligibility to the ATO. Failure to do so may result in the ATO taking legal action against the DGR. If you are seeking advice regarding applying for DGR status or reviewing your entity to ensure it complies with its DGR obligations, the NFP and Charity team at Corney & Lind Lawyers can help. Our experienced lawyers will assess your entity’s circumstances and help guide you through the process. Contact our friendly team on (07) 3252 0011 or email us at enquiry@corneyandlind.com.au
This article was written by Jackson Litzow
[i] Australian Charities and Not-for-profits Commission, ‘Deductible Gift Recipients and the ACNC’, Deductible Gift Recipients and the ACNC (Webpage, 3 November 2022) <https://www.acnc.gov.au/tools/factsheets/deductible-gift-recipients-and-acnc>.
[ii] Australian Taxation Office, ‘Deductible gift recipient eligibility’, Rules and tests for DGR endorsement (Webpage, 13 October 2021) <https://www.ato.gov.au/Non-profit/Getting-started/Getting-endorsed-for-tax-concessions-or-as-a-DGR/Is-my-organisation-eligible-for-DGR-endorsement-/Rules-and-tests-for-DGR-endorsement/#Endorsementfortheoperationofafundauthori>.
[iii] Australian Taxation Office, ‘Revoking endorsement’, Revoking endorsement (Webpage, 04 August 2022) <https://www.ato.gov.au/non-profit/getting-started/in-detail/types-of-dgrs/public-ancillary-funds/?page=6#:~:text=We%20can%20revoke%20a%20DGR’s,specified%20information%20on%20its%20receipts.>.