Tax Deductible Gift Recipient Reform Opportunities
July 2017 | Opinion | Jae Yang, Senior Associate
On 15 June 2017, the Commonwealth Treasury released a Discussion Paper titled “Tax Deductible Gift Recipient Reform Opportunities”, which considers potential reforms to the deductible gift recipient (DGR) system. Submissions were invited in relation to the proposals set out in their paper.
The purpose of the Discussion Paper is to review ways to strengthen the DGR governance arrangements, reduce administrative complexity and ensure that an organisation’s eligibility for DGR status is up to date.
In this note we have summarised the Treasury proposals, and set out additional Prolegis recommendations that we believe are both necessary and desirable to simplify the DGR registration and governance framework, and to remove administrative burden, cost and complexity in this area.
The Discussion Paper invites submissions in respect of the following proposals:
1 All DGRs could be required to be charities registered and regulated by the ACNC (other than government entities, which cannot be charities).
2 The Australian Charities and Not-for –profits Commission (ACNC)’s guidance for registered charities (and subsequently for DGRs) help these organisations to understand their obligations, particularly for certain types of advocacy. The ACNC has already developed guidance on advocacy so DGRs that are not currently registered charities should refer to this resource.
3 The ACNC could revoke an organisation’s registration status, and consequently the Australian Taxation Office (ATO) would revoke the organisation’s DGR status, if one of the grounds for revocation under the ACNC Act [Australian Charities and Not‑for‑profits Commission Act 2012 (Cth)] were to exist.
4 To simplify the application process for DGRs, the administration of the four DGR registers could be transferred to the ATO. Those organisations that do not fall within the four registers would still be able to apply to the Minister for Revenue and Financial Services for specific listing.
5 The public fund requirement for DGRs that are charities could be removed, and DGR entities could apply to be endorsed across multiple categories.
6 Regular reviews could be undertaken by the ACNC and/or ATO to ensure an organisation’s DGR status was up to date and to provide confidence to donors wishing to claim tax deductions for donations. In addition, DGRs could be required to certify annually that they meet the DGR eligibility requirements, with penalties for false statements.
7 The reforms outlined above would address many of the issues identified by the House of Representatives Standing Committee’s REO inquiry. Further discussion of the REO inquiry recommendations are detailed below under the heading – Parliamentary Inquiry into the Register of Environmental Organisations.
We welcome the discussion on DGR reform initiated by Treasury. We consider the reforms to the DGR regime as both necessary and desirable to simplify the DGR registration and governance framework, and to remove administrative burden, cost and complexity.
In particular, our recommendations are as follows:
- Except for government entities and other not-for-profit DGRs that are not registrable with the ACNC, all DGRs should be charities registered with the ACNC so that they are subject to the ACNC’s Governance Standards.
- The transfer of the four DGR registers from the relevant Departments to the ACNC (rather than to the ATO). The ACNC would be better placed to maintain the DGR registers than the ATO given that these DGRs are reviewed by the ACNC for charity registration
- A simplification and aggregation of the DGR categories relating to development and welfare work. This may be achieved by reforming the concept of PBIs, to enable the PBI DGR category to cover both the PBI and OAGDS categories.
- No additional reporting requirements or restrictions relating to the advocacy activity of charities. Rather, we support the proposal to require all DGRs (where possible) to become registered charities, and the current regulatory approach of the ACNC to assist charities in understanding their obligations in relation to advocacy under the Charities Act 2013 (Cth), investigating complaints or identifying risks, and imposing appropriate sanctions.he following administrative and regulatory reforms:
(a) The introduction of appropriately robust external conduct standards (which remains an unfinished piece of regulation under the ACNC Act) as an integrity measure to regulate the overseas activities of DGRs, and clarification of the government’s position in relation to the reform of the ‘in Australia’ requirement affecting DGRs.
(b) The repeal of the Division 50 special conditions which were introduced in 2013 for charities registered with the ACNC, in order to remove the unnecessary duplication between the ATO and ACNC in governing charities.
(c) The removal of the public fund requirements, in order to remove unnecessary and outdated requirements relating to responsible persons and maintaining separate bank accounts for each public fund.
(d) The introduction of an annual DGR certification requirement to help DGRs to self‑assess their ongoing eligibility for DGR status but no introduction of a formal rolling review program.
The closing date for submission was 14 July 2017 but is now extended to 4 August 2017.
If you have any questions in relation to the above proposals and our recmmendations, please do not hesitate to contact us.