Productivity Commission – Future foundations for giving – Draft report
December 2023 | Insights | Murray Baird, Consultant; William Messer, Solicitor
The purpose of the Draft Report is to establish foundations for the future of philanthropy in Australia. One of the recommendations of the Draft Report is to simplify and reform the deductible gift recipient (DGR) system based on the following principles:
1. There is a rationale for Australian Government support because the activity has net community-wide benefits and would otherwise be undersupplied.
2. There are net benefits from providing Australian Government support for the activity through subsidising philanthropy.
3. There is unlikely to be a close nexus between donors and beneficiaries, such as the material risk of substitution between fees and donations.
On 30 November 2023, the Productivity Commission released its draft report into Future foundations for giving (Draft Report).
The following recommendations of the Draft Report are of particular interest:
Draft recommendation 6.1, which recommends that the DGR system be reformed, including by extending eligibility for DGR status to most classes of charitable activities with reference to the charity subtype classification in the Australian Charities and Not-for-profits Commission Act 2012 (Cth).
The Productivity Commission estimates that between 10,000 and 20,000 additional charities would be eligible for DGR endorsement as a result of this recommendation. This includes charities focused on advocacy and prevention, a wider range of animal welfare charities and many charities run solely by volunteers (who do not have the resources to establish a Public Benevolent Institution or another charity subtype eligible for DGR endorsement) (pages 204-205 of the Draft Report).
Further, charities that pursue multiple purposes would also have easier access to DGR status as a result of the recommendation, including charities which support groups of people rather than a single activity (page 205 of the Draft Report).
Draft recommendation 6.1, which recommends that the DGR system be reformed, including by removing the existing DGR categories of school building funds (for primary and secondary schools and religious education) and religious education in government schools.
The Productivity Commission considers that ‘government support for school building funds through the DGR system is no longer an effective or efficient mechanism for delivering government support to the areas of greatest need, and that current arrangements do not obviously align with the broader objectives and priorities of the education funding system’ (per Box 6.1, page 189 of the Draft Report).
The Productivity Commission also cites ‘the material risk of converting tax-deductible donation into private benefits’ as rationale for its recommendation to remove the existing DGR category of school building fund (page 191 of the Draft Report).
Draft recommendation 7.1, which recommends the removal of the concept of ‘basic religious charity’ (and associated exemptions) from the Australian Charities and Not-for-profits Commission Act 2012 (Cth).
The rationale behind this recommendation is to ensure that ‘all charities registered with the Australian Charities and Not-for-profits Commission have the same governance obligations and reporting requirements proportionate to their size’ (page 42 of the Draft Report).
The Productivity Commission is now inviting submissions on the Draft Report. Final submissions are due by Friday 9 February 2024.
Murray Baird and Anne Robinson will be the speakers at a webinar conducted by CMA on Thursday 21 December 2023 at 1:00pm AEDT. You can register for this webinar on the CMA website.
Please contact Murray Baird if you have any queries in respect of the recommendations of the Draft Report.