This Bills Digest replaces a preliminary Digest dated 1 December 2022.

Purpose and history of the Bill

The purpose of the Treasury Laws Amendment (2022 Measures No. 5) Bill 2022 (the Bill) is to update the list of Deductible Gifts Recipients (DGR) in the Income Tax Assessment Act 1997 (ITAA 1997) by adding six new DGRs, extending two existing DGRs and removing one DGR that no longer operates. DGR status allows members of the public to receive income tax deductions for the gifts to the listed organisations.

The provisions in the Bill were originally introduced as Schedule 7 to the Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 (the Measures No. 4 Bill).

Background

What is a DGR?

Deductible Gift Recipient (DGR) status allows an entity to receive tax deductible gifts and contributions from the public. Donors can claim an income tax deduction for donations of $2 or more to a DGR.[1] This mechanism encourages philanthropy and provides support to the not-for-profit sector.

DGRs are either listed by name in Division 30 of the ITAA 1997; or in one of the general categories set out primarily in Subdivision 30-B of the ITAA 1997 as being entitled to receive tax deductible gifts. Organisations that are not specifically named in Division 30 must be endorsed by the Australian Taxation Office (ATO) under Subdivision 30-BA of the ITAA 1997, or must be owned or controlled by an endorsed entity or government entity.[2]

There are currently 52 general categories of DGR set out in Division 30 of the ITAA 1997. Of these categories, 48 are currently administered by the ATO and 4 are currently administered by portfolio agencies.[3]

Not-for-profit sector: roles and responsibilities of the ACNC, ATO and the Treasury

With effect from 14 December 2021, the Treasury Laws Amendment (2021 Measures No. 2) Act 2021 requires organisations in the general categories to be a registered charity or an Australian government agency, or be operated by a registered charity or an Australian government agency, to be entitled to DGR endorsement.[4]

ACNC

The Australian Charities and Not-for-profits Commission (ACNC) administers the regulatory system for the not-for-profit sector. One of the ACNC’s roles is to register organisations as charities.[5] Its website further explains:

• Not all charities are eligible for DGR endorsement.
• Most DGR categories require registration with the ACNC first.
• The ACNC decides on charity registration.
• The Australian Taxation Office (ATO) decides on DGR endorsement.
• You can apply for charity registration and DGR endorsement in the ACNC's online registration form.

ATO

The ATO is responsible for deciding eligibility for the tax concessions such as DGR status, income tax exemption, GST charity concession, Fringe Benefit Tax (FBT) exemption, FBT rebate and refunds of franking credits. An entity is entitled to be endorsed by the ATO as a DGR if it satisfies the conditions in section 30-125 of the ITAA 1997. The procedural rules relating to endorsement of charities (such as application for and revocation of endorsement, and entry of the details of endorsement on the Australian Business Register) are provided under Division 426 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

Two ways to seek DGR endorsement

According to the Treasury:

There are two ways to apply for DGR endorsement with the ATO:

• If you are currently applying for registration with the Australian Charities and Not-for-profits Commission (ACNC), you can apply to the ATO for DGR endorsement on the ACNC registration application form.
• If you already have an ABN, and you are either registered as a charity or are not required to be for DGR endorsement, you need to lodge a separate application form.

Treasury

The Treasury further explains

Applying for DGR status under the specific listing process

Before applying for specific listing, entities should contact the ATO to establish if they are eligible under a general category. If your entity does not fit into any of the DGR categories administered by the ATO, it may apply to be specifically listed in legislation.

Specific listing is only available in exceptional circumstances and involves assessment by the Treasurer, followed by the government approving an amendment to the tax law. Of around 28,000 entities with DGR status, only around 200 are specifically listed. Applicants must meet a high bar to merit listing by name in the tax law.

Your entity must be not-for-profit and its application will be viewed more favourably if your entity is a registered charity with the Australian Charities and Not-for-profits Commission (ACNC).

ABN Lookup

The ABN Lookup website provides information on whether an entity is a DGR and, if it is, one of the following two types of DGRs to which it belongs:

• an entity that has DGR endorsement in its own right
• an entity that is only a DGR in relation to a fund, authority or institution it operates. In this instance, only gifts to the fund, authority or institution are tax deductible.

Successful or unsuccessful DGR Applications

According to the Treasury website:

It generally takes around two years to process an application and amend the tax law, depending on the priorities of the Government’s legislation program. An overview of the steps involved is at Figure 1 below.

Figure 1  Deductible Gift Recipient Process

Source: Treasury, Deductible Gift Recipient specific listing applications.

If the Government approves your entity’s request, an announcement will likely be made in the Federal Budget or in the Mid-Year Economic and Fiscal Outlook. Your entity will also be notified via letter. However, your entity will not be a DGR until:

• your entity’s governing documents contain appropriate public fund rules; and
• the tax law has been amended to specifically list your entity.

The ATO provides assistance to successful entities to meet the public fund requirements.

A DGR specific listing is not an administrative decision, but a legislative matter that requires an Act of Parliament. Merit review is not available.

Committee consideration

Senate Economics Legislation Committee

The Measures No. 4 Bill (including Schedule 7) was referred to the Senate Economics Legislation Committee (the Economics Committee) for inquiry and report by 25 January 2023.[6] On 22 December 2022, the Economics Committee tabled a progress report seeking an extension of time to report to 3 March 2023.

At the time of writing this Digest, nine submissions have been published online by the Committee. However, none of them contained comments about Schedule 7 of the Measures No. 4 Bill, which is replicated in the current Bill.

The current Bill has not been referred to a committee for inquiry.

Senate Standing Committee for the Scrutiny of Bills

The Senate Standing Committee for the Scrutiny of Bills had not considered the Bill at the time of writing this Digest.

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[7]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights had not considered the Bill at the time of writing this Digest.

Key issue and provisions

Key issue

The key issue is to maintain flexibility in the not-for-profit tax system in order to achieve the Government’s ‘goal of doubling philanthropy by 2030.’[8]

Key provisions

The Bill updates the list of DGRs in Subdivision 30-B of the ITAA 1997 by:

• adding six entities as new DGRs
• extending the end dates for two current DGRs
• removing one DGR which is no long in operation.

Table 1 below summarises the proposed changes to the list of DGRs in Subdivision 30-B by items 1 to 5 of the Bill.

Table 1  Proposed changes to the legislative list of DGRs in Subdivision 30-B ITAA 1997

Source: Parliamentary Library’s analysis: Schedule 1 to the Treasury Laws Amendment (2022 Measures No. 5) Bill 2022.

Items 6 to 11 of the Bill consequently amend the Index to Division 30 (Gifts or contribution) under section 30-315 of the ITAA 1997 to reflect the changes proposed by items 1 to 5.

Retrospective dates of effect

According to the Explanatory Memorandum (p. 9):

The amendments apply retrospectively. This ensures that if gifts were made prior to the commencement of this Schedule they may be tax deductible for income tax purposes, provided they comply with other requirements of the income tax law. Accordingly, despite the retrospective application of deductible gift recipient status there is no adverse impact on affected parties or the entities as the amendments assist entities to obtain support from the public and allow parties that provide gifts to obtain an income tax deduction if eligibility requirements are met. The removal of deductible gift recipient status for the Mt Eliza Graduate School of Business and Government Limited applies prospectively.

Financial Impact

The former and current Governments had separately announced the listing requests by the entities in Schedule 1 to the Bill in the following budget papers. The relevant financial impacts according to the Explanatory Memorandum (pp. 2–3) are also provided below.

1. Mid-Year Economic and Fiscal Outlook 2021–22 (p. 185)

• Jewish Education Foundation (Vic) Ltd
• Australian Education Research Organisation

Financial impact: The listing of the above two entities was ‘estimated to have a negligible cost from 2022–23 to 2025–26’, (p. 2).

2. Budget Measures: Budget Paper No.2: March 2022-23 (p. 25)

• Melbourne Business School
• Leaders Institute of South Australia
• St Patrick’s Cathedral Melbourne Restoration Fund
• Sydney Chevra Kadisha
• Mt Eliza Graduate School of Business and Government Limited

Financial impact: The listing of the above entities was ‘estimated to decrease receipts by $6.3 million from 2023–24 to 2025–26’, (p. 2).

All figures in this table represent amounts in $m.[9]

Source: Explanatory Memorandum, 2.

3. Budget Measures: Budget Paper No.2: October 2022-23 (p. 17)

• Australians for Indigenous Constitutional Recognition Ltd
• Australian Women Donors Network (now, Australians Investing in Women). 

Financial impact: The listing of the above entities was ‘estimated to decrease receipts by $0.8 million from 2023–24 to 2025–26’, (p. 3).

All figures in this table represent amounts in $m.[10]

Source: Explanatory Memorandum, 2–3.