What is a DGR?

Deductible gift recipients (DGRs) are entities to which donors can make income tax deductible gifts or contributions. Note that DGR endorsement is separate from income tax exemption.

An organisation’s DGR status is displayed on the Australian Business Register website: www.abr.business.gov.au

Organisations can receive DGR status in two ways:

if they are listed by name in the Tax Law; or
if they apply to the Taxation Office to be endorsed as a DGR.

The majority of DGRs are endorsed by the Taxation Office. There are 2 kinds of endorsement to be a DGR. Organisations can be endorsed:

As a whole e.g. public hospitals, aged care facilities, universities, some charity organisations; or
For the operation of a gift fund, authority or institution that it owns e.g. school building funds and public libraries.

To apply to be endorsed as a DGR, an organisation must meet all the following requirements:

be in a DGR category;
be in Australia;
have an Australian Business Number (ABN); and
have acceptable rules dealing with the transfer of surplus gifts and deductible contributions to another DGR on winding up or revocation of endorsement.

Organisations or funds must be established and operated in Australia and have their purpose and beneficiaries in Australia in order to satisfy the ‘in Australia’ requirement. However, certain categories of funds such as overseas aid funds, developed country disaster relief funds and public funds on the Register of Environmental Organisations, do not need to have their purposes or beneficiaries in Australia.

Gift fund requirements

If an organisation is to be endorsed for a particular fund, it is also required to maintain a gift fund to receive all gifts and contributions made for the principal purpose of the fund. The gift fund must be used for that purpose and must have a clause within its constituent documents dealing with the transfer of surpluses in assets to another DGR in the event of winding-up or revocation of endorsement.

All gifts and contributions must be separately recorded through a bank account or other cash management system for money and a register for property. Transfers from the gift fund and investment returns on money or property that have been transferred out must also be separately recorded. Gift fund money and property should not be mixed with other money and property of the organisation. While tax law does not require a separate bank account, a separate bank account will provide clear evidence of the existence of a gift fund.

When the organisation issues receipts for deductible gifts, it must state the name of the fund and its ABN and the fact that the receipt is a gift. Although not specifically required most receipts will also show the amount and the date of the donation.

If applicable, the receipt must include the fact that the contribution was made for a right to attend a specified fundraising event or the purchase of goods and services by a successful bidder at a fundraising auction. It must also include the GST inclusive market value of the right or goods and services and the amount of the contribution.

If a gift fund is not maintained, it cannot be endorsed as a DGR. If failure to maintain a gift fund is merely an administrative error and not intentional and is rectified in a short time, endorsement will not be withdrawn.

Note that a public fund is not necessarily a DGR, but many DGRs are required to be public funds.

What is a public fund?

A fund will be a public fund if:

The objects and rules of the fund set out and reflect the purpose of the fund. These must conform to the requirements of the DGR category.
It is the intention that the public will contribute to the fund.
It is administered by someone who has a degree of responsibility to the community as a whole.
It operates on a not-for-profit basis.
Gifts and contributions are kept separate from any other funds of the organisation. It must also maintain a separate bank account (not required for all gift funds).
It has an acceptable dissolution clause stating that surplus funds will go to another deductible gift fund.

A number of public funds that may be applicable to churches include funds established for the sole purpose of:

Religious instruction in government schools;
Relief of persons in necessitous circumstances;
Providing money for the relief of people in Australia in distress as a result of a disaster;
Providing money to be used in giving or providing marriage education; or
Providing money to be used in providing family counselling or dispute resolution.

School building funds

A school building fund is a public fund established and maintained solely for providing money for the acquisition, construction or maintenance of a building used as a school or college.

In February 2013, the Australian Taxation Office (“ATO”) issued a Taxation Ruling TR 2013/2 “Income Tax: School or College Building Funds”. This ruling outlines the ATO’s new interpretation of what is an eligible school building fund. The ruling looks at various concepts relevant to the definition of a school building fund, but primarily concentrates on whether there is a school, and whether the building is being used as school.

As a result of this new ruling, most school buildings funds operated by public and private schools will be able to continue. However, many school building funds operated by churches may no longer have eligible projects or areas of expenditure.

Please read this Focus on and if you have any questions in relation to a school building fund, please contact us.

Public benevolent institutions

A public benevolent institution is a non-profit institution carried on for the public benefit with a dominant purpose of direct relief of poverty, sickness, suffering, distress, misfortune, disability or helplessness.

A PBI must relieve poverty, sickness, suffering, distress, misfortune, disability or helplessness as arouses pity or compassion in the community. Not all levels of distress and misfortune arouse pity or compassion in the community e.g. organisations that offer marriage guidance and counselling for sole parents would not be considered a PBI however deductible gift status may be available if a public fund. A counselling centre set up for alcoholics or newly discharged prisoners may be considered a PBI.

Needs met by training and education would not normally arouse pity or compassion in the community unless for the alleviation of poverty or helplessness.

Ancillary Funds

It is possible to establish an ancillary fund that qualifies for DGR status. An ancillary fund acts as a temporary repository of donations before directing them to other DGRs. As a general rule, an ancillary fund should avoid excessive accumulation and investment.

Some churches will establish an ancillary fund as well as a number of DGR funds, such as a school building fund and a necessitous circumstances fund. An ancillary fund provides significant benefits in terms of advertising and marketing the DGR program. Donors can choose to give generally or can request that their giving be directed to a particular area. It is easier administratively as receipts can be issued from one particular fund. There is no need to change letterhead should an additional DGR fund be established.

Deductible Donations

To be deductible to the donor, gifts must be $2 or more. For non-cash donations, the property must either have been purchased by the donor within the previous 12 months or must be valued at more than $5,000. For property acquired within the last 12 months, the deductible amount is the lesser of the purchase price and its market value at the time of the donation.

Gifts of trading stock outside the ordinary course of the donor’s business are deductible. The market value of donated shares in publicly listed companies is also deductible even where the shares were acquired more than 12 months ago and are worth less than $5,000.

An individual can receive a tax deduction for the net amount of a donation made to a deductible gift recipient (DGR) where the donation has an associated minor benefit. A receipt is required for deductions of donations of more than $10. However, a deduction is only available for cash donations above $150 and where the value of the benefit received by the donor is no more than 20% of the donation or $150, whichever is less.

For example, the purchase of a ticket for $1,000 to attend a fundraising dinner with a market value of $100 would give rise to a tax deduction to the individual of $900. However, the legislation only applies to tax deductions for individuals. The Government has not extended the concession to the GST treatment for the entity undertaking the fundraising dinner. Unless the consideration for the dinner is clearly separated from the donation, it appears the total ticket price of $1,000 will still be treated as the consideration for GST purposes regardless of whether the donor may obtain a part tax deduction.

More information about deductions for donations can be found here: https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Other-deductions/Gifts-and-donations/

Maintaining DGR Status

An entity’s DGR status can be revoked if the following requirements are not met:

the DGR must issue receipts for deductible gifts or contributions specifying the information required by law; and
the DGR must provide documents, when required, to the Commissioner showing that the entity continues to be entitled to be endorsed.

The entity must inform the Taxation Office when it ceases to become entitled to be endorsed as a DGR.

A DGR should carry out a self-review process. It is not stipulated in the law the frequency of the self-review. However, it is recommended by the Taxation Office for the self-review to be carried out at least annually and when there is a major change in the organisation’s structure or activities. The Taxation Office has produced worksheets that can be used for this self-review process.