Guest post from lawyers in Sydney, Australia
Income tax laws can sometimes be difficult to interpret, especially as they relate to tax deductible gift status. Certain organisations are defined for tax purposes as deductible gift recipients (DGRs), giving them the entitlement to receive tax-deductible gifts and contributions. Income tax laws determine which organisations qualify for this status, with DGRs either listed by name in the income tax law or endorsed by the Australian Tax Office (ATO).
Difference Between Listed and Endorsed DGRs
In order for donors to claim income tax deductions for gifts, an organisation must be listed or endorsed under the tax law. DGRs listed by name include very large organisations, normally either the national arm of an international organisation or a prominent national body. In contrast, endorsed DGRs are generally smaller and must fall within specific categories set out in taxation law.
Because parliament has to amend the income tax law in order to include new organisations in the deductible gift recipient list, only long standing organisations with an extremely good reputation are considered. Two examples of DGRs that have been listed by name under taxation law are the Australian Sports Foundation and Amnesty International Australia.
For an organisation to become an endorsed DGR, it must fall within a specific DGR category. These categories are listed under income tax law, and include health promotion charities, school building funds, public benevolent institutions, overseas aid funds, registered cultural and environmental organisations and public organisations such as libraries, museums and art galleries.
There are two different types of DGR endorsement, with different tax implications depending on how an organisation is endorsed. In the first type of endorsement, an organisation is endorsed as a whole and all gifts received are tax deductible. In the second type, an organisation is endorsed for the operation of a fund, authority, or institution that it owns or includes, and only gifts to this part of the organisation are tax deductible.
Criteria for Entitlement and Maintenance of DGR Status
In order to receive endorsed status, an organisation must meet certain requirements under taxation law. The organisation in question must fall within one of the general categories listed above, have an Australian business number (ABN), and operate from Australia (with some exceptions). The organisation must also have an appropriate dissolution/revocation of endorsement clause or clauses, along with its own gift fund if seeking endorsement for the operation of a fund, authority, or institution.
Organisations that meet these requirements for endorsement can apply to the Australian Taxation Office using an ‘Application for endorsement as a deductible gift recipient’. Unlike listed DGRs, organisations must maintain their endorsed status through the periodic provision of information to the taxation office. Along with the inclusion of specific information on receipts, endorsed DGRs must undergo a self-review process and continue to operate in Australia, with some exceptions.
What is a Tax Deductible Gift?
In order for a donor to claim a tax deduction for a gift, the payment must be truly a gift of money or a certain type of property, made to a DGR, and complaint with any relevant gift conditions. A gift is defined by the Australian Taxation Office as something that involves the transfer of money or property, is made voluntarily, arises by way of benefaction, and involves no material benefit by the donor.
Tax deductible gift status is important for numerous non-profit organisations around Australia. Before being listed or endorsed to receive tax deductible gifts however, organisations need to make sure they are entitled to official DGR status. The criteria for entitlement and maintenance of DGR status is outlined in ‘Tax basics for non-profit organisations’, a guide produced by the Australian Taxation Office.
Charlotte Howard is an independent legal researcher. She enjoys sharing her tips and insights on various legal advice blogs. Visit Makinson & d’Apice for more information.