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New requirements put forward for deductible gift recipients

New requirements put forward for deductible gift recipients

The government’s proposed reforms to deductible gift recipients could help improve the consistency of governance over such entities, with accountants and advisers urged to take note of key dates.

Tax&Compliance Jotham Lian 30 August 2018

Treasury is currently seeking submissions to the government’s package of deductible gift recipients (DGR) reforms, including the requirement for non-government organisations with DGR status to register as a charity with the Australian Charities and Not-for-profits Commission (ACNC) from 1 July 2019.

Other components of the reforms include transition arrangements to support existing organisations with DGR status to register as a charity with the ACNC; the Commissioner of Taxation’s discretion to exempt organisations with DGR status from the requirement to register as a charity in limited circumstances; and the abolition of certain public fund requirements.

Speaking to Accountants Daily, HLB Mann Judd partner Mariana von-Lucken said the main change would only affect about 20 per cent of funds because most non-government public fund, and private and public ancillary funds would already have charity registration.

“An entity may apply for DGR status under one of the 51 general categories. Under current law, charity registration is a prerequisite for 40 of the 51 general categories. Therefore, the reform is only affecting 11 general categories where charity registration is not a prerequisite,” said Ms von-Lucken.

“Eighty per cent of these DGR-registered entities are also registered as charities, which ends up giving these types of charities an inconsistent governance and reporting requirements for DGRs in the same general category - some registered as charities and others not.”

Grant Thornton partner Elizabeth Lucas said accountants would need to be conscious of the requirements if a DGR would be eligible for registration as a charity or to seek an exemption before the transitional period ends by 30 June 2020.

“For new DGRs, they will need to be set up as separate legal entities rather than as a public fund within an entity, so that will be quite important. New DGRs won't get the same transitional treatment, so they will have to be a new separate legal entity right from the word go as of 30 June 2019,” said Ms Lucas.

Ms Lucas also noted that while it was good for the ACNC to get an oversight over all DGRs, some of the concerns that led to the consultation may be unwarranted.

“There were some high-profile cases where the governance was deemed not to be sufficient and some cases where the cost of fundraising, in particular, blew right out to the extent that the costs were higher than the funds actually raised, so that didn't help,” said Ms Lucas.

“There seems to be this perception around particularly smaller DGRs being at risk of not being appropriately governed for some reason. I don't hold that concern myself, and I actually think it is a little bit of throwing the baby out with the bathwater here. 

“There are some warranted concerns but also unwarranted ones, because we seem to have this issue about charities and DGRs spending money on admin and fundraising and that being a bad thing, but why is that the case? Normal businesses can spend money on their admin and try to increase their profit, so why is it not okay for DGRs to spend money to try and increase the funds they are bringing in?”

The consultation paper is available on the Treasury website, with submission closing on 21 September 2018.

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New requirements put forward for deductible gift recipients
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