Firstly, congratulations on deciding to start a charity!

In Australia alone, Not-for-profit organisations account for 600,000 organisations that collectively contribute $100 billion to the national economy: www.smh.com.au/national/shining-a-light-on-charities-20140504-37q82.html.

The first big decision your charity will need to make is to decide on the type of organisational structure that you will subscribe to.

The second step for many charities is to see whether they are eligible to receive Deductible Gift Recipient status (“DGR status”).

Before you can seek DGR status, you first need to register as a charity with the Australian Charities and Not-for-profits Commission (“ACNC”). Then you can apply with the Australian Taxation Office for DGR status.

The decisions you make at the very beginning can affect whether you receive DGR status later on, so it is important to consider the entire process from the outset.

What are the DGR requirements?

To receive DGR status, your organisation must meet all of the following requirements:

  • Fall within a general DGR category as set out in the income tax law;
  • Have an Australian Business Number (ABN);
  • Have an appropriate dissolution/revocation of endorsement clause;
  • Maintain a gift fund (if seeking endorsement for the operation of a fund, authority or institution); and
  • Be in Australia (with some exceptions).

Depending on how your charity is structured, there are two types of DGR endorsement:

  • When an organisation as a whole is endorsed as a DGR – this means gifts to the entire organisation may be tax deductible; or
  • When an organisation is endorsed as a DGR for the operation of a fund, authority or institution that it owns or includes – in which case only gifts to this part of the organisation may be tax deductible.

What are the DGR categories?

Before applying for DGR status, you should review the categories online to see whether the charity fits into the general categories at www.ato.gov.au/Non-profit/Guides/In-detail/Guides—booklets/Gifts—fundraising/GiftPack/?page=7. If the charity does not fit within one of these categories, it cannot be endorsed as a DGR unless it is otherwise listed in tax law. The general DGR categories are:

  • Health;
  • Education;
  • Research;
  • Welfare and rights;
  • Defence;
  • Environment;
  • The family;
  • International affairs;
  • Sports and recreation;
  • Cultural organisations;
  • Fire and emergency services; and
  • Ancillary funds.

It is important to remember that applying for DGR status does not necessarily mean that you will receive it. The final decision is made by the ATO.

The process of being endorsed by the ATO as a DGR should take approximately 28 days.

Conclusion

Setting up a charity is a special area of business law, as there are different requirements for operating a charity when compared to operating a business.

If you are looking to set up a charity, but are unsure of how it should be structured, what legal documents you need, and what tax exemptions you may be eligible for, you should seek the assistance of an experienced business lawyer. A good business lawyer with some experience working with charities will be able to assist you throughout the registration process, guide you in the process of applying for DGR status, and provide you with advice in relation to fundraising and general legal compliance.

Next Steps

If you would like further information on any of the topics mentioned in this article, please get in touch using the form on this page.