When establishing a not-for-profit organisation, you might be interested in separately becoming a deductible gift recipient (DGR). Broadly, when an organisation is a DGR, it can accept donations, which donors can claim as deductions when they lodge their income tax return for the relevant financial year. There are several requirements to become a DGR. If your organisation meets those requirements, you can apply to the Australian Taxation Office (ATO) for DGR endorsement. This article will explain DGRs, eligibility to become a DGR, and the application process.
What is a Deductible Gift Recipient?
A DGR is an organisation that has successfully applied to the ATO to be endorsed as a DGR. There are strict requirements about what types of organisations can apply for DGR endorsement. Just because an entity is a not-for-profit or a registered charity does not mean it will automatically receive DGR status. If an organisation successfully obtains DGR endorsement, a donor who has donated to that organisation can usually claim that donation as an income tax deduction when it lodges its tax return.
Who is Eligible for DGR Endorsement?
Either an organisation as a whole or a fund, authority or institution that organisation operates can be endorsed as a DGR. In the latter case, only donations to that specific fund will be deductible for a donor.
Registered Charity Requirement
For an organisation to be eligible for DGR status, it must first be registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC) unless that organisation is:
- a government organisation;
- an ancillary fund; or
- specifically listed in the tax legislation as being a DGR.
General DGR Category Requirements
Once registered as a charity with the ACNC, your organisation must fall within one of the general DGR categories before you can receive DGR status. These categories include health, education, welfare and rights and sports and recreation. Each general category contains subcategories that set out the specific eligibility requirements.
“In Australia” Condition
Generally, to receive DGR endorsement, your organisation must be established and operated in Australia. This does not require that the purposes and beneficiaries of that organisation are in Australia unless the DGR is a specific type of public fund.
Continue reading this article below the formWhy Would an Organisation Want to Hold DGR Endorsement?
An organisation may benefit from a DGR endorsement for the following reasons:
- Donations and gifts: a donor may be more incentivised to donate money or other property to an organisation with DGR endorsement, given they can potentially claim an income tax deduction for that donation.
- Grants: certain grants are only available to organisations with DGR endorsement.
It is important to remember that it is not always essential for a not-for-profit to be a DGR. Likewise, alternative fundraising avenues are available to non-DGRs. You should weigh up the costs of applying for and maintaining DGR status against the potential benefit that a DGR endorsement would bring.
How Can an Organisation Apply for DGR Endorsement?
If you believe your organisation is eligible for and wish to obtain DGR endorsement, you can apply to the ATO. Broadly, this application has four parts.
Section A: Applicant Information
This part of the application involves listing the organisation’s:
- Australian Business Number (ABN);
- legal name and postal address; and
- whether you are applying for endorsement as a whole or for a fund, authority or institution, the organisation operates.
Section B: Endorsement Information
This part of the application involves listing the organisation’s DGR category item number. Here, you need to point to the specific subcategories in the DGR category tables that you believe entitle your organisation to DGR endorsement. For example, an animal welfare charity would input item 4.1.6. An organisation can list multiple items if they are relevant to the organisation’s activities.
This part of the application will also ask the applicant:
- whether the organisation satisfies the “in Australia” condition; and
- the date the organisation wishes to be endorsed as a DGR.
Section C: Attachments
Separately, you will need to check whether the ATO requires you to fill out a DGR schedule in addition to the standard application form. Only certain categories need to complete a DGR schedule.
If a DGR schedule is required, you will need to compile additional information that showcases to the ATO why your organisation is eligible for DGR status.
While each schedule is different, common additional information in a DGR schedule includes:
- a copy of the organisation’s “constituent documents” and pointing the ATO to the organisation’s objects or purpose in those documents. As such, it is important that an organisation’s constituent documents accurately reflect how the organisation’s activities align with the relevant DGR subcategory;
- links to the organisation’s website and other marketing materials;
- information about people who will be responsible for administering the fund, such as directors and trustees;
- information about the specific type of endorsement. For example, an Australian disaster relief fund needs to provide further details on its disaster relief activities. Meanwhile, an animal welfare charity needs to demonstrate how its activities contribute to rehabilitating animals; and
- whether the organisation must transfer surplus funds and assets to another DGR upon its winding up or revocation of DGR status, and if so, where this requirement appears in its constituent documents.
If an organisation is not required to complete a DGR schedule, it does not need to complete Section C.
Section D: Declaration
On this part of the application, you must declare that all information is correct and will sign on behalf of the organisation. You can then mail the completed application to the ATO.
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Key Takeaways
Many not-for-profits consider applying for DGR endorsement. If they are successful, they can generally accept donations which donors can claim as income tax deductions. Obtaining DGR endorsement involves submitting an application to the ATO containing information about the organisation’s activities and how they align with the specific type of DGR the organisation is applying for.
Before an organisation can apply for DGR endorsement, it would generally be registered as a charity with the ACNC and be established and operated in Australia. However, not every registered charity will choose to apply for (and many are not eligible for) DGR endorsement. In this case, there are funding alternatives available.
For more information on becoming a deductible gift recipient, our experienced charity lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A deductible gift recipient (DGR) is an organisation that has successfully applied to the ATO for DGR endorsement. This means that most gifts and donations to that organisation would be claimable as an income tax deduction for the donor.
No. Generally, only registered charities can apply for DGR endorsement, and only if they fall into one of the general DGR categories and satisfy the “in Australia” requirement.
By making an application to the ATO. This will involve describing to the ATO which DGR category most aligns with the organisation’s activities and sometimes providing additional information to substantiate this.
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