High-profile charities academic slams lack of DGR reform

Posted on 21 Nov 2023

By Greg Thom, journalist, Institute of Community Directors Australia

Tax reform

A leading expert on not-for-profit law has slammed Australia’s system for regulating which organisations can receive tax deductible donations.

Emeritus Professor Myles McGregor-Lowndes of the Australian Centre for Philanthropy and Nonprofit Studies said Australia’s Deductible Gift Recipient (DGR) framework is needlessly complex compared to other countries’.

This is because Australia’s approach is to define narrow classes of organisations, or specific organisations, for DGR status eligibility, rather than all charitable organisations.

Australia’s legislation takes more than 8,000 words to describe a DGR architecture consisting of 48 general classes and further sub-classes covering more than 32,000 organisations.

This compares to a legislative length of 502 words in the US, 163 words in the UK and just 143 words in Canada.

Professor McGregor-Lowndes has also lambasted the foundations of the DGR framework as seriously out of date and not a reflection of the modern world.

“The tax concessions to encourage and enable nonprofit organisations are mainly based on nearly century-old notions of benevolence and relief of poverty or the whim of a politician,” he said, “whereas contemporary thought is about wholistic service delivery and prevention that is effective and efficient.”

Professor McGregor-Lowndes’ concerns prompted him to produce a 63-page ACPNS working paper titled Deductible Gift Recipients: What Is Your Number?, designed to unearth and consolidate the mountain of available DGR data.

The research revealed:

  • The number of DGRs has increased at about 1.5% per year since 2007.
  • There has been a decline in the number of DGRs in some categories as regulatory verification of organisations has occurred, and the number of organisations in newly added categories has surged.
  • Foregone DGR tax expenditures are not itemised by category, which obscures their impact on revenue.
  • The largest DGR category was Public Benevolent Institution (PBI); the number of eligible organisations in this category has increased by more than 3% since 2007 to 11,284.
  • This was followed by school or college building funds (4,734) and Health Promotion Charities (2,263), which jumped more than 9% over the same period.
“The tax concessions to encourage and enable nonprofit organisations are mainly based on nearly century-old notions of benevolence and relief of poverty or the whim of a politician.”
Emeritus Professor Myles McGregor-Lowndes of the Australian Centre for Philanthropy and Nonprofit Studies.

Professor McGregor-Lowndes noted that the Australian Charities and Not-for-profits Commission (ACNC) register provides only limited insight into the financial affairs of DGRs because it excludes some larger organisations such as government hospitals and non-charity DGRs.

He said this was one of the reasons he was motivated to research the paper: he had struggled to find information on how organisations are distributed among the 48 DGR classes and how this distribution has fluctuated over the years.

“Previous inquiries over the past decade were of little assistance and I found out why: because discovering and aggregating the data was no small undertaking.

“Hopefully, the data will be of assistance in the policy debate about increasing philanthropy by knowing the size of different DGR classes.”

Professor McGregor-Lowndes’ paper acknowledged that several government reviews into DGR status are currently underway, as is ongoing incremental statutory revision of the framework.

However, not only is there scant DGR data readily available to help guide current policy deliberations, but this information doesn’t appear to have been part of past DGR reviews.

Emeritus Professor Myles McGregor-Lowndes of the Australian Centre for Philanthropy and Nonprofit Studies

“It is a national disgrace that politicians have dodged root-and-branch reform of the [DGR] tax concessions or even any of the entirely incremental reforms suggested by the Not-For-Profit Sector Tax Concession Working Group (2013), whose recommendations were never responded to by the government,” he said.

The working group said that while the DGR framework was intended to encourage philanthropy, the system for granting DGR status to charities was “cumbersome, inequitable and anomalous.”

It also believed the framework was ill-placed to accommodate the needs of organisations that conduct a range of purposes that fit within multiple DGR categories.

“Reforming the framework would increase certainty, reduce red tape for eligible entities and should further increase philanthropy,” the group found.

Charity law expert Bridgid Cowling from law firm Arnold Bloch Leibler said Professor McGregor-Lowndes’ paper provided crucial analysis to underpin essential and meaningful reform to the DGR framework.

“Myles highlights that the revenue forgone method for measuring the cost of DGR concessions does not paint an accurate picture and completely fails to take account of the significant contribution to the public good that is generated by DGRs.

“The paper provides compelling evidence for a complete overhaul of the fragmented DGR framework and strengthens my view that we should extend DGR endorsement to all registered charities, removing the unhelpful silos.”

Beginning in December, the Australian Taxation Office will review the DGR status of 234 organisations covered by tax law.

ATO Assistant Commissioner Jennifer Moltisanti said the reviews will focus on determining organisations proof of activity, purpose and use of donations.

The review will initially prioritise listed DGR organisations that aren't registered with the ACNC. DGR eligibility has become a contentious topic for charities, and it has significant implications for a not-for-profit’s bottom line.

The ACNC is currently embroiled in a legal battle with Equality Australia, which is fighting the rejection of its application to be registered under the PBI sub-category of charities. PBI status allows registered charities to claim certain tax concessions.

Speaking at an ACNC event in August, Productivity Commission associate commissioner Krystian Seibert said questions about DGR status have been raised consistently throughout the Productivity Commission’s ongoing inquiry into philanthropy.

More information

Government moves to expand DGR eligibility

Canberra acts to simplify DGR

Help sheet: DGR status

ACNC updates PBI advice

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