Prioritise DGR reform: Philanthropy Australia

Posted on 17 Jun 2025

By Greg Thom, journalist, Institute of Community Directors Australia

Philanthropy Australia has urged the federal government not to “cherry pick” the implementation of reforms contained in the Productivity Commission’s landmark 468-page Future Foundations for Giving report.

The warning came as Canberra last week called for submissions on proposed changes to the rules relating to private and public ancillary funds.

Ancillary funds are typically private or public philanthropic trusts that function as vehicles to distribute tax deductible donations to charities over time.

Charities Minister Andrew Leigh flagged changing the names of the funds to "giving funds to better reflect their role in supporting charitable giving.

Other proposed changes in line with those recommended by the Productivity Commission (PC) report include:

aligning minimum distribution rates of public and private giving funds
increasing the minimum distribution rate of giving funds
allowing distributions to be averaged over three years, helping funds plan their giving more effectively.

While supportive of some of these changes, Philanthropy Australia CEO Maree Sidey said the government should prioritise acting on the Productivity Commission’s central recommendation of reforming the deductible gift recipient (DGR) system.

The report described the DGR system, which determines which charities can receive tax deductible donations and grants, as “not fit for purpose.”

Sidey said DGR reform was the sectors top priority, with half the nation’s 60,000-plus charities ineligible to claim DGR status.

Ineligible charities included community-run charities such as neighbourhood houses, those supporting LGBTQIA+ Australians and advocacy charities focused on the causes of disadvantage.

“We welcome the Australian government’s focus on responding to the Productivity Commission’s recommendations, but we would be concerned by an approach that involves cherry picking which reforms to progress, while not acting on the PC’s clear call for an overhaul of the DGR system,” said Sidey.

“The costs of inaction on DGR reform will be borne by all those charities left outside of the system, given they will continue to be cut off from sources of support, including from giving funds.”

“Giving funds are an enabler of generosity, providing an essential flow of support for charities doing diverse work to build a more inclusive Australia.”

Philanthropy Australia CEO Maree Sidey.

Giving funds (ancillary funds) are commonly used by public and private foundations

They enable individuals, families or businesses to make tax-deductible contributions to a fund, which is then used to distribute grants to Deductible Gift Recipients (DGRs)

Contributions to funds are often invested to increase the amount available over time and increase the support provided through grants

Private giving funds are established for private philanthropy and commonly used by families or businesses

Public giving funds must invite donations from the public and are typically used by community groups, corporate and community foundations, wealth advisers and other organisations

Giving funds are subject to regulation by the Australian Charities and Not-for-profits Commission (ACNC) and the Australian Taxation Office (ATO)

They are required to comply with a minimum distribution rate, which determines the amount of money from the fund that must be provided as grants each year

The minimum distribution rates are currently five per cent of net assets for private giving funds, and four per cent of net assets for public giving funds

There are more than 3,600 giving funds in Australia

Private giving funds have distributed more than $5.2 billion in community grants since 2000-01

Public giving funds have distributed $4.5 billion

Source: Philanthropy Australia

Sidey described public and private giving funds as a vital source of philanthropy for the benefit of the community.

“Giving funds are an enabler of generosity, providing an essential flow of support for charities doing diverse work to build a more inclusive Australia.”

Sidey said she supported changing the names of ancillary funds to "giving funds" and allowing them to smooth distributions across multiple years as proposed in the Productivity Commission report.

However, she was less enthusiastic about changes to the funds minimum distribution rate.

“Philanthropy Australia supports having a minimum distribution and will take a measured stance in response to any proposed changes to its rate,” said Sidey.

“We think the current arrangements work well, so we don’t see the need to increase or decrease the minimum distribution, especially given the risk of unintended consequences, such as disincentivising the establishment of new giving funds.”

Philanthropy Australia outlined its initial position on ancillary funds minimum distribution rate in its Practical Policy Priorities to Grow Giving in Australia document, released in April in the run-up to the federal election.

The government has invited sector feedback on the proposed changes via a consultation paper published on the Treasury website. The deadline is August 1.

Charities Minister Andrew Leigh said giving funds play an important role in connecting generous Australians with the causes they care about.

“While careful investment can help grow these funds over time, the government wants to ensure that donations made with tax concessions are reaching charities at the right pace.”