Tax expert supports DGR reform move linked to religion

Posted on 11 Jan 2024

By Greg Thom, journalist, Institute of Community Directors Australia

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A senior academic who specialises in taxation law and advised the Productivity Commission on its draft report into philanthropy has dismissed the federal Opposition’s concerns over proposed reforms to deductible gift recipient (DGR) status.

Shadow Treasurer Angus Taylor and shadow Education Minister Sarah Henderson joined forces to urge the Albanese government to rule out adopting DGR changes linked to religion, claiming they would “rip funding” from non-government schools and charities.

The Productivity Commission’s report called for the withdrawal of DGR status – which allows organisations to accept tax-deductible donations – from as many as 5,000 charities related to school building funds or the provision of religious education in non-government schools.

The Opposition said the proposed changes could devastate non-government schools, which have enjoyed DGR status for 70 years.

“This will just pass on costs to families struggling with the cost of living and leave non-government schools deprived of vital infrastructure,” said Mr Taylor.

Melbourne Law School Professor Ann O'Çonnell.

Melbourne Law School Professor Ann O’Connell, however, said the Opposition’s concerns were unfounded.

“All tax reform is hard because inevitably there are vested interests’ intent on preserving their tax advantage,” she said.

Professor O’Connell said in that environment, there was often little regard for why such a tax concession had been enacted in the first place.

“In the case of school building funds this was inserted because the Commonwealth government did not have power under the Constitution to make grants to schools.

“They do now, and by and large make more grants to non-government schools than to government ones.”

“There are many schools – government and non-government – that need financial assistance, but we [taxpayers] provide relief to those schools lucky enough to have wealthy parents or past students who can afford to make [tax deductible] donations.”
Melbourne Law School Professor Ann O’Connell.

Professor O’Connell has a long history of contributing to tax policy that affects the NFP sector.

She was a member of the 2013 NFP Tax Concessions Working group that delivered recommendations similar to those of the current draft Productivity Commission report into philanthropy.

She also made a submission to the 2018 review of the ACNC Act as it related to basic religious charities.

A special counsel at the law firm Allens, Professor O’Connell is a member of the advisory panel to the Board of Taxation and the Australian Tax Office Public Rulings Panel and has worked as an adviser to the OECD in Paris.

Professor O’Connell said she found the response by Sarah Henderson and Angus Taylor to the draft DGR reforms disappointing, as it was an indication that the final recommendations from the Productivity Commission would not enjoy bipartisan support.

“There are many schools – government and non-government – that need financial assistance, but we [taxpayers] provide relief to those schools lucky enough to have wealthy parents or past students who can afford to make [tax deductible] donations,” she said.

“And then the schools use the funds to build gymnasiums, indoor swimming pools and concert halls!”

Handed down in November, the 338-page Future Foundations for Giving interim report made a raft of recommendations in line with the federal government’s pledge to double charitable giving by 2030.

The commissioners described the current DGR tax rules as “not fit for purpose” and recommended adopting a “principles based” assessment approach to determine DGR eligibility as a way of directing charitable support to where it was needed most.

The report said its recommendations, if adopted, would boost the number of organisations eligible to claim DGR status by 60%, from 25,000 to 40,000.

However, as many as 20,000 organisations engaged in activities such as advancing religion and industry and some childcare and education charities would remain outside the DGR system.

The Opposition also slammed the report’s recommendation to end “basic religious charity” (BRC) status, alleging such a move would increase red tape for almost one in five Australian charities – including those that support schools and religious education.

This line of reasoning was rejected by Professor O’Connell, who said the 2018 review of the ACNC Act also recommended the provision be scrapped.

“The exemption for BRCs cannot be supported by reference to principle,” she said.

“It was inserted in 2012 as a way of getting the churches onside in relation to establishing the ACNC.

“Maintaining the exemption (and the rule that responsible persons cannot be removed) is simply unfair to all the other, mainly small, charities that have reporting obligations.

“There is no good reason to endorse this lack of transparency – particularly when churches have been involved in some unscrupulous conduct that has come to light over the past decade.”

The Productivity Commission has invited feedback on the interim draft report recommendations before it delivers its final report in February.

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