Taxing times for charities as philanthropy inquiry gets up steam

Speaking at the recent Australian Charities and Not-for-profits Commission (ACNC) regulators’ day in Melbourne, Productivity Commission associate commissioner Krystian Seibert said questions about DGR status have been raised consistently during the course of the philanthropy probe, which began in February.

Charities endorsed with DGR status are eligible to receive donations that are tax deductible.

In response to a question on whether the inquiry was considering making all donations to charities automatically tax deductible, Mr Seibert said he couldn’t comment as the inquiry was still underway.

“We don't have any views yet [on DGR],” said Mr Seibert.

“They will be articulated in our draft report, but certainly looking at the submissions, looking at what's been raised with us through our stakeholder engagement … the current DGR framework certainly is an issue for many charities.”

Mr Seibert said stakeholders had held a roundtable discussion purely to focus on DGR status, which is included in the inquiry’s terms of reference.

“So it’s certainly a big issue and it’s certainly something in the [regulatory] framework that we’re looking at.”

In a wide-ranging update on the progress of the inquiry, which is exploring ways to double philanthropic giving by 2030, Mr Seibert revealed:

• The inquiry is using a restricted access ATO database containing the de-identified details of Australian taxpayers to model trends in philanthropic giving.

• The scope of the inquiry has been extended overseas, with researchers studying international experience in areas such as the link between donor trust and philanthropy.

• Commissioners are investigating areas such as the impact of emerging technology and the rapidly growing crowdfunding phenomenon on giving.

The Productivity Commission probe is also analysing the potential impact of factors such as gender, geography and age on people’s willingness to donate.

Mr Seibert said interest in the inquiry had been intense, and it had received more than 270 submissions, held 80 stakeholder meetings, and attracted more than 350 registrations for a public webinar held in April.

“That’s a very high number [of submissions] for an inquiry, especially an inquiry with a fairly defined scope like this, and that’s really pleasing to see.”

Drilling down into DGR

Mr Seibert said deductions for charitable donations have existed in Australia's tax system for some time, but admitted very little is known about how these tax breaks influence taxpayer behaviour and encourage giving beyond what people would donate anyway.

The federal government recently streamlined the process for some charities wishing to apply for DGR status, slashing approval periods from up to two years to just one month.

Four groups – environmental, cultural, overseas aid and harm prevention charities – have been added to the 48 categories under which an organisation may be eligible for DGR endorsement in a system currently administered by the ATO.

Despite high levels of awareness among Australians that they can claim charitable donations on their tax returns, recent research by humanitarian aid organisation CARE Australia revealed just half are donating each year.

“We’re looking at how much tax concessions change how much people give,” Mr Seibert said.

Crucial to this work is access to a restricted ATO database containing detailed information about Australian taxpayers. database .

“It's de-identified, and there's all these protections and things around it,” said Mr Seibert.

“It's what's called panel data, which provides data over time about taxpayers and their different behaviours, their incomes, their deductions, and you can use that data to model and get conclusions about how taxpayers react to changes in income and the availability of deductions.

“So, we are actually drilling down into the data, and we are doing some modeling on that to understand that, given that does underpin why we have the DGR framework.”

Mr Seibert admitted, however, that crunching this data won’t provide all the answers.

“Not all donations can get a tax deduction. Also, some [people] make a donation to a DGR then they don’t claim it on their tax return.

“So, there are limitations to it, but we are undertaking that modeling exercise and it will be really interesting to see what the results of that will be.”

Public trust and confidence key to giving

Mr Seibert said the inquiry was zeroing in on the relationship between trust, confidence and giving.

“We don’t want to make assumptions in that we just assume that more trust and confidence means more giving. We want to test that.”

Mr Seibert said the inquiry was also looking beyond the current regulatory framework to consider emerging trends such as the impact of rapidly changing technology and the rise of crowdfunding.

This includes studying the regulatory environment in overseas jurisdictions such as California, which is considering regulating crowdfunding.

“[We have to consider] Is the regulatory framework [in Australia] going to be fit for purpose into the future.”

Mr Seibert said understanding the impact of factors such as gender, age and geography on what motivates people to give – or not to give – was crucial.

“We're really mindful of also understanding different cultural perspectives on giving and there's been some research done on that in Australia as well.

“Our inquiry is very broad and wide ranging. As far as I can tell it’s probably the most broad and wide-ranging inquiry into philanthropy commissioned by a government anywhere, ever.”

The inquiry is scheduled to deliver its draft report in November. It will then hold public hearings in February 2024 before presenting its final report to the federal government in May.