Welcome to part three of the complete introductory guide to deductible gift recipients (DGR). We are on the final stretch!
If you missed the first two parts you can check out:
This part, part three, focuses more on the practical side of things and:
Let's get busy!
5.1 Overview
Many people working in, or wanting to establish, a NFP are convinced that the organisation must be endorsed as a DGR and that because the new entity is not-for-profit and is doing "good" things, obtaining such endorsement will be a matter of simply completing out and lodging some forms. While in some cases DGR endorsement will be granted on the basis of the application forms alone, it is often helpful to provide further submissions on why the organisation is entitled. Explanatory submissions and other supporting materials are particularly helpful if the purpose of the organisation and the way it pursues that purpose does not neatly fit squarely within the specified legal requirements or government policies. With this in mind, DGR endorsement can be more difficult to obtain than first expected.
It will come of know surprise for you to hear that we are ready and happy to help if you get a little stuck. Just get in touch.
5.2 Eligibility and application for endorsement as a DGR
Generally speaking, to be eligible for DGR endorsement, an organisation must:
In addition some DGR category types require the establishment and maintenance of a 'gift fund'. Keep an eye out for our article on this (coming soon) but in the mean time, you can see the ATO website for more on gift funds.
For the majority of DGR categories, the application is made to the ATO. However, some DGR categories such as harm prevention charities, cultural organisations, environmental organisations and overseas aid funds require applications to be made to specific Commonwealth Government departments first before applying to the ATO.
5.3 Where do I apply for DGR endorsement?
While DGR endorsement is assessed and determined by the Australian Taxation Office (ATO), since the establishment of the Australian Charities and Not-for-profits Commission (ACNC) in December 2012, a couple of additional pathways to DGR now exist. Where you apply and what forms you use will vary depending on which of the following scenarios apply:
The different processes are partly because once an Australian Business Number (ABN) has been used to register a charity with the ACNC, the same ABN cannot be used again through the ACNC's online portal and partly because the ACNC does not yet have interdepartmental arrangements in place with the other government bodies and agencies that administer some DGR categories.
5.4 Applying for DGR endorsement at the same time as registering as a charity
If your organisation is not yet registered as a charity, you can do so online through the ACNC's online application form by going to http://www.acnc.gov.au and following the 'Register my charity' link. This form, and accompanying guide, also enables you to apply for certain types of DGR endorsement and includes the facility to upload documents with the application.
The ACNC will pass on the DGR application component of the online form to the ATO. The ATO will then contact you if needed.
5.5 Registered charities applying for DGR endorsement as a public benevolent institution or health promotion charity
If you are already registered as a charity with the ACNC and you wish to apply for DGR endorsement as a health promotion charity (HPC) or as a public benevolent institution (PBI), then you will need to change your charity subtype with the ACNC. To change your charity subtype, you will basically need to go through the process of registering as a charity all over again, and this time provide the relevant information supporting why you should be registered as a charity under the PBI or HPC subtype.
If you happen to be an organisation that is endorsed as a PBI or HPC but only for income tax and FBT exemption purposes – that is, not as a DGR, then any application for DGR endorsement under these categories will need to be made through the ATO.
Information relating to DGR endorsement collected as part of the ACNC application process will be provided to the ATO. The ATO will then contact you if needed.
5.6 Applying for DGR endorsement under an ATO administered DGR category other than PBI and HPC
If your organisation is registered as a charity with the ACNC and wish to apply for the same organisation to be endorsed for the purpose of operating a fund (such as a school building fund), then you will need to apply to the ATO directly.
If however, you wish to establish a new entity (including a trust) to house the fund and this new entity will have its own ABN, then you can use this new ABN to apply for registration as a charity with the ACNC and apply for DGR endorsement at the same time as described at 5.4.
If you are a not-for-profit organisation that is not charitable then you can apply for endorsement direct with the ATO. Note however that many DGR categories require you to be registered as a charity with the ACNC to be eligible for DGR endorsement.
5.7 Applying for DGR under a category not administered by the ATO.
Certain categories of DGR are administered by other Government departments. Namely:
If you are applying for DGR endorsement under any of these categories then you will need to use the application forms and follow the guidelines provided by the relevant Government department.
5.8 Specific listing in the income tax law
If your organisation is not eligible for endorsement as a DGR under one of the pre-existing DGR categories, not all is lost!
While a long and winding path, you may decide that it is worthwhile pursuing DGR endorsement through a process known as 'specific listing' (also referred to as 'special listing').
As the phrase suggests, the outcome of 'specific listing' is the specific inclusion of your organisation's name in the relevant Commonwealth tax laws (namely the Income Tax Assessment Act 1997 (Cth)).
Because this pathway requires an actual amendment to the income tax act , it is often more of a political, than a legal, process and commonly takes in excess of 12 to 18 months. Even then, success is far from guaranteed.
Tip: The support of the Commonwealth Government minister responsible, through his or her respective portfolio, for the type of activities and purposes of the organisation seeking listing is often key to success. For example, an environmental organisation that has explored and exhausted all other DGR endorsement options and believes that, despite there being no DGR category relevant to its purposes, should be eligible for endorsement, is likely to need the support of the Commonwealth Government minister responsible for the environment.
5.9 Tips for DGR endorsement applications
While you might neatly meet the DGR criteria for which you are applying and might gain endorsement based on the forms and other required documents alone, we often recommend that you provide additional submissions by way of a cover letter. Such additional submissions should be provided particularly if:
It is often helpful for submissions supporting a DGR endorsement application to set out each of the criteria under separate headings. You can then address them one by one, including, where available and relevant, references to:
The purposes of your organisation are also key. But remember that it is not just what an organisation says it will do, it is what it actually does, that will directly affect whether it is granted endorsement and whether it lawfully maintains it. To avoid this situation, it is a good idea to:
Itis not so helpful to review the various categories and types of endorsement first and then change the organisation's purpose to fit the criteria for the identified endorsement.
It is one thing for you to, for instance, change the language used to express the purposes of the organisation to more closely align with the requirements of the DGR endorsement you are seeking. It is another thing altogether, and one that is ill advised, to adopt an approach that is inconsistent with your organisation's philosophy and desire for the sake of endorsement. If you follow the latter path and are granted endorsement, you could very well find yourself in breach of such endorsement as your organisation moves forward doing what it initially intended.
6.1 Overview
Many people working in, or wanting to establish, a NFP are convinced that the organisation must be endorsed as a DGR and that because the new entity is not-for-profit and is doing "good" things, obtaining such endorsement will be a matter of simply completing out and lodging some forms. While in some cases DGR endorsement will be granted on the basis of the application forms alone, it is often helpful to provide further submissions on why the organisation is entitled. Explanatory submissions and other supporting materials are particularly helpful if the purpose of the organisation and the way it pursues that purpose does not neatly fit squarely within the specified legal requirements or government policies. With this in mind, DGR endorsement can be more difficult to obtain than first expected.
It will come of no surprise for you to hear that we are ready and happy to help if you get a little stuck. Just get in touch.
6.2 Eligibility and application for endorsement as a DGR
Generally speaking, to be eligible for DGR endorsement, an organisation must:
In addition some DGR category types require the establishment and maintenance of a 'gift fund'. Keep an eye out for our article on this (coming soon) but in the mean time, you can see the ATO website for more on gift funds.
For the majority of DGR categories, the application is made to the ATO. However, some DGR categories such as harm prevention charities, cultural organisations, environmental organisations and overseas aid funds require applications to be made to specific Commonwealth Government departments first before applying to the ATO.
6.3 Where do I apply for DGR endorsement?
While DGR endorsement is assessed and determined by the Australian Taxation Office (ATO), since the establishment of the Australian Charities and Not-for-profits Commission (ACNC) in December 2012, a couple of additional pathways to DGR now exist. Where you apply and what forms you use will vary depending on which of the following scenarios apply:
The different processes are partly because once an Australian Business Number (ABN) has been used to register a charity with the ACNC, the same ABN cannot be used again through the ACNC's online portal and partly because the ACNC does not yet have interdepartmental arrangements in place with the other government bodies and agencies that administer some DGR categories.
6.4 Applying for DGR endorsement at the same time as registering as a charity
If your organisation is not yet registered as a charity, you can do so online through the ACNC's online application form by going to http://www.acnc.gov.au and following the 'Register my charity' link. This form, and accompanying guide, also enables you to apply for certain types of DGR endorsement and includes the facility to upload documents with the application.
The ACNC will pass on the DGR application component of the online form to the ATO. The ATO will then contact you if needed.
6.5 Registered charities applying for DGR endorsement as a public benevolent institution or health promotion charity
If you are already registered as a charity with the ACNC and you wish to apply for DGR endorsement as a health promotion charity (HPC) or as a public benevolent institution (PBI), then you will need to change your charity subtype with the ACNC. To change your charity subtype, you will basically need to go through the process of registering as a charity all over again, and this time provide the relevant information supporting why you should be registered as a charity under the PBI or HPC subtype.
If you happen to be an organisation that is endorsed as a PBI or HPC but only for income tax and FBT exemption purposes – that is, not as a DGR, then any application for DGR endorsement under these categories will need to be made through the ATO.
Information relating to DGR endorsement collected as part of the ACNC application process will be provided to the ATO. The ATO will then contact you if needed.
6.6 Applying for DGR endorsement under an ATO administered DGR category other than PBI and HPC
If your organisation is registered as a charity with the ACNC and wish to apply for the same organisation to be endorsed for the purpose of operating a fund (such as a school building fund), then you will need to apply to the ATO directly.
If however, you wish to establish a new entity (including a trust) to house the fund and this new entity will have its own ABN, then you can use this new ABN to apply for registration as a charity with the ACNC and apply for DGR endorsement at the same time as described at 5.4.
If you are a not-for-profit organisation that is not charitable then you can apply for endorsement direct with the ATO. Note however that many DGR categories require you to be registered as a charity with the ACNC to be eligible for DGR endorsement.
6.7 Applying for DGR under a category not administered by the ATO.
Certain categories of DGR are administered by other Government departments. Namely:
If you are applying for DGR endorsement under any of these categories then you will need to use the application forms and follow the guidelines provided by the relevant Government department.
6.8 Specific listing in the income tax law
If your organisation is not eligible for endorsement as a DGR under one of the pre-existing DGR categories, not all is lost!
While a long and winding path, you may decide that it is worthwhile pursuing DGR endorsement through a process known as 'specific listing' (also referred to as 'special listing').
As the phrase suggests, the outcome of 'specific listing' is the specific inclusion of your organisation's name in the relevant Commonwealth tax laws (namely the Income Tax Assessment Act 1997 (Cth)).
Because this pathway requires an actual amendment to the income tax act , it is often more of a political, than a legal, process and commonly takes in excess of 12 to 18 months. Even then, success is far from guaranteed.
Tip: The support of the Commonwealth Government minister responsible, through his or her respective portfolio, for the type of activities and purposes of the organisation seeking listing is often key to success. For example, an environmental organisation that has explored and exhausted all other DGR endorsement options and believes that, despite there being no DGR category relevant to its purposes, should be eligible for endorsement, is likely to need the support of the Commonwealth Government minister responsible for the environment.
6.9 Tips for DGR endorsement applications
While you might neatly meet the DGR criteria for which you are applying and might gain endorsement based on the forms and other required documents alone, we often recommend that you provide additional submissions by way of a cover letter. Such additional submissions should be provided particularly if:
It is often helpful for submissions supporting a DGR endorsement application to set out each of the criteria under separate headings. You can then address them one by one, including, where available and relevant, references to:
The purposes of your organisation are also key. But remember that it is not just what an organisation says it will do, it is what it actually does, that will directly affect whether it is granted endorsement and whether it lawfully maintains it. To avoid this situation, it is a good idea to:
It is not so helpful to review the various categories and types of endorsement first and then change the organisation's purpose to fit the criteria for the identified endorsement.
It is one thing for you to, for instance, change the language used to express the purposes of the organisation to more closely align with the requirements of the DGR endorsement you are seeking. It is another thing altogether, and one that is ill advised, to adopt an approach that is inconsistent with your organisation's philosophy and desire for the sake of endorsement. If you follow the latter path and are granted endorsement, you could very well find yourself in breach of such endorsement as your organisation moves forward doing what it initially intended.
After submitting an application for DGR endorsement it would be very rare indeed for the next communication to be a rejection letter.
In our many years of experience we can safely say that the usual path is for the relevant Government department to contact you for additional information to expand or clarify what you have provided. This means that in most cases you will be given the opportunity to flesh out your application and to bolster any areas that the assessor may feel are week or unclear.
While receiving a "yes" right out of the gate is what you are hoping for, don't worry if you are asked to provide additional information - many organisations are asked to do this, not just you!
Tip: Shift a request for further information to your favour. By carefully considering what the assessor is asking for, you can get an insight into what the concerns might be and can therefore take extra care to alleviate those concerns in the next round of your submissions.
If, having been through the information gathering process, your application is declined (or rejected), don't worry. it is not the end of the road.
Tip: If your application is declined, try to look at things objectively (or seek advice). On balance, it may well be that you are not eligible for DGR endorsement in which case, you will need to soldier on without it – which many charities do. There may also be an opportunity to isolate/ring-fence a portion of what you do and to be endorsed as a DGR for the operation of this particular part of your organisation.
Feel free to reach out if you would like help with reviewing an application that has been declined. We would love to help!
If, having carefully considered the reasons why your application has been declined, you would like to appeal the decision, then you have an escalating set of options. While the exact process and protocol will vary depending on which Government Department you are dealing with, your options are likely to be:
The information provided by the ACNC on the review and appeal of decisions is rather good and is relevant in the context of DGR if you are applying for endorsement as a public benevolent institution or a health promotion charity. Check out the ACNC website on decisions and appeals.
And that, as they say, is a wrap! What started out as a little intro article as morphed into a rather substantial guide. We hope you enjoyed the journey and learnt a thing or two along the way!
Feel free to share your thoughts and comments below. You can also contact us if you have any questions.
You can find out more about Darren Fittler here.
