The Federal Government introduced the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 (the Bill) to Parliament. The Bill, amongst other things, proposes the creation of a new deductible gift recipient (DGR) category for “community charity funds.”
The Bill (and the exposure draft that came before it for consultation) follow on from the Federal Government’s commitment in the 2022-23 October Budget and the 2023-24 Budget to list 28 ‘community foundations’ (associated with Community Foundations Australia) as DGRs as “community charity funds,” subject to ongoing endorsement by the Commissioner of Taxation and new ministerial guidelines.
Why does this matter?
For context, under current taxation laws, a charitable organisation has two ways to become a DGR:
- the organisation fits within a pre-existing DGR category, which is already set by legislation, or
- the organisation can be specifically listed by name. To do so, Parliament must amend taxation laws to include the organisation by name. The decision to list an organisation as a DGR is only made in exceptional circumstances by Federal Government.
However, for some charitable organisations, neither of these existing pathways may be suitable or achievable. For instance, a charitable organisation may want to undertake a number of charitable activities. Each may fall within a DGR category, but due to the existing pathways, it must choose to pursue only one (or establish multiple charities).
The Government had also recognised that, the specific listing regime has a low level of regulatory oversight and lacks appropriate compliance or governance infrastructure.
The Bill provides a new pathway for such charitable organisations to obtain DGR status. This is achieved by applying to the relevant Minister to be ‘declared’ a ‘community charity fund,’ thereby enabling the fund to apply for DGR endorsement as a ‘community charity fund’.
By being a ‘community charity fund’, it also enables the fund to be subject to regulatory oversight and compliance, unlike organisations that are listed.
What is a “community charity fund?”
Under the Bill, an organisation may be classified as a “community charity fund” if it is operated or established for the following two mandatory purposes:
- to provide money, property or benefits to a fund, authority or institution where gifts to such fund, authority or institution are tax deductible (i.e. DGRs) and the gifts provided must be for any of the purposes for which the DGRs may receive funds; and
- to engage in an activity that is the principal activity or involves pursuing the principal purpose of a fund, authority or institution that falls within one of the recognised DGR categories.
In terms of a compliance framework, the Bill empowers the relevant Minister to create guidelines in relation to community charity funds. It provides a regime for administrative penalties and the suspension, removal and replacement trustees or directors of community charity funds for non-compliance.
Under the Explanatory Memorandum to the Bill, these guidelines “…ensure community charity funds have robust governance arrangements, are properly accountable and act in a manner consistent with public expectations of philanthropic organisations.”
How is this pathway different from public or private ancillary funds (PAF)?
Under both Private Ancillary Fund and Public Ancillary Fund Guidelines, the only permittable purpose of a PAF is to provide money, property or benefits to other DGRs.
A PAF is not permitted to undertake actual charitable activities. As such, a PAF has to be selective in what DGRs it wishes to donate to, to best suit the PAF founder’s philanthropic endeavours and desired objectives.
The benefit of being a ‘community charity fund’ is that it can undertake charitable activities. This gives it full control over those activities and it isn’t solely reliant on funding other DGRs to carry out desired activities. Arguably, a community charity fund has the flexibility of doing both – engaging in activities and donating to other causes.
An additional benefit of being a ‘community charity fund’ is that it can engage in any number of activities within the one organisation, so long as each of those activities fits within a DGR category. These may include (for instance) operating a school building fund, a scholarship fund, relieving individuals in necessitous circumstances, engaging in animal welfare and undertaking volunteer-based emergency service activities – all in the same fund, without having to establish separate organisations or funds for each activity.
The Bill has been introduced by the Federal Government to Parliament on 13 September 2023. On 19 October 2023, the Senate referred the Bill to the Economics Legislation Committee for inquiry and report by 23 November 2023.
We’ll watch this space.
In the meantime, the two existing pathways to obtain DGR endorsements remain in place.
Coleman Greig can assist clients with respect to DGR endorsements under a number of categories, including PAFs, public benevolent institutions and environmental organisations, to name a few.
If you wish to explore these current pathways further, please contact Coleman Greig’s Commercial Taxation Advice team.