Are you tax deductible?
The most common question for charities is whether they are tax deductible.
Having deductible gift recipient (DGR) status can be very rewarding and beneficial to a company. But, along with the benefits, there are a number of different compliance rules and ongoing obligations required to maintain and properly give effect to your DGR status. We set out some of the key requirements and compliance information for DGR charities.
A DGR is an entity or fund that can receive tax deductible gifts. Not all charities are eligible for DGR status. The ATO ultimately decides on whether to award DGR endorsement. Some DGR categories require registration with the ACNC first.
Benefits of DGR status: There are various benefits of being endorsed as a DGR charity. First, DGR entities can issue tax deductible receipts to its donors, making it a more financially attractive charity. Donors are likely to give greater amounts than they otherwise would, due to the associated tax savings arising out of their donations.
Furthermore, DGR entities are able to receive funds from certain grant makers and philanthropic bodies, which are only able to give money to organisations that have DGR status.
DGR entities have various tax concessions available to them. As a general rule, a DGR entity is also entitled to a full GST concession on any purchase is makes. In addition, gifts to not-for-profit organisations are GST exempt. Finally, charities registered with the ACNC are exempt from paying income tax.
However, the above benefits also come with extra rules and ongoing obligations of compliance for those charities endorsed with DGR status.
Deductible Gift fund management: a number of rules apply to the use of DGR funds including:
- a DGR fund must operate through an independent bank account;
- donations are only tax deductible if they are donated to the DGR fund bank account to carry out the objectives of the DGR fund;
- assets may only be distributed by a DGR fund for the purpose of advancing the charitable objects of the fund; and
- if a DGR fund is wound up, surplus assets are to be distributed to a DGR fund with a similar purpose.
Receiving gifts: there are also rules in place with respect to the receiving of gifts by a DGR fund:
- a donation is only considered to be a tax deductible gift if the donor transfers money or certain property and does not materially benefit from the gift;
- a minimum of $2 must be donated to claim a tax deduction;
- as a general rule, the donation of property may be considered a tax deductible gift provided that the market value of the property exceeds $5,000;
- where a gift is donated for more than one purpose, the donor is required to specify the extent to which the gift applies to the purpose of the DGR fund; and
- the following are not considered gifts because the donor receives a benefit in return:
- providing a service;
- membership fees;
- items purchased at a charity auction;
- purchase of raffle tickets; and
- the cost of attending a fundraising event.
Issuing Tax Deductible receipts: a tax deductible receipt is issued by the DGR fund in return for a deductible gift. The following information must be included in a tax deductible receipt for a gift:
- the name of the fund to which the donation has been made;
- the ABN of the DGR fund; and
- the fact that the receipt is a tax deductible gift receipt.
Moisson Laweyrs are specialists in the Charity and Not-for-profit sector. If you are seeking to be apply for DGR endorsement, or are already a DGR entity and require advice surrounding compliance obligations, we can help you. Get in touch with our expert team of charity lawyers today for all your charity advice and needs!