Ah, everyone’s favourite subject – tax! Don’t fret – it is not all that complicated.
The Australian Tax Office (ATO) used to be the responsible body for all things gift related when we talk about tax deductible gifts and deductible gift recipient status (DGR). It is the main body which decides which not for profit organisations can provide a tax deductible receipt (I will talk about ROCO – the Register of Cultural Organisations later), and sets the rules and standards about what constitutes a gift.
When I say “used to be” that’s because this post was originally written in 2010 before the advent of the Australian Charities and Not for Profits Commission (ACNC). I am updating this post because even though most charitable registrations now go through the ACNC – understanding the ATO is still important. While the ACNC determines charitable status, they still liaise with the ATO in relation to DGR.
I hear you asking “what do you mean what constitutes a gift – a gift is a gift right?”. Well – actually – not always. Sometimes a gift can look like a gift, feel like a gift, smell like a gift, but actually be a sponsorship – and the line between is very very grey.
So: The Income Tax Assessment Act 1997 which is the piece of legislation on which our gift rules are based does not define a gift. The general definition as determined by the courts in interpreting – TR 2005/13 is as follows:
there is a transfer of the beneficial interest in property;
the transfer is made voluntarily;
the transfer arises by way of benefaction;
and no material benefit or advantage is received by the giver by way of return.
There are several major gift types as defined by the ATO – and this means gifts for which an organisation can issue a receipt, and which the donor can claim in their tax. The best place to start is with the ATO website in their non-profit section.
The ATO defines “gift types” for which a tax deductible receipt can be issued – cash, property, shares, trading stock or cultural gifts. This can be quite convoluted and unfortunately they don’t have any simple fact sheets – but they used to have a Gift Pack for Non Profits as well as a fundraising guide – Tax Basics for Non Profits which can help with the maze of exceptions to the rules, and understanding the implications of fundraising events and fundraising auctions.
How do we know which organisations can issue a tax deductible receipt?
There is a helpful website called ABN Lookup which provides the tax and charitable status of every organisation with an ABN in Australia.
If you type in the name of a preferred recipient – for example – The Australian Ballet – you will see that it refers to the organisation as a Charitable Institution in its tax concession status and also notes it is a deductible gift recipient. An organisation can be endorsed as a DGR as a whole – or for specific purposes or funds – ie a building fund, a library fund. Some organisations such as local councils will not have full DGR but are endorsed for their museums and art galleries (which takes me back to cultural gifts and the Register of Cultural Organisations – for when I get up to R).
Back to the ATO – I won’t be able to give a comprehensive how to in this one post – it is a subject which has been years in the making and is still fraught with different interpretations depending on how strict your lawyers and accountants are.
Usually the important thing to note is that if you are a recipient, such as an arts organisation, an educational institution or an individual using a conduit such as the Creative Partnships Australia Australia Cultural Fund what you need to remember is that deductible gift recipient status is a privilege and not a right – and that if there are infringements or blurring of the lines, the ATO may consider revoking the DGR status.
What would be the outcome of this? While studies have shown countless times that a tax deduction is not the main driver and motivator of many donors, a tax deduction is a welcome (and allowable) benefit – and the endorsement of the Australian Tax Office in conferring DGR status is seen by many as legitimising that organisation’s ability to ask for funds through philanthropic support.
DGR status is also incredibly important for organisations who seek funds through trusts, foundations and private ancillary funds, most of whom have written into their constitutions that they can only distribute their largesse to organisations with both DGR and Tax Charitable Concession status (TCC) (more on this later also).
The best advice I can give you in dealing with DGR is to consider it a precious status handed to your organisation – so be careful in using it and don’t squander it by offering your donors material benefits. If you want to reward them for helping your organisation perhaps you should consider treating them as sponsors.
For a very good introduction to tax and DGR for arts organisations I would suggest you look at a publication put together more than six years ago by Artsupport (at the Australia Council) which they called: An arts guide to philanthropic gifts and tax: the dry stuff. I know there must be something wrong with me because I don’t find it dry.
Let me know what you think of the ATO in relation to gifts and how you have navigated your own DGR status through the ACNC.
It is a topic which warrants a great deal more discussion because so few people feel comfortable and think it can only be addressed by accountants and lawyers, but my view is that the more people who work in not for profits who understand how it works, the better they can communicate with their potential donors about support, fundraising and how to go about addressing their needs.
If you have particular questions, case studies or examples shoot them through and we will see how we go dissecting them.