Tax Files: DGRs that are not already charities – By Paul Ingram

DGRs that are not already charities

PAUL INGRAM, SENIOR LEGAL COUNSEL, MINTERELLISON

Most of the general Deductible Gift Recipient (DGR) categories in Division 30 of the ITAA 1997 require the relevant fund, authority or institution to be: • a Registered Charity (ie. with the

ACNC); • an ‘Australian Government Agency’; or • operated by a Registered Charity or

Australian Government Agency before they can apply for endorsement as a DGR.

But there were 11 general DGR categories that were not subject to this requirement, namely: • public funds for hospitals (item 1.1.3); • public funds for public ambulance services (item 1.1.8); • public funds for religious instruction in government schools (item 2.1.8); • Roman Catholic public funds for religious instruction in government schools (item 2.1.9); • school building funds (item 2.1.10); • public funds for rural school hostel buildings (item 2.1.11); • approved research institutes (item 3.1.1); • necessitous circumstances funds (item 4.1.3); • REO funds – ie. public funds on the Register of Environmental

Organisations (item 6.1.1); • ROCO funds – ie. public funds on the Register of Cultural Organisations (item 12.1.1); and • fire and emergency services funds (item 12A.1.3).

However, as a result of the Treasury Laws Amendment (2021 Measures No. 2) Act 2021 (Amending Act), which received Assent on 13 September 2021, these 11 categories will now also be subject to the same requirement.

The change takes effect from 13 December 2021, being 3 months after the date of Assent, but is subject to some important transitional measures (explained below).

AUTOMATIC 12-MONTH GENERAL TRANSITION PERIOD FOR EXISTING DGRS

All existing non-government DGRs will have 12 months (ie. until 13 December 2022) to become a Registered Charity.

This will give affected DGRs time to: • review their Constitutions, and their entitlement to charity status generally; • effect any required changes; and • apply to the ACNC for registration.

Affected DGRs who do not comply with the new requirement will lose their DGR status as at 13 December 2022, unless they have obtained an ‘extended application date’ under the next transitional measure.

DISCRETION TO GRANT A THREE-YEAR EXTENSION

Affected DGRs can also apply to have an ‘extended application date’ (being 13 December 2025).

Applications for this measure have to be made by 13 December 2022, and will be granted at the Commissioner’s discretion. Before that discretion can be exercised: • the Commissioner must be satisfied that the following ‘prescribed’ criteria are met: ◦ there has been no change in the applicant’s circumstances that would affect its entitlement to DGR endorsement (but for these amendments); ◦ the applicant has never had an application for registration under the ACNC legislation refused; and ◦ the applicant has never had its registration under the ACNC legislation involuntarily revoked; and • the Commissioner must also have regard to certain ‘prescribed matters’, namely: ◦ whether the applicant has taken steps to satisfy the requirements for registration as a charity, to apply for registration, and to provide all required information; ◦ whether it is reasonably possible that the applicant will be able to satisfy the requirements for charity registration by 13 December 2025; ◦ if the applicant believes that it is unlikely to satisfy the requirements for charity registration by 13 December 2025 – whether it is

reasonable for the applicant to be given additional time to wind up and distribute surplus assets; and ◦ any views expressed by the ACNC

Commissioner about the above matters.

OUTSTANDING DGR APPLICATIONS AS AT 13 DECEMBER 2021

Where an organisation has made an application to the Commissioner for endorsement under one of the affected DGR categories prior to 13 December 2021, and the application has not been determined by that date, that organisation will qualify for both the 12 month general transition period and the three year extended transition period.

However, it appears that REO and ROCO applications are a special case: • these applications involve a two-step procedure: ◦ approval by the relevant Minister; and ◦ endorsement by the Commissioner; • the ATO position appears to be that if the first of those steps (Ministerial approval) has not been satisfied by 13

December 2021, then the applicant will not be entitled to any transitional relief (and will presumably have to apply for

Charity Registration before the REO/

ROCCO application will progress); • however, if the first step (Ministerial approval) has been satisfied by 13

December 2021, but the application for endorsement has not been determined by the Commissioner by that date, then both transitional measures will presumably apply.

APPLICATIONS MADE AFTER 13 DECEMBER 2021

Organisations applying under one of the affected DGR categories after 13 December 2021 will need to comply with the new requirement before their application can proceed.

Tax Files is contributed by members of the Taxation Committee of the Business Law Section of the Law Council of South Australia. B