DGR Frequently Asked Questions (FAQs)
The following outlines some frequently asked questions and answers about deductible gift recipient status.
1. What should our organisation do if a donor wants to donate funds for something specific?
This may happen, for example, if a donor wants to pay the venue hire cost for an event your organisation is holding, but they would like you to pay the invoice and then they will donate that amount to your organisation (like a reimbursement).
The first thing to consider is whether the payment satisfies the ATO's definition of a 'gift'. If the payment is not a gift, it does not attract a DGR tax deduction, and GST may apply if your organisation is registered for GST.
To be a gift:
- it must be given voluntarily;
- the donor (person or organisation giving the gift) must not receive a benefit in return for the gift, unless it is unexpected, or of insignificant value and of no utility (something of insignificant value would be a sticker or lapel badge in acknowledgement of the gift - for more details see links at the end of this FAQ);
- the organisation receiving the gift should benefit. This means there should be no material obligations or other conditions that the organisation must meet in order to receive the gift. The organisation should not be contractually required to use the payment in a specific way.
In situations like the example above you need to be very cautious. The money may not be viewed as a gift because of the conditions attached. And remember, if the donor doesn't donate the money they have pledged, there is nothing you can do about it (and you may have already paid the venue hire). It is preferable for the donor to give the money to your organisation upfront as a gift. If the donor is a business, another option is for them to sponsor the event and claim the sponsorship as a business deduction (the sponsor organisation should get specific legal advice on how to treat the sponsorship for tax purposes).
2. My organisation has received a donation of goods. Should we issue a receipt and if so, what should it say?
If a payment is truly characterised as a gift (see above), it will be both tax deductible and GST free. A tax deductible receipt can only be issued to a donor for gifts which are within one of the Australian Tax Office's (ATO) Gift Types (for more information see links at the end of this FAQ). A donation of goods is likely to be one of the ATO's 'gift types' if:
- it was purchased in the last 12 months and cost more than $2 (the amount of the gift is either the market value of the goods on the day the gift is made or the amount paid by the donor for the goods, whichever is the lowest); or
- it is valued by the ATO at more than $5,000 (see the Australian Valuation Office link at the end of this FAQ).
Other 'gift types' include money ($2 or more) and trading stock. If you have read the ATO's guide to 'gift types' and are not sure if your situation is covered, you can call the ATO's not-for-profit help line on 1300 130 248.
Although DGRs are not required by tax law to issue receipts for tax deductible gifts, the issuing of receipts does assist donors with the preparation of their tax returns and in case their claims are checked by the ATO. If you do issue a receipt you must include the following information:
- the name of the fund, authority or institution to which the gift has been made;
- the DGR's Australian business number (ABN); and
- that the receipt is for a gift.
You have the option to provide additional information for donors including:
- the amount of money donated;
- a description of the gift if it was property; and
- the date of the gift.
The receipt should only include a description of the goods, not a value, if the gift was property (rather than money). The amount claimed by the donor, if any, is determined by the donor or the ATO. It is best to leave it to them to assign a value. You can write on a receipt what the value assigned by the donor is, but you would need to make it very clear that it is not your organisation assigning a value. If the donor wants your organisation to assign a value, you will need to get professional advice (unless the donor is gifting listed shares which you can assign a value to as of a particular time).
3. My organisation has just received DGR status. Do we need to tell current donors?
There is no legal requirement to ask donors to complete a new donation form once your organisation has DGR status. However it might be a good idea, if resources allow, to write to donors and tell them that you have been endorsed by the ATO as a DGR and that 'donations of $2 or more are now tax deductible'. You should also check for any updates which may be required on your donation form (eg. details of a public fund set up to receive tax deductible donations). You should also check details on receipts which are automatically issued by banks to donors so that they comply with the requirements for receipts (discussed above).
4. What is a public ancillary fund and how do I go about setting one up? What about a necessitous circumstances fund?
These are specialised types of DGR funds.
A public ancillary fund is a way of channelling gifts to other DGRs. It must be exclusively for the purpose of providing money, property or benefits to DGRs or the establishment of DGRs and must not carry on any other activities. If your organisation wants to establish a public ancillary fund to channel gifts to other organsations it is important to check whether those organisations have DGR status before you establish the fund.
A public ancillary fund is different to a private ancillary fund which does not fundraise from the general public (for more information about private ancillary funds see link at end of this FAQ).
A public ancillary fund can only give to DGRs which are not themselves ancillary funds. Also, other ancillary funds will not be able to donate to your ancillary fund. This means that most philanthropic foundations won't be able to donate to your fund, as most philanthropic foundations are also public ancillary funds. You can find out whether a foundation is a public ancillary fund by looking it up on the Australian Business Register (see link at the end of this FAQ). It is therefore important to have funding sources other than philanthropic foundations, otherwise a public ancillary fund may not be right for you.
A necessitous circumstances fund is a public fund established and maintained for the relief of people in Australia who are in necessitous circumstances. The expression 'necessitous circumstances' refers to financial necessity. It does not mean 'needs' generally. Accordingly, the needs of the sick, incapacitated, aged, etc will not, on their own, constitute necessitous circumstances. Necessitous circumstances involve some degree of poverty. A person will be in necessitous circumstances where their financial resources are insufficient to obtain all that is necessary for a modest standard of living in the Australian community.
The common method of relieving necessitous circumstances is by direct distributions of money or goods to the person. However, even though a necessitous circumstances fund can give to an individual, you need to be clear that the fund is for the relief of their particular circumstances, and not held on trust for named individual(s).
Philanthropic foundations which are endorsed by the ATO as public ancillary funds cannot donate to other ancillary funds, but they can donate to a necessitous circumstances fund.
Both public ancillary funds and necessitous circumstances funds must be a 'public fund'. There are specific legal requirements for public funds, for example the public must be invited to contribute and must actually contribute to the fund, and there must be a majority of 'responsible persons' administering the fund (for further details see links at the end of this FAQ). In addition, an ancillary fund must be set up under a will or trust deed, and must meet the requirements of Australian laws about trusts and the ways they can invest and distribute money. You will need to seek specific legal advice in order to set up a trust deed that complies with the ATO's requirements.
5. Our organisation has DGR status, can we auspice an organisation that does not have DGR status?
A common scenario is where a not-for-profit organisation with DGR status (ABC Inc) is approached by another not-for-profit organisation (XYZ Inc) to auspice their project because XYZ Inc does not have DGR status. This might mean that ABC Inc receives funding from donors for a particular project and then contracts XYZ Inc to deliver the project.
You need to be very cautious about auspicing arrangements, as they may put your DGR status at risk. Fundraising money can only be passed through a DGR if the project being funded is within that organisation's purposes and the requirements of its DGR approval. You should ask, 'Is this something our organisation would be willing and able to do itself?'. You also need to check your organisation's rules in case the rules prevent your organisation entering into arrangements with (or funding) other organsations. Peak bodies with DGR status may be able to operate funds which channel money to not-for-profit organisations without DGR status if it is part of their objectives to operate such a fund and the ATO approved this.
You will need to know the specific details of how the organisation you are auspicing will use the DGR funds. If you are audited by the ATO, you may lose your DGR status if it is found that the auspicing arrangement is:
- outside your organisation's objectives ; or
- outside the endorsement criteria for your organisation's DGR category (eg. Public benevolent institution)
You should be particularly cautious about auspicing an organisation without DGR status that is known for its campaigning / lobbying activities - if this is the case, we recommend getting specific legal advice from a tax lawyer.
If you decide to go ahead with the auspicing arrangement, it is recommended that you sign an auspicing agreement which sets out the respective rights and responsibilities of each party, as well as who has control and ownership of any funds / property. You will also need to make sure that you are working together, for example it may be useful to have someone from your organisation sit on the auspiced organisation's board.