Tax Deductible Charities (DGR) Guide

At the end of every financial year during June, many Australian charities see an influx of gifts and potential new donors. As a donor you have the opportunity to reduce your tax liability and turn it into benevolent action. Some employers may offer this benefit through workplace giving. For an example of the benefit for giving to tax deductible charities in 2024-2025, see the table below.

Table 1. How much will your DGR donation cost you in 2024 – 25?

However, not all charities are considered equal when it comes to tax; approximately 60 per cent of charities are not tax deductible charities and some are even taxed on the income they generate (ATO, 2014). Giving Guide does not endorse individual charities and claims no liability for their governance, financial and charitable practices. We provide a public service helping donors find charities. If tax deductibility is important to you, make sure you know what type of tax endorsements a charity receives and tax benefits it can provide.

Deductible Gift Recipient Status and Types

When looking to reduce your tax liability the most important tax endorsement to assess is a charity’s Deductible Gift Recipient (DGR) status. There are three main DGR endorsements, with different clauses and conditions applying to each type.

• Item 1 includes funds, authorities or institutions serving a range of causes such as health, education, research, welfare, rights, defence, environment, industry, sports, families, international affairs, culture, emergency services and philanthropy. If the donation is greater than $2 you are entitled to deduct the amount from your assessable income (ATO, 2022).

• Item 2 refers to ancillary funds, set up for the establishment of a DGR, or providing money, property, or benefits for DGRs falling under the Item 1 category. Similarly, if the donation is greater than $2 you are entitled to deduct the amount given.

• Item 4 describes funds, authorities and institutions endorsed to receive donations of property through the “Cultural Gifts Program”. Generally, you can deduct the average of the Goods and Services tax (GST) inclusive market value in an approved written valuation.

A complete list of DGR Items, endorsed causes, explicitly endorsed charities and terms and conditions are identified in the Income Tax Assessment Act 1997.

Examples

DGR status may apply to an organisation entirely, or to a specific fund. It is important to know that DGR entities can only apply your donation for the principal cause to which DGR status was given. For example, if a school is endorsed as a DGR for its new building fund, only donations intended for the building fund are considered deductible. Donations to the school’s year seven netball team or to the school in general would not be deductible. If the school was DGR endorsed as a whole, any donations towards the netball team, building fund, or in general would be tax deductible.

Thanks to Item 2, a NFP may still be able to offer tax deductible giving despite not being endorsed as a whole. Through establishing an ancillary fund and upon successful DGR endorsement, the NFP may facilitate tax deductible giving through appeals under that ancillary fund. The funds can then be distributed to an Item 1 DGR which fulfills a similar purpose to the NFP. For example, a DGR Item 2 ancillary fund is set up to relieve homelessness but is not endorsed as a tax deductible charity. For a donation to this fund to be tax deductible, the fund must apply the donation through a homelessness focused NFP with DGR Item 1 status.

Recent Reform

Since December 2021 DGR status is no longer granted to Not-for-profits (NFPs), except for Government DGRs. To retain DGR status NFPs are required to register as a charity, except for ancillary funds or DGRs specifically listed in tax law. Examples of Government (Commonwealth, State or Territory) DGRs include local government councils, government schools, government authorised emergency services, environmental organisations authorised or controlled by government and even arts/cultural organisations authorised or controlled by government (ATO, 2021).

Once DGR endorsed, organisations can receive funds from certain grant makers and philanthropic bodies that are reserved for DGR organisations (Not-for-profit Law, 2021).

Conclusion

Beyond tax concessions there are plenty of other considerations that go into the decision to support a charity. You may prefer to volunteer rather than donate for example, and you may wish to investigate if the charity has a history of enforcement actions or warnings given by the Australian Charities and Not-for-profits Commission. For more general tips on finding a charity see our article “10 Things to Check Before Donating to a Charity”.

 

Deduce differences in your deductible donations,

Guide

 

The information is provided ‘as is’. Whilst all reasonable effort is made to ensure the accuracy and integrity of the information, Giving Guide does not warrant, endorse, provide any assurance, or represent in any way that the information provided is accurate or free of error, nor regarding the suitability of the information for any purpose it may be used for.

For further information visit the ATO website, follow the suggested not-for-profit link or see the Australian Business Register (ABR).

 

References

Australian Taxation Office. (2014). Tax basics for non‑profit organisations. Retrieved June 06, 2022 from https://www.ato.gov.au/uploadedfiles/content/sme/downloads/nonprofit16966tax_basics_for_non_profit_organisations.pdf pg 38

Australian Taxation Office. (2017). Claiming tax deductions. Retrieved May 10, 2022 from https://www.ato.gov.au/Non-profit/Gifts-and-fundraising/Claiming-tax-deductions/

Australian Taxation Office. (2021). Explanation of terms. Retrieved June 14, 2022 from https://www.ato.gov.au/Non-profit/Getting-started/In-detail/Types-of-DGRs/DGR-table/?page=14#Australiangovernmentagency

Australian Taxation Office. (2022). Definitions. Retrieved June 14, 2022 from https://www.ato.gov.au/Definitions/#D

H&R Block. (2017). The Ultimate Guide to Tax Deductions in Australia. Retrieved June 06, 2022 from https://www.hrblock.com.au/tax-academy/guide-tax-deductions-in-australia

Not-for-profit Law. (2021). Guide to deductible gift recipient status. Retrieved June 06, 2022 from https://content.nfplaw.org.au/wp-content/uploads/2022/04/Guide-to-Deductible-Gift-Recipient-Status.pdf pg 9

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