Background

While ordinary charities can issue tax-deductible receipts in the United States, Canada, and the United Kingdom, in Australia, it is quite different. Australia has been very selective about which organisations are eligible for donation tax-deductibility, and mere charity status won’t usually suffice.

The Deductible Gift Recipient (DGR) endorsement in Australia is usually available only for 52 discrete categories, such as public welfare, the environment, cultural activities, school buildings, public libraries, or necessitous persons.

This has resulted in organisations that pursue broad purposes, establishing and operating multiple DGR-endorsed entities to fit the discrete tax-deductible categories. This adds to costs and paperwork for the organisation and for government regulators.

A common example is a school that is a charity. Schools are not usually a DGR. They will often operate a school building fund, a scholarship fund, a public library fund and a necessitous person fund.  Each has its own rules, management, financial reporting, costs and risks for the school to juggle.

Another example is what is known as “ancillary funds” (foundations), and the restrictive Australian laws require them to be ‘giving’ rather than ‘doing’ organisations. They can provide grants to other DGR-endorsed organisations (such as those engaged in poverty relief), but they do not operate a soup kitchen themselves.  Some community foundations wanted to both make grants to others and conduct related activities themselves for the public benefit of their communities.  They were also prevented from receiving grants from other foundations.  Their advocacy has been heeded, and the law has been altered to allow them to “walk and chew gum” at the same time.

Amendments made in mid‑2024 to the Income Tax Assessment Act 1997 (Cth) (ITAA97) created a new class of DGR, to be known as ‘community charities’.

From July 2024, a community charity trust or corporation may apply to be endorsed as a DGR. These not-for-profit entities have broad purposes and can engage in a range of activities across other DGR general categories.

Steps to becoming a community charity

A community charity trust or corporation must be specified in a ministerial declaration that is in force to become eligible for DGR endorsement.

This is achieved by submitting a written proposal to the Treasury, which receives these requests and forwards them to the appropriate Ministers for consideration.

These approvals have taken some time, but the first have been approved. The full list is available here https://ministers.treasury.gov.au/ministers/andrew-leigh-2025/media-releases/boosting-support-australian-charities?apcid=0063926427d197da4eff1200&utm_campaign=20250226_ml-government-res&utm_content=20250226_ml-government-res&utm_medium=email&utm_source=ortto

The approved organisation must also agree to comply with the Community Charity Guidelines before the ATO registers it as a DGR.

Ongoing requirements

Community Charities have ongoing requirements that are different from other DGR organisations, such as:

  • complying with the Community Charity Guidelines 2025,
  • making a minimal annual distributions, and
  • submitting an annual financial year return (even if tax exempt).

So What?

The government has responded to community foundation advocacy to provide a new DGR category that allows them, within one organisation, to both make grants and carry on their own DGR activities.

This continues Australia’s very specific selection of organisations that receive donation-deductible status and does not provide relief to other categories of charities, such as schools. A widening of the deductibility status to all charities would overcome this issue and significantly reduce the compliance costs for both charities and regulators.

Such organisations will be able to receive funds from private and public ancillary funds (foundations) that were not previously permitted.

More regulation accompanies the status, including an annual return to the ATO and compliance obligations and risks under the Community Charity Guidelines 2025.