DGR Reform Lacks Clarity of Purpose

Community organisations have raised concerns that the government has not set a policy goal for Deductible Gift Recipient reform and has “largely ignored” the benefits of encouraging DGR giving.

In a draft submission in response to the Treasury Discussion Paper on Tax Deductible Gift Recipient Reform Opportunities, the Community Council Australia said members were concerned the paper left “the fundamental question of what is the policy goal of DGR eligibility processes” unanswered.

The submission called on the government to “make a clear definitive statement” about the benefit of increasing DGR contributions, and frame any reform of DGR within a context that “explicitly acknowledges the benefits as well as possible costs, and states the purpose of providing DGR status is enhancing our communities.”

CCA CEO David Crosbie told Pro Bono News that while CCA agreed the current regulations were overdue for reform, members were concerned over the lack of policy goals in this space.

“Charities are becoming increasingly frustrated that they are being asked by governments to account for their outcomes, to demonstrate how they deliver on their purpose, yet some areas of government seem completely oblivious to the need to be clear about their policy goals or to provide any indication of what outcomes they will use to show the policy has or has not succeeded,” Crosbie said.

“The Treasury Discussion Paper on DGR is a classic example of this omission.”

The comments come in response to a paper published by the treasury in June, that sought to examine the governance of DGRs and the complexity of DGR application processes.

Included in a number of reforms the paper recommended an increased role for the Australian Charities and Not-for-profits Commission whereby all DGRs could be required to be charities registered and regulated by the ACNC.

It also recommended removing public fund requirements and transferring the administration of the four DGR registers to the ATO.

According to the report the aim was “to strengthen the DGR governance arrangements, reduce administrative complexity and ensure that an organisation’s eligibility for DGR status is up to date”.

CCA said the charities and not-for-profit sector wanted to work with government to reduce red tape while improving transparency and accountability.

But CCA said the discussion paper seemed to imply that foregone revenue through tax concessions afforded by DGR status were a cost to government, rather than a benefit.

“It suggests charities receive ‘generous’ concessions resulting in government losing significant revenue. There is no acknowledgement that the level of DGR benefit is entirely dependent upon the level of community support for DGR organisations,” the draft submission said.

“The Treasury Discussion Paper extrapolates the real cost to government of DGR concessions based on an assumption that every dollar given to a DGR charity or other organisation would otherwise have been taxable revenue.

“This assumption is compounded by the failure to factor in the significant transfer costs of having government collect, administer and redistribute funds back to the community.  The implication that every dollar given to a DGR charity represents a loss in revenue is grossly inflated.”

CCA drew comparisons with the way the charity sector was treated compared to business.

“Governments never suggest that money used to employ people in businesses (and therefore written off as non-taxable expenses) represent a generous concession to business or a loss of revenue to government,” the submission said.

“Similarly, no-one suggests that because the Minerals Council of Australia writes off the expenses associated with their lobbying of politicians that they are receiving generous concessions to engage in political advocacy.

“The companies that support the Minerals Council of Australia write off their contributions as expenses in the same way individual donors to DGR organisations might claim deductions.”

But Minerals Council of Australia director, public affairs Jonathan Hawkes told Pro Bono News to equate the tax treatment of the MCA or its member companies with organisations with DGR status was “inaccurate”.

“Registered environmental organisations receive a special tax concession (deductible gift recipient status) in order to advance a policy outcome – namely conserving or improving the natural environment or conducting related education or research,” Hawkes said.

“In contrast, as an industry association, the MCA is not entitled to receive income tax deductible donations or contributions.

“MCA member companies can deduct subscriptions from their assessable income because they are a business expense under the general deductions provision of the Income Tax Assessment Act. This is no different to individuals deducting work-related expenses in their tax returns, such as union fees or subscriptions to business, trade or professional associations.”

CCA said the foregone government revenue of the “very extensive and expensive political advocacy undertaken by all Australian businesses” made the small amount claimed back by individual donors to DGR “inconsequential”.

They questioned the lack of reference to the benefits of encouraging DGR giving.

“CCA supports a number of the options outlined in the paper, but rejects a framing of the discussion that fails to fully acknowledge the benefits of DGR,” the submission said.

“Unlike most businesses, which seek to benefit owners, when a charity provides programs or services to a community it often enables governments to reduce their costs by not having to provide those programs and services, thereby creating very real savings.

“Charities also often provide services at less cost than equivalent government services. Where are these additional benefits of supporting charitable activity outlined in the Treasury Discussion Paper?

“Even using the treasury’s flawed assumptions about the costs to government, if the total DGR concessions amount to around $1.3 billion each year, that is still only approximately 1 per cent of the total annual turnover of the charities sector.”

Treasury has extended the closing date for submissions to 4 August 2017.