Advocacy and ‘In Australia’ Concerns in DGR Reform – Philanthropy Australia

Peak body Philanthropy Australia says it has major concerns about new reporting requirements for charities undertaking advocacy, especially environmental charities, as well as the reintroduction of the ‘In Australia’ requirement, in its submission to the federal government’s discussion paper into deductible gift recipient status (DGRs) reforms.

Philanthropy Australia said was “very concerned” by proposals in the discussion paper that related to advocacy activities by charities.

These include a proposal for new reporting obligations for advocacy activities, and a proposal to limit the level of advocacy undertaken by environmental organisations by requiring them to allocate 25 per cent to 50 per cent of their donation revenue on environmental remediation.

Under the Charities Act 2013 Australian charities can undertake advocacy to further their charitable purposes, for example through supporting or opposing relevant government policies and decisions.

“Advocacy is an important approach that charities can use to address the causes of social and environmental problems, rather than just the symptoms – this often requires policy change,” the submission said.

“The effectiveness and efficiency of advocacy as an approach to achieving charitable purposes is a key reason that our members may choose to fund advocacy activities by charities. It is also a very strong justification for why donations to support such activities by charities should be tax deductible – government should seek to encourage rather than discourage effective and efficient approaches to achieving charitable purposes.

“The discussion paper asserts that ‘some charities and DGRs undertake advocacy activity that may be out of step with the expectations of the broader community’, however this assertion is made without any supporting evidence. Available public opinion polling shows very strong public support for the advocacy role of environmental charities in particular.”

Philanthropy Australia said that for these reasons, the proposals in the discussion paper should not be proceeded with.

“No justification has been put forward in the discussion paper regarding the need for new reporting obligations for advocacy activities,” the submission said.

“If these obligations are similar to those contained in newly published reporting requirements for registered environmental organisations, they would require extensive record keeping by staff within charities in order to ascertain what proportion of their time is spent on advocacy activities.

“This would be unworkable in practice, and difficult if not impossible for the ACNC to verify in any event.Therefore, any new reporting obligations for advocacy activities are strongly opposed on the basis that they would impose new and unjustified red tape on charities.”

Philanthropy Australia said any package of reforms to the DGR framework must address

the ongoing uncertainty associated with the Australian government’s proposal to re-introduce an ‘In Australia’ requirement for DGRs.

“Australia’s regulatory and taxation framework for international philanthropy imposes some of the highest barriers to international philanthropy in the world,” the submission said.

“The Australian government was previously intending to proceed with the ‘In Australia’ legislation which would have codified a previous ATO view that DGRs must operate solely in Australia, and pursue their purposes solely in Australia  – with some exceptions, such as overseas aid funds, some environmental organisations, some touring arts organisations and medical research institutes.

“In a welcome move, the former Assistant Treasurer Josh Frydenberg stated in 2015 that progressing this legislation is no longer a priority, however it still remains Australian government policy.

“Given that this legislation is not being progressed at this stage, the ATO has adopted a view that charities established in Australia but which undertake their charitable activities overseas are now eligible for deductible gift recipient status. Public guidance on the ATO website has been altered to reflect this, and significant work has been undertaken to develop a draft public ruling to provide more detailed guidance on this matter.

“The change in the ATO’s view regarding ‘In Australia’ has decreased red tape and improved the flexibility with which Australian philanthropy and charities can support charitable causes outside Australia. It is a positive development.

“However it is still the Australian government policy to introduce the so called ‘In Australia’ legislation, which if implemented would reverse these positive changes.”

Philanthropy Australia said that given that the uncertainty regarding the legislation had continued for a number of years, the ‘In Australia’ legislation “should be permanently set aside, to provide certainty and ensure that red tape is not reimposed on Australian philanthropists and charities wishing to make a difference beyond our borders”.

However, Philanthropy Australia said that several reforms proposed in the discussion paper were positive and it would welcome their implementation.

“This included introducing a new requirement for a DGR (other than a government entity) to be a registered charity in order for it to be eligible for DGR status, transferring the administration of the four DGR Registers to the ACNC and the Australian Taxation Office (ATO), and removing the public fund requirements for DGRs,” it said.

Philanthropy Australia also recommended the creation of a new DGR category for community foundations as a priority.

“Currently, our tax laws make life very hard for community foundations and this is holding back their growth and their impact as they cannot accept donations from ‘Private Ancillary Funds’,” the submission said.

“Community Foundations Private ancillary funds are one of the most common forms of private foundation, however because they are also an ‘Item 2’ DGR, community foundations cannot accept donations from them – this cuts community foundations off from a significant source of philanthropic funding, but also precludes private ancillary funds from leveraging the local experience and expertise of community foundations.

“[We] believe that a new deductible gift recipient category within Division 30 of the Income Tax Assessment Act 1997 (Cth) specifically for community foundations is needed.”

Philanthropy Australia also supported a new requirement for a DGR (other than a government entity) to be a registered charity in order for it to be eligible for DGR status.

“We recommend that the new requirement commences at least one year from the commencement of the relevant legislative amendment, and that appropriate transitional support is provided by the ACNC to facilitate the registration process,” the submission said.

“There is a small number of ancillary funds which are not registered as a charity. We do not believe that requiring them to register as a charity raises any issues, provided appropriate transitional arrangements are put in place.

“Given that this proposal will result in additional charities falling within the ACNC’s jurisdiction, it is vital that the ACNC is properly resourced to manage this additional workload.”

Philanthropy Australia also supported the transfer of the administration of the four DGR registers to the ACNC and the ATO.

“There is no rationale for maintaining the existing arrangements, and we believe that the proposal will decrease red tape imposed on charities and decrease processing times for applications for endorsement as a DGR,” it said.

“One way to implement this change would be to have the ACNC determine whether an organisation meets the criteria for registration as a specific type of organisation, for example as an environmental or cultural organisation, with the ATO then providing endorsement for access to tax concessions.”

In July community organisations raised concerns that the government had not set a policy goal for DGR reform and had “largely ignored” the benefits of encouraging DGR giving in the discussion paper.

The Community Council Australia said in its submission that 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.

Submissions to the discussion paper closed on 4 August.