We need to talk about specific listings

The DGR specific listing process is political, opaque and in most cases, success depends on having the right connections and requires persistent lobbying, writes Krystian Seibert.

I’ve written before about how our deductible gift recipient (DGR) framework is broken and in need of reform. It’s very complicated and has developed in an ad hoc manner. 

For this reason, reform of the DGR framework is one of Philanthropy Australia’s policy priorities. I do think that reform will eventually happen, but I’m also realistic and expect it will be some time before that occurs.

In the meantime, we can expect some incremental improvements, but not systemic reform.

One of the side effects of our broken DGR framework is what are known as “specific listings”. 

Basically, the “standard” way to obtain DGR status is through one of the general “endorsement categories” in Division 30 of the Income Tax Assessment Act 1997. For example, if you’re a welfare organisation, you may be eligible for endorsement as a public benevolent institution, which is the most common form of DGR endorsement.

However, many charities currently aren’t eligible for DGR status, meaning that they can find it harder to attract donations and are cut off from receiving grants from private and public ancillary funds.

There are around 57,000 registered charities in Australia, but as of November 2018, only around 29,000 had DGR status. There are some particular groups which account for a large portion of those who miss out. For example, places of worship aren’t generally eligible, and neither are schools.

Then there are some organisations which have clearly just fallen through the cracks. For example, if you’re a charity focused on preventing a disease in children, such as cancer, then you can get DGR status as a health promotion charity. However, if you focus on preventing injuries in children, such as some of the serious injuries that can occur around the home, then you miss out! That’s because health promotion charities need to focus on preventing diseases and injuries aren’t diseases. It’s unlikely this quirk arose because policy makers made a conscious decision to exclude injuries, rather it’s more likely just an oversight that occurred when they were drafting that DGR category.

So, for a charity focusing on preventing injuries in children, or a large number of other charities which currently miss out on DGR status, the only option is a specific listing.

That requires the Parliament to amend the Income Tax Assessment Act 1997 to add the name of an organisation to the relevant category within Division 30 (see here for some examples). 

This requires the agreement of the government, which is usually sought through the treasurer or assistant treasurer.

Getting a specific listing is usually really hard. I would know, as I was once the adviser in the assistant treasurer’s office who had responsibility for them. There are many applications made, and only a small proportion of them are successful. 

The way the process usually works is that a charity writes to the treasurer or assistant treasurer with an application. The Treasury is then asked to provide advice in relation to the application, which includes providing an estimate of how much tax revenue may be forgone if donations to the charity become tax deductible.

Based on my experience, the Treasury is usually reluctant to support applications for specific listings, other than in exceptional circumstances. There is an understandable concern that if you grant it to one particular charity, then it can set a precedent for other charities to seek it.

Whether Treasury supports it or not, it’s ultimately a decision for the treasurer or assistant treasurer (more commonly). But even if they are inclined to grant the specific listing, there’s still the matter of its cost. 

The rule, at least in my time, was that any forgone revenue usually must be “offset” by savings in the relevant portfolio. For example, if an education charity were seeking a specific listing, it would usually be the education portfolio that would need to provide the necessary offsets. Naturally, portfolios and their ministers can be reluctant to provide the necessary offsets! 

The reality is that the DGR specific listing process is political. It’s very opaque and in most cases, success depends on having the right connections and even with those connections, usually requires persistent lobbying. Because of this, there can be two charities, both equally deserving, and one will get a specific listing and one won’t. The process leaves a lot to be desired, and I’m sure that if the auditor-general ever examined it, it would raise some eyebrows.

We may soon learn more about the process. 

A Question on Notice about the process has been submitted by Centre Alliance MP, Rebekha Sharkie. Questions on Notice are written questions that MPs and senators can ask of the government. As of writing, it hasn’t yet been answered, but its answer may make for very interesting reading and may provide us with rare insights into how the specific listing process is operating.

At the beginning of this article, I mentioned that the only DGR framework reform that we’re likely to see for the foreseeable future is going to be incremental. And until we broaden access to DGR status, we’ll still have a need for specific listings. 

One incremental reform which I believe is necessary involves adding transparency and rigour to the specific listing process. 

Firstly, a clear set of guidelines should be published, setting out the detailed criteria against which the government requires specific listings to be assessed. 

Secondly, an independent panel should be established to assess specific listing applications and make recommendations to the treasurer or assistant treasurer. The ultimate decision to grant a specific listing would still be that of the treasurer or assistant treasurer, but the panel’s recommendation would be made public following the decision. Philanthropy Australia suggested that such an independent panel be established in its submission to the Treasury’s Tax Deductible Gift Recipient Reform Opportunities discussion paper in 2017.

Such a reform won’t be transformational, but it would certainly improve the integrity of the specific listing process.