In Australia, charities and not-for-profit organisations play a crucial role in delivering aid and development assistance to developing countries. To support these efforts, certain entities can apply to the Australian Taxation Office (ATO) for deductible gift recipient (DGR) endorsement as developing country relief funds or organisations.
This article provides an overview of the DGR category for developing country relief funds or organisations, including recent changes, requirements for registration and the types of activities these entities typically undertake.
What is DGR endorsement?
In general terms, organisations (or funds) with DGR endorsement are permitted to receive gifts of money or property from donors and issue a tax deductible receipt.
Many organisations seek DGR endorsement because it allows a donor to claim certain donations as a deduction when filing a personal income tax return and can therefore help attract more donations. DGRs may also be eligible to receive funds from a number of philanthropic bodies (such as ancillary funds) which are restricted to only donating to certain types of DGRs.
What changes have occurred to this DGR category?
Prior to 1 January 2024, an overseas aid organisation seeking DGR endorsement under this category had to first be admitted by the Department of Foreign Affairs and Trade (DFAT) as an approved organisation under the Overseas Aid Gift Deduction Scheme. It then had to establish an overseas aid fund and have its public fund endorsed as a DGR.
From 1 January 2024, the Treasury Laws Amendment (Refining and Improving Our Tax System) Act 2023 (Cth) came into effect. This Act transferred administrative responsibility for assessing and administering a developing country relief fund or organisation for eligibility for DGR endorsement from DFAT to the ATO. The name of this DGR category and the associated eligibility criteria and application process has also changed.
What is a developing country relief fund or organisation?
A developing country relief fund or organisation delivers development or humanitarian assistance activities (or both) in a developing country. It does this in partnership with entities in the country, based on principles of cooperation, mutual respect and shared accountability.
A developing country relief fund or organisation is a DGR category under item 9.1.1 of section 30-80 of the Income Tax Assessment Act 1997 (Cth).
To be eligible for endorsement as a developing country relief fund or organisation, an entity must satisfy certain criteria. This includes that it must have an active Australian Business Number (ABN), be established and operated in Australia and be either:
An institution registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC) or an Australian government agency i.e. a developing country relief organisation.
A charity registered with the ACNC which operates a public fund i.e., a developing country relief fund.
In addition, a developing country relief fund or organisation must have a principal purpose of delivering development or humanitarian assistance activities (or both). A developing country relief fund or organisation can have other purposes which are incidental, ancillary or secondary to its principal purpose. For those more familiar with the old regime, we note the principal purpose test is different from the previous ‘sole purpose for the relief of people in a developing country’ test. In addition to this principal purpose test, the entity must undertake the development or humanitarian assistance activities (or both):
in a developing country
in partnership with entities in the country, based on principles of cooperation, mutual respect and shared accountability.
The concept of a developing country is defined under section 30-85 of the Income Tax Assessment Act 1997 (Cth), as being one:
included in the list of official development assistance recipients published by the Organisation for Economic Co-operation and Development's Development Assistance Committee, or
specified in a declaration by the Foreign Affairs Minister through a legislative instrument.
Ministers will no longer, by legislative instrument, declare government entities to be developing country relief funds. However, the Foreign Affairs Minister will, by legislative instrument, continue to have the power to declare a country to be a developing country.
The requirements around maintaining a gift fund and/or public fund will vary depending on whether endorsement is sort for the organisation or a fund. Where the endorsement is sort for the organisation (being an institution or an Australian government agency), it must maintain a gift fund responsible for receiving all gifts to the organisation and used exclusively for the organisation’s purpose. If endorsement is sort for a registered charity operating a public fund, the public fund must satisfy requirements for being a public fund and gift fund. Both organisations and funds must comply with DGR winding up and revocation clause requirements.
What kinds of activities are conducted by a developing country relief fund or organisation?
The activities of developing country relief organisations or funds may either be:
Development activities: activities in developing countries which aim to improve the long-term well-being of individuals and communities by providing sustained or lasting benefits through capacity-building (with an appropriate exit strategy) and targeted interventions.
Humanitarian assistance activities: activities which aim to save lives, alleviate suffering and maintain human dignity through meeting immediate needs such as providing food, shelter, protection, psycho-social support, medical attention and depending on the context may encompass education. These activities are guided by the principles of humanity, impartiality, independence and neutrality.
These activities must be delivered in partnership with entities (not just individuals) operating within the developing country. The relevant organisation (whether it is endorsed as a whole or for the operation of a fund) and the in-country partner will both contribute and add value to the delivery of aid activities, with shared values and objectives founded on the following principles:
Cooperation and mutual respect: this is demonstrated through collaboration with in-country partner entities to plan, implement and track progress of activities. Evidence of cooperation and respect may be established by providing documentation regarding any discussion, exchange of views or other communication between the developing country relief fund or organisation and the in-country partners.
Shared accountability: this is demonstrated through documented agreements describing partnership objectives, roles, reporting guidelines and financial management arrangements. Parties must ensure the funds are properly utilised for delivering development or humanitarian assistance activities.
The following are ineligible activities which will generally not be considered to be delivering development or humanitarian assistance activities:
supporting a political party, candidate or organisation affiliated to a political party
supporting or promoting a particular religious adherence.
What is the process for registration?
The ATO advises there are two ways to apply to be registered as a developing country relief fund or organisation.
If the entity intends to, or is in the process of applying for registration as a charity with the ACNC it can use the ACNC’s application form to apply to the ATO for DGR endorsement. That is, the ACNC will pass the application on directly to the ATO once complete, without the need for submission of two separate applications.
If the entity has an ABN and is either already a charity registered with the ACNC or is an Australian government agency, it can apply directly to the ATO.
Further information regarding the application process and requirements is available on the ATO website.
How does this DGR category compare with PBIs?
Since the Federal Court’s decision in The Hunger Project Australia v Federal Commissioner of Taxation (2013) 94 ATR 855 (Hunger Project Case), there has been an increased flexibility for organisations undertaking overseas aid and development activities to register under the Public Benevolent Institution (PBI) category and consequently be endorsed as a DGR.
The Federal Court held in the Hunger Project Case that an organisation which raised funds in Australia to send to partner organisations in developing countries to relieve poverty and hunger in those countries is considered to be a PBI because it demonstrated the funds it raised would be used for benevolent relief by its partner organisations. In many respects, there is now overlap between the two categories for organisations undertaking international development activities.
Depending on an organisation’s charitable purpose, activities and other factors, endorsement as a DGR through the PBI category may be a preferable option for organisations undertaking international development activities. We recommend each organisation explore its options and determine what is best for its unique circumstances.
We are also able to assist in determining whether one or both options are preferable for your organisation’s circumstances.
How can we help?
If you would like to find out more about DGR endorsement, establish a DCR fund or organisation or ensure you are currently compliant with your DGR requirements, please get in touch with our specialist Charities and Social Sector lawyers.