5.

THE LOWDOWN ON DGR WHAT IS IT, DO I REALLY

NEED IT, HOW DO I GET IT AND WHY MIGHT I HAVE
BEEN UNSUCCESSFUL?

Darren Fittler, Gilbert + Tobin

This article gives some tips to be used when applying for Deductible Gift Recipient (DGR)
endorsement, explores the question of how important DGR endorsement is and provides some
reasons why some not-for-profit (NFP) organisations get it and some dont. I have attempted
to be thorough, at least for an introductory level, but this article cannot possibly cover all there
is to know about achieving DGR status. Remember, it is the Australian Taxation Office (ATO)
that will assess your application for DGR endorsement, even if the information is collected by
or filtered through another government agency such as the newly established Australian
Charities and Not-for-profits Commission (ACNC).
With this in mind it is worth spending some time reading up on DGR before launching into an
application. Time spent on learning and preparation can help boost the chances of success. A
good place to start is the ATOs not-for-profit pages found by visiting
www.ato.gov.au/nonprofit, in particular, the ATO publication entitled Gift Pack for deductible
gift recipients and donors. It is the ATO after all that will be assessing the application, so why
not see what it has to say about it?!
As with many things, you can save time and effort by getting someone else to do all this for
you. But make sure that those helping you are suitably experienced in the laws and regulations
relating to charities and to DGR in particular, and are up to date with regulatory reform in this
space, of which there is much.
With the above in mind, it is of no surprise that DGR endorsement is currently under review as
part of the governments Better Targeting of Not-for-profit Tax Concessions initiative. It is my
hope that this review will lead to a simplification of the DGR regime, but only time will tell. In
any event, I predict some law reform in this space in the next six to 18 months.
Preliminary Points
Before reading on, please note that being endorsed as a DGR:

does not give your organisation access to income tax and fringe benefit tax
concessions a separate process is required to access these concessions (visit
www.acnc.gov.au and www.ato.gov.au/nonprofit for more information);
even if your organisation is endorsed as a DGR it will, in most cases, still need a
charitable fundraising authority if it wishes to engage in charitable fundraising

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activities (visit the relevant Fair Trading or Consumer Affairs body in your state or
territory for more information); and
if your organisation wishes to conduct raffles, lotteries or other games of chance, you
may require a licence to do so regardless of whether your organisation is a DGR (visit
the relevant gaming and racing authority in your state or territory for more
information).

Note also, there are transitional arrangements for DGRs endorsed before 3 December 2012.
The ATO publication Gift Pack states under the heading whats new that from 3 December
2012, in addition to registration with the ACNC for charitable DGRs, minor amendments have
been made to some DGR general categories. If your organisation was endorsed as a DGR
before 3 December 2012, it has 12 months to comply with these changes.
The ATO recommends that you self-review your organisation as follows:
Step 1: Find your organisations notice of DGR endorsement and note the number advised at
'Item(s) in Subdivision 30-B of the Income Tax Assessment 1997' on the notice.
Step 2: Check that your organisation meets the description of the item number in the DGR
table in the ATOs Gift Pack including any requirement for the fund, authority or
institution to be either:

an Australian government agency; or

a charity or part of a charity registered with the ACNC.

Failure to comply with the new requirements by 2 December 2013 could result in the loss of
DGR endorsement. Right, so, now lets get on with it!
1. What is DGR
DGR endorsement is often heralded as the holy grail for NFP organisations. But what exactly is
DGR?
DGR is the abbreviation for deductible gift recipient. To become a DGR you must be endorsed
as such by the ATO or be specifically listed as a DGR in the income tax law, but more about that
later. A DGR is allowed to receive certain types of gifts (as money or property), the value of
which can be deducted from the givers income tax. Its the reason for the frequent statement,
Donations of $2 or more are tax deductible.
Why is DGR status desirable?
Before going on to explain how to apply for DGR endorsement, it is important to understand
why this endorsement is so highly sought after. An organisation will usually seek DGR
endorsement for one or more of the following reasons:

To attract gifts endorsement permits an organisation to receive deductible gifts and

deductible contributions, and thereby enables the giver to claim an income tax
deduction;

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To open the door to grants and other philanthropic contributions endorsement is

needed to seek and receive gifts and grants from those philanthropic donors that, due
to law or internal policy, can only give to DGRs; and
To gain credibility endorsement can give a certain degree of credibility to an
organisation in the eyes of donors and the general public.

Types and categories of DGR endorsement

There are approximately 50 different categories of DGR endorsement grouped under the
broad headings of health, education, sport and recreation, public and private ancillary funds,
research, welfare and rights, defence, culture, fire and emergency services, environment, the
family, and international affairs. Many DGR categories are administered by the ATO but some
are administered by other government agencies. DGR endorsement can be for:

the entire organisation often referred to as whole of organisation endorsement; or

a part or subset of the organisation, often referred to as endorsement for the
operation of a fund, authority or institution.

You may also hear the terms type 1 and type 2 DGR. Basically a type 2 DGR is a giver, not a
doer, which is only allowed to support other DGRs (but not other type 2 DGRS) for example
public and private ancillary funds. The rest are type 1 DGRs.
The main whole of organisation endorsement categories are:

public benevolent institutions (PBIs);

health promotion charities; and
charitable services institutions.

The most common funds for which an organisation is endorsed as a DGR to operate are:

school/college building funds;

scholarship funds;
public library funds;
developed country relief funds; and
necessitous circumstances funds.

In some circumstances, funds such as those listed above can be established as a stand-alone
entity and be granted DGR endorsement in their own right.
To make things a little more complicated, some categories of DGR require an organisation,
together with any public fund it operates, to be listed on a particular register maintained by a
government department. More detail on that will be given below.
2. Is DGR endorsement absolutely necessary?
While in some cases an organisation's viability will depend on obtaining and maintaining DGR
endorsement, in many circumstances, while desirable, it is not essential. This is because there
are a good number of fundraising and revenue raising opportunities that do not require DGR

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endorsement. Basically, if a giver gets something material in return for a gift, the gift cannot be
claimed as a tax deduction and the organisation cannot give a tax deductible receipt. This is so
even if that organisation is a DGR. For example, it is open to any NFP or charitable
organisation, DGR or not, to raise money through things like raffles and lotteries, the sale of
merchandise, membership fees, conference attendance fees, sponsorship, events (such as a
dinner or golf day), government or other grants, gifts from overseas donors and its own
commercial enterprise. Note however that a DGR can receive deductible contributions for
events and auctions in certain circumstances. Visit the ATO website to learn more about
deductible gifts and contributions
(http://www.ato.gov.au/nonprofit/content.aspx?doc=/content/8568.htm).
Also, a good number of charitable foundations, trusts and other similar philanthropic givers
will give donations and grants to registered charities even if they are not endorsed as DGRs. In
fact, some corporate foundations are set up in such a way that they can give to any
organisation they wish.
Lastly, lets not forget that an organisation can still receive gifts even if it is not a DGR, it just
cannot give a tax deductible receipt. I have observed that if someone wants to give to a charity
then they will, regardless of whether the organisation has DGR endorsement. However, that
same person is likely to give more if the recipient is a DGR.
3. Applying for DGR endorsement
Many people working in, or wanting to establish, a NFP are convinced that the organisation
must be endorsed as a DGR and that because it is a NFP entity and is doing good things,
obtaining such endorsement will be a matter of simply completing and lodging the necessary
forms. While in some cases DGR endorsement will be granted on the basis of the application
forms alone, it is often helpful to provide further submissions on why the organisation is
entitled. Explanatory submissions and other supporting materials are particularly helpful if the
purpose of the organisation and the way it pursues that purpose do not fit squarely within the
specified legal requirements or government policies. With this in mind, DGR endorsement can
be more difficult to obtain than many expect.
Eligibility and application for endorsement as a DGR
Generally speaking, to be eligible for DGR endorsement, an organisation must:

be not-for-profit and have a provision within its governing rules (e.g. its constitution or
trust deed) that compels the organisation to give any surplus assets to another DGR on
its winding up;
have an ABN;
subject to certain exemptions, be in Australia;
subject to certain exemptions, be registered as a charity with the ACNC; and
satisfy the specific criteria for the category of DGR under which it is seeking DGR
endorsement.

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In addition some DGR category types require the establishment and maintenance of a gift
fund (see http://www.ato.gov.au/content/13269.htm for more on gift funds).
For the majority of DGR categories, the application is made to the ATO. However, some DGR
categories such as harm prevention charities, cultural organisations, environmental
organisations and overseas aid funds require applications to be made to specific
Commonwealth government departments first, before applying to the ATO.
Where do I apply for DGR endorsement?
While DGR endorsement is assessed and determined by the ATO, since the establishment of
the ACNC in December 2012, a couple of additional pathways to DGR now exist. Where you
apply and what forms you use will vary depending on which of the following scenarios apply.
More details are given below.

You are applying for DGR endorsement at the same time as applying to be registered
as a charity with the ACNC;
You are already registered as a charity with the ACNC, but now want to be endorsed as
either a health promotion charity or a public benevolent institution;
You wish to be endorsed as a DGR under a category of DGR administered by the ATO,
other than health promotion charity or PBI;
You are an organisation that wishes to be endorsed as a DGR under a category that is
administered by a government department other than the ATO; or
You do not fit within a DGR category and have exhausted all other avenues.

The different processes are partly because once an Australian Business Number (ABN) has
been used to register a charity with the ACNC, the same ABN cannot be used again through the
ACNCs online portal and partly because the ACNC does not yet have interdepartmental
arrangements in place with the other government bodies and agencies that administer some
DGR categories.
Applying for DGR endorsement at the same time as registering as a charity
Organisations that are not yet registered as a charity can do so online through the ACNCs
online application form. This form (which has an accompanying guide) also enables an
applicant to apply for DGR endorsement and includes the facility to upload documents with
the application. Go to www.acnc.gov.au and follow the links to registering your charity.
The ACNC will pass on the DGR application component of the online form to the ATO. The ATO
will then contact you if needed.
Registered charities applying for DGR endorsement as a public benevolent institution (PBI)
or health promotion charity (HPC)
If you are already registered as a charity with the ACNC and you wish to apply for DGR
endorsement as a HPC or PBI, then you will need to contact the ACNC and request a change to
charity subtype form. This form is mostly identical to the online application form, but because
it is being handled in a paper form, ACNC staff can identify and process the application
properly as required.

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If you happen to be an organisation that is endorsed as a PBI or HPC but only for income tax
and FBT exemption purposes that is, not as a DGR then any application for DGR
endorsement under these categories will need to be made using the review of subtype form
described above. Beware however, a request for subtype review involves a full review of the
organisations eligibility, almost as if it is applying for the first time.
Information relating to DGR endorsement collected as part of this process will be provided to
the ATO. The ATO will then contact you if needed.
Applying for DGR endorsement under an ATO-administered DGR category other than PBI or
HPC
If you are registered as a charity with the ACNC and wish to apply for the same organisation to
be endorsed for the purpose of operating a fund (such as a school building fund), then you will
need to apply to the ATO directly.
However, if you wish to establish a new entity (including a trust) to house the fund and this
new entity will have its own ABN, then you can use this new ABN to apply for registration as a
charity with the ACNC and apply for DGR endorsement at the same time as set out above.
If you are a NFP organisation that is not charitable then you can apply for endorsement directly
to the ATO. Note however that many DGR categories require you to be registered as a charity
with the ACNC to be eligible for DGR endorsement.
Applying for DGR endorsement under a category not administered by the ATO.
Certain categories of DGR are administered by other government departments, namely:

organisations listed on the Register of Harm Prevention charities, administered by the

Department of Families, Housing, Community Services and Indigenous Affairs;
organisations listed on the Register of Environmental Organisations, administered by
the government department responsible for the environment;
organisations listed on the Register of Cultural Organisations, administered by the
government department responsible for the arts; and
overseas aid funds registered as part of the Overseas Aid Gift Deductibility Scheme,
administered by AusAid.

If you are applying for DGR endorsement under any of these categories then you will need to
use the application forms and follow the guidelines provided by the relevant government
agency.
Specific listing in the income tax law
If you are not eligible for endorsement as a DGR under one of the pre-existing categories, you
can pursue specific listing (also referred to as special listing) through submissions to the
Commonwealth Treasury. As the phrase suggests, specific listing requires the ITAA to be
amended to list your organisation. This is often more of a political, than a legal, process which
commonly takes 12 to 18 months or more. Even then, success is far from guaranteed.

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Support for the type of activities and purposes of the organisation seeking listing, by the
relevant Commonwealth minister (through his or her portfolio), is often required for success.
For example, an environmental organisation that has explored and exhausted all other DGR
endorsement options and believes that it should be eligible for endorsement, despite there
being no DGR category relevant to its purposes, is likely to need the support of the
Commonwealth minister responsible for the environment.
For more on specific listing, including links to lists of organisations currently listed in the
income tax law go to the ATO website at
http://www.ato.gov.au/nonprofit/PrintFriendly.aspx?ms=nonprofit&doc=/content/31654.htm
Tips for DGR endorsement applications
While some applicants will neatly meet the DGR criteria for which they are applying and may
obtain endorsement based on the forms and other required documents alone, it is advisable to
provide additional submissions if:

the application form(s) do not provide enough space to answer the questions properly;
and/or
you do not, on the face of it, fit the exact criteria and need to explain why you do.

It is often helpful for submissions supporting a DGR endorsement application to set out each of
the criteria under separate headings. You can then address them one by one, including, where
available and relevant, references to:

legislation and case law;

taxation rulings, taxation determinations and other ATO guides and policies;
relevant extrinsic materials such as government reports, government policies,
academic writings, newspaper and journal articles and expert reports;
documents relating to the organisation itself such as annual reports and brochures
about its services; and
letters of support from politicians, business people and well-recognised public figures
and written testamentary of those who have benefited from the work of the
organisation. Particular care should be taken, however, when using material of this
nature, as the author may not understand the intricacies of what endorsement
requires and can damage, rather than support, your application.

The purposes of your organisation are also key. But remember that it is not just what an
organisation says it will do, it is what it actually does, that will directly affect whether it is
granted endorsement and whether it continues to maintain it. To have a better chance of
success, it is a good idea to really drill down and work out what your organisations true and
core purpose is, and then determine whether there is a DGR category that fits, or almost fits
this purpose. It is not useful to review the various categories and types of endorsement first
and then change the organisation's purpose to fit the criteria for the identified endorsement.
For example, it is one thing to change the language used to express the purposes of your
organisation to align more closely with the requirements of the DGR endorsement you are
seeking. It is another thing altogether and I would strongly advise against it to adopt an

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approach that is inconsistent with your organisation's philosophy and desire, merely for the
sake of endorsement. If you follow the latter path and are granted DGR endorsement, you
could very well find yourself in breach of DGR requirements as your organisation moves
forward pursuing its original purposes.
4. Unsuccessful DGR endorsement applications
The four main reasons why organisations are unsuccessful in obtaining DGR endorsement are:

the application form(s) are not completed properly;

the governing rules (such as a constitution or trust deed) are deficient in some way;
the organisation's purposes and activities do not properly fit the criteria of DGR
endorsement that is being sought or else they have not been properly articulated in
the founding documents, in the application, within promotional materials or on its
website; and
an organisation's objects and activities are broad and cover two or more DGR
categories, often meaning that it is ineligible for DGR endorsement at all. This situation
arises because many of the DGR categories require the organisation to have a sole,
exclusive or primary purpose and obviously it is not possible to have more than one
exclusive, sole or primary purpose.

When an application for DGR endorsement is declined, it is natural to look at other

organisations that have been successful and to draw comparisons. In doing so, it is sometimes
very difficult to work out why your organisation failed where others succeeded. Reasons why
one organisation may be granted DGR endorsement while another apparently similar
organisation is not, include:

the endorsed organisation was endorsed some time ago and may, over time, have
changed such that it is no longer entitled to be endorsed and this fact has not been
identified through either self-assessment or ATO audit;
there has been a change to the relevant endorsement laws or ATO policies and again,
a self review or ATO audit has not revealed this fact;
the endorsed organisation obtained its DGR endorsement by being specifically listed in
the ITAA because it too was not eligible for endorsement under a pre-existing
category;
the endorsed organisation, having been refused endorsement in the first instance,
appealed the decision and was eventually successful;
the actual facts of the matter, if known, would reveal that the two organisations are
not as similar as may appear on the surface; and
the endorsed organisation was able to prepare a more compelling argument or
provide more convincing material in support of its application.

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