What is Deductible Gift Recipient (DGR) Status?

Deductible gift recipient (DGR) status carries with it certain legal responsibilities and only certain types of entities qualify. As with organisations registered as a charity, a deductible gift recipient or DGR receives a special legal status that can only be assigned and endorsed by the Australian Taxation Office (ATO). These entities must conduct their activities under specific categories.

What is a Deductible Gift Recipient (DGR) Status?

Entities that are endorsed as a deductible gift recipient (DGR) can receive income tax deductible donations. This means that a donor making a contribution to a DGR is able to claim deductions to his or her taxable income in an annual income tax return. Organisations with DGR endorsements can offer donors a tax receipt for their donations and will typically publicise that donations over $2 are tax deductible.

In addition to this, becoming endorsed as a Deductible gift recipient will often allow an organisation to qualify for additional sources of funding, such as money from entities that are only permitted to make donations to an organisation endorsed as a DGR. According to ATO, the deductible gift recipient charity can include two types of organisations. These entities can benefit from DGR designation if they are focused on providing public services in health, education, research, welfare and rights, national defence, the protection of the environment, family services, international affairs, sports and recreation, cultural organisations, and fire and emergency services.

ATO-Endorsed Deductible Gift Recipient Categories (DGRs)

Item categories of two number of different types of deductible gift recipients with DGR status: those endorsed by the ATO, and those listed by name in the tax law. There are 11 DGR categories and 52 sub-categories endorsed by the ATO, each with different eligibility criteria. Generally though, eligibility is determined by the organisation or fund’s purpose.

Examples of Organisations Eligible for DGR Status

Proposed Reforms to DGR Categories

In January 2023, Assistant Charities Minister Andrew Leigh announced that the Australian government was conducting public consultations to determine how best to simplify the process of receiving tax deductibility status. Under the proposed reforms, the ATO would become responsible for administering all DGR categories. If approved, the Deductible Gift Recipient Registers Reform would transfer the responsibility of determining eligibility of four categories currently administered by other agencies to the ATO. These categories include:

1. Environmental organisations (currently under the jurisdiction of the Department of Climate Change, Energy, the Environment and Water),
2. Cultural organisations (currently under the jurisdiction of the Department of Infrastructure, Transport, Regional Development, Communications and the Arts),
3. Harm prevention charities (currently under the jurisdiction of the Department of Social Services), and
4. Overseas aid organisations (currently under the jurisdiction of the Department of Foreign Affairs and Trade).

The purpose of these reforms is to reduce bureaucratic red tape and create more consistency across governmental departments. The system also needs modernisation. Many of the old categories no longer reflect the work Australian charities are doing. The proposed changes would also allow charities can receive DGR status based on the quality of their work, rather than which category they fit into.

How to Get Deductible Gift Recipient Status

The Australian Charities and Not-for-profits Commission (ACNC) outlines some of the recent reforms to the Deductible Gift Recipient system. Not every charity is eligible for DGR status endorsement. To receive the DGR category, your organisation will need to register with the ACNC and be endorsed by the Australian Taxation Office (ATO).

Deductible gift recipient endorsement is determined by the ATO (or named in tax law). It is a legal endorsement that operates separately from charitable status. Not all charities are eligible for DGR endorsement. In December 2021, the Australian government instituted changes to the eligibility criteria. Since then, most DGR organisations must be registered charities to receive endorsement. Some specific examples of organisations that have DGR status but are not charitable, are government-run institutes such as the Royal Children’s Hospital of Melbourne or the National Gallery of Victoria. Both organisations have created foundations that have DGR status. The sub-funds can accept donations and provide tax deductible receipts to donors.

Organisations categorised as either DGR Item 1 (DGR1) and DGR Item 2 (DGR 2) are most common, but both categories also have multiple sub-categorisations. Deductible Gift Recipients with DGR1 status are sometimes called “doing DGRs”because they directly engage in activities that serve the public. Most organisations with DGR status are designated as type 1 DGRs. In a simplified sense, they are organisations that carry out charitable works and use tax-deductible donations to fund these activities. On the other hand, organisations with DGR2 status are often called “giving DGRs”. These are ancillary funds, such as Private Ancillary Funds or Public Ancillary Funds that disperse funds to DGR1 organisations to support them in carrying out their charitable purpose. Obtaining DGR2 status allows them to offer tax deductible receipts to donors or bequests that contribute to the capital of a charitable trust fund. DGR2 organisations are typically restricted from engaging in direct activities.

How Do DGR Tax Deductions Work?

Although this might seem like a strange arrangement, the primary benefit of the double layer of the deductible gift recipient status is that it allows donors to a charitable trust to claim tax deductibility on a financial donation into that charitable trust providing that the trust only makes grants to other DGR organisations. This arrangement allows the donor to claim the same right to deductibility that they would otherwise have received if they had made the donation directly to the organisation receiving the trust’s grant. The value of your donor’s tax deduction depends on the amount they earn and the rate of tax they pay.

Organisations with DGR status can only provide tax deductible receipts for eligible gifts. To qualify, the gift must be given freely with no material reward. Tax deductible receipts may not be given for activities such as raffles, lotteries, merchandise sales, membership fees, conference fees, sponsorships, philanthropic or government grants, fundraising events, or gifts from international commercial enterprises. Only gifts directly made to the DGR entity, fund, authority or institution are considered tax deductible.

The gift or donation must be voluntarily transferred without the expectation of receiving a material benefit (something with monetary value) or advantage. The gift can be in the form of money, a property, or a financial asset such as shares in a company. All donations must comply with conditions laid out by tax law. To claim the tax deduction, the donor must record their donation by requesting an official receipt. You may only claim the amount mentioned in the receipt.

Resources

Below are a few quick links to government information on DGR status that will help inform a decision regarding whether to apply for endorsement:

ATO Guide – “Is my organisation eligible for DGR endorsement?”

ATO Guide – “Instructions for Endorsement as a DGR”

Deductible Gift Recipient Information in Detail – Types of DGRs

Deductible Gift Recipient Information in Detail – DGR Schedules

Australian Business Register DGR Factsheet and Lookup – Deductible Gift Recipient

Deductible Gift Recipient Registers Reform - Draft Proposal