As with the term “charity”, “deductible gift recipient” is a specific legal status that can only be used to describe organisations specifically endorsed by the Australian Taxation Office (ATO) (or named in tax law as a deductible gift recipient).
Deductible gift recipient (DGR) status carries with it certain legal responsibilities and only certain types of entities qualify.
Entities that are endorsed as a deductible gift recipient (DGR) can receive income tax deductible donations. This means that a donor to a DGR is able to claim deductions to his or her taxable income in an annual income tax return after making a donation. Organisations with DGR endorsements will 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 DGR will often allow an organisation qualify for new sources of funding, such as from some types of entities that are only permitted to make donations to organisations that are endorsed as a DGR.
DGR endorsement is determined by the ATO (or named in tax law). It is a legal endorsement that operates separately from charitable status. Although the vast majority of organisations with DGR status are charities, charitable status is not technically a prerequisite of gaining DGR status. Some examples of organisations that have DGR status but are not charitable, are government-run institutes such as the Royal Children’s Hospital or the National Gallery of Victoria. In some cases an organisation may not be endorsed as a DGR as a whole, but a sub-fund or institution owned by that organisation may qualify for endorsement. In this case, only donations to this part of the organisation would be tax deductible.
Item categories of DGRs
There are a number of different types of DGR status. 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. Organisations with DGR1 status are sometimes called “doing DGRs”, in a simplified sense they are organisations that carry out charitable works and use tax-deductible donations to fund these activities.
Organisations with DGR2 status, on the other hand, 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. DGR2 status of these organisations allows them to, for example, offer tax deductibility for donations or bequests that contribute to the capital of that charitable trust fund. DGR2 organisations are typically restricted to dispersing funds to organisations endorsed as a DGR1.
Although this might seem like a strange arrangement, the benefit of the double layer of DGR 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.
Important to note about DGR status
Finally, it is important to be aware that while DGR status permits an organisation to offer tax deductibility to their donors, the organisation may still be required to register with the relevant State authorities in order to conduct fundraising campaigns.
Becoming endorsed as a DGR can be a long and challenging process. It is advised that organisations seeking DGR status consult the ATO’s full GiftPack to help determine whether they qualify as a DGR and to assist in the preparation of an application.
Some types of organisations must be endorsed by the ATO as a charity and registered with the ACNC before they are eligible to apply to become a DGR.
Further resources on Deductible Gift Recipient status
Below are a few quick links to government information on DGR status that will help inform a decision regarding whether to apply for DGR endorsement:
- ATO Guide – “Can your organisation be endorsed as a DGR?”
- ATO Guide for donors – Making tax deductible gifts and contributions
- ACNC DGR Fact sheet – Factsheet: Deductible gift recipients (DGRs) and the ACNC (please note that the ACNC is not responsible for the endorsement of DGR status)
- Australian Business Register DGR Factsheet and Lookup – Deductible Gift Recipient
This fact sheet is intended as a simple overview of non-profit terminology. Non-profit law is incredibly complex and there are many components, allowances, restrictions and exceptions that are not described above. This fact sheet is not intended and should not be taken as legal advice. Legal advice should be sought from a legal practitioner before taking action.