In 2022, the Australian Government committed to working with the philanthropic, not-for-profit (NFP) and business sectors to double philanthropic giving by 2030. In 2023, it asked the Productivity Commission to undertake an inquiry to analyse motivations for philanthropic giving in Australia and identify opportunities to grow it further.
At AIDN our ethos is ‘more’ and ‘better’ global giving from the Australian market. Accordingly, AIDN welcomed the inquiry and the opportunity it provided to encourage inclusive discussion on how we define these terms in an ever-changing philanthropic ecosystem.
Acting as a neutral and connective film across the Australian international development sector, AIDN has taken the time to review a number of the 250+ submissions. As well as its own submission, AIDN has reviewed those submissions relevant to the international development sector – so that we can offer our network a snapshot of the key trends, opportunities, and obstacles to increasing philanthropic giving in Australia, as highlighted by our sector.
Whilst there were many topics raised in the 250+ submissions, ranging from higher operating costs, falling incomes and low reserves, a sector wide brain drain and skills shortage, and significant data gaps some of the most consistent themes emerging throughout the submissions included:
1) Reforming the Deductible Gift Recipient (DGR) system;
2) Encouraging Later-in-Life or Legacy Giving opportunities for Australians; and
3) The need for a national giving campaign.
#1 DGR Status:
The need to simplify, streamline and reform the process for charities to be granted DGR status, and thus allow donations to said charity to be tax deductible for donors, was a consistent theme in many submissions. It is important to remember that not all charities registered in Australia are DGR-endorsed. Australia has a complicated tax-deductible structure. Whether or not a charity is of a type that allows for DGR status is governed by the Australian Taxation Office (ATO). See: https://www.ato.gov.au/Non-profit/Getting-started/In-detail/Types-of-DGRs/DGR-table—Deductible-Gift-Recipient-Categories/
One common charity type that has DGR status is a Public Benevolent Institution (PBI). NFP that wish to take advantage of this category must apply to the ACNC for charitable status by demonstrating that they have been established for purposes beneficial to the public, that they operate on a not-for-profit basis consistent with this purpose, and that they are appropriately governed. Having demonstrated those matters to the satisfaction of the ACNC, registered charities with the sub-type of PBI may become eligible for certain tax concessions (including income tax, fringe benefits tax and payroll tax) as well as DGR status.
However, many submissions noted that gaining this status is a complex process, alongside concurrent regulatory requirements, and processes. As previous Commonwealth-sponsored independent reviews and charity sector submissions have already highlighted, gaining DGR status is a cumbersome regime often written in bureaucratic language that many charities find challenging to understand (Stronger Charity Alliance #121). Indeed, for small, grass-roots organisations with low capacity, compliance, or regulatory expertise, gaining and maintaining DGR status is associated with burdensome administrative, compliance and reporting costs. The process can also become complicated for NFPs that work across multiple sectors or issues, as they are required to jump through different bodies and hurdles, depending upon the nature of the diverse programs within their organisation. In this vein, organisations covering a range of social issues (e.g. preventing poverty) may be unable to gain DGR status because they do not fit into one category (Jesuit Social Services #165).
It was further noted that many organisations that pursue impact-focused cause areas that are increasingly motivating Australians to give today, such as catastrophic disaster prevention to animal welfare, remain excluded from DGR status under Australian law (Effective Altruism #34). Indeed, DGR status can be extremely onerous for organisations applying under the four unique DGR registers: environmental organisations, harm prevention charities, cultural organisations, and overseas aid organisations. This is because these four categories are not designated by the ACNC but are instead administered by Ministers through departmental registers (Treasury 2023). Ultimately, tax deductibility is a key driver of donor behaviour in Australia meaning that these challenges have significant and ongoing impacts on the level of philanthropic giving in Australia.
Responding to this, a great number of submissions advocated that the DGR regime could be simplified and made more equitable by extending DGR status to all charities registered with the ACNC, provided they do not use tax deductible funds for purposes explicitly specified as not related to their charitable work (Alannah & Madeline Foundation #47; Stronger Charity Alliance #121; Philanthropy Australia #162; Jesuit Social Services #165). This change would cut red tape for government and charities, and bring Australia in line with nations whereby giving as a percentage of GDP is higher than in Australia, such as the US, UK and New Zealand (Philanthropy Australia #162).
The extension of the DGR status to intermediary organisations with DGR2 working with local charities overseas (that do not have Australian DGR 1 status) was also flagged within the submissions. For intermediary organisations, such as The Intrepid Foundation with DGG2, Australian residents for tax purposes can only receive a tax deduction if they ultimately choose to donate, via the intermediary organisation, to an Australian DGR1 charity partner. However, if donors choose to donate to one of the many diverse, impactful non-DGR1 partners abroad, even via an intermediary, then the Australian taxpayer cannot receive a benefit for this type of donation (Intrepid Foundation #86). With just 10% of Australian donations going overseas this change could incentivise Australians to give more to urgent and locally-led overseas causes (Dawn Wade Foundation #87).
Further to this, at present, ancillary funds can only use the non-grant distribution provisions if the benefit is to a DGR Item 1. In this context, several submissions advocated that tax deductibility and other benefits afforded to DGR Type 1 charities should also be afforded to DGR Type 2 (PAF and PuAF) charities. If DGR status were broadened to include all charities, ancillary funds could support charities more easily through below-market loans and loan guarantees (Intrepid Foundation #86; Dawn Wade #87 and Center for Social Impact #191).
Further recommendations included that DGR status should be applied on the basis of the scale of the issue, how neglected or crowded the area is or whether efforts to address the issue can be effective (Effective Altruism #34). In particular, in the context of growing climate concerns, extension of DGR status to environment focused charities was highlighted (Effective Altruism #34; Intrepid Foundation #86; Dawn Wade #87). Finally, the UK ‘Gift Aid’ scheme – whereby both the donor and the charity retain some form of tax break on donations – was highlighted as a possible example to review to boost charitable giving in Australia (UNICEF Australia #172).
Crucially, it is important to note that these recommendations are not new and were previously covered by the Commonwealth’s NFP Sector Tax Concession Working Group (2013) over a decade ago and the 2010 Productivity Commission into the Contribution of the Not-for-Profit Sector where it noted: “The Australian Government should progressively widen the scope for gift deductibility to include all endorsed charitable institutions and charitable funds”. (Research Report, 2010, 178-179).
The need to simplify, streamline and reform the process for charities to be granted DGR status, and thus allow donations to said charity to be tax deductible for donors, was a consistent theme in many submissions. It is important to remember that not all charities registered in Australia are DGR-endorsed. Australia has a complicated tax-deductible structure. Whether or not a charity is of a type that allows for DGR status is governed by the Australian Taxation Office (ATO). See here.
One common charity type that has DGR status is a Public Benevolent Institution PBI). NFP that wish to take advantage of this category must apply to the ACNC for charitable status by demonstrating that they have been established for purposes beneficial to the public, that they operate on a not-for-profit basis consistent with this purpose, and that they are appropriately governed. Having demonstrated those matters to the satisfaction of the ACNC, registered charities with the sub-type of PBI may become eligible for certain tax concessions (including income tax, fringe benefits tax and payroll tax) as well as DGR status.
However, many submissions noted that gaining this status is a complex process, alongside concurrent regulatory requirements, and processes. As previous Commonwealth-sponsored independent reviews and charity sector submissions have already highlighted, gaining DGR status is a cumbersome regime often written in bureaucratic language that many charities find challenging to understand (Stronger Charity Alliance #121). Indeed, for small, grass-roots organisations with low capacity, compliance, or regulatory expertise, gaining and maintaining DGR status is associated with burdensome administrative, compliance and reporting costs. The process can also become complicated for NFPs that work across multiple sectors or issues, as they are required to jump through different bodies and hurdles, depending upon the nature of the diverse programs within their organisation. In this vein, organisations covering a range of social issues (e.g. preventing poverty) may be unable to gain DGR status because they do not fit into one category (Jesuit Social Services #165).
It was further noted that many organisations that pursue impact-focused cause areas that are increasingly motivating Australians to give today, such as catastrophic disaster prevention to animal welfare, remain excluded from DGR status under Australian law (Effective Altruism #34). Indeed, DGR status can be extremely onerous for organisations applying under the four unique DGR registers: environmental organisations, harm prevention charities, cultural organisations, and overseas aid organisations. This is because these four categories are not designated by the ACNC but are instead administered by Ministers through departmental registers (Treasury 2023). Ultimately, tax deductibility is a key driver of donor behaviour in Australia meaning that these challenges have significant and ongoing impacts on the level of philanthropic giving in Australia.
Responding to this, a great number of submissions advocated that the DGR regime could be simplified and made more equitable by extending DGR status to all charities registered with the ACNC, provided they do not use tax deductible funds for purposes explicitly specified as not related to their charitable work (Alannah & Madeline Foundation #47; Stronger Charity Alliance #121; Philanthropy Australia #162; Jesuit Social Services #165). This change would cut red tape for government and charities, and bring Australia in line with nations whereby giving as a percentage of GDP is higher than in Australia, such as the US, UK and New Zealand (Philanthropy Australia #162).
The extension of the DGR status to intermediary organisations with DGR2 working with local charities overseas (that do not have Australian DGR 1 status) was also flagged within the submissions. For intermediary organisations, such as The Intrepid Foundation with DGG2, Australian residents for tax purposes can only receive a tax deduction if they ultimately choose to donate, via the intermediary organisation, to an Australian DGR1 charity partner. However, if donors choose to donate to one of the many diverse, impactful non-DGR1 partners abroad, even via an intermediary, then the Australian taxpayer cannot receive a benefit for this type of donation (Intrepid Foundation #86). With just 10% of Australian donations going overseas this change could incentivise Australians to give more to urgent and locally-led overseas causes (Dawn Wade Foundation #87).
Further to this, at present, ancillary funds can only use the non-grant distribution provisions if the benefit is to a DGR Item 1. In this context, several submissions advocated that tax deductibility and other benefits afforded to DGR Type 1 charities should also be afforded to DGR Type 2 (PAF and PuAF) charities. If DGR status were broadened to include all charities, ancillary funds could support charities more easily through below-market loans and loan guarantees (Intrepid Foundation #86; Dawn Wade #87 and Center for Social Impact #191).
Further recommendations included that DGR status should be applied on the basis of the scale of the issue, how neglected or crowded the area is or whether efforts to address the issue can be effective (Effective Altruism #34). In particular, in the context of growing climate concerns, extension of DGR status to environment focused charities was highlighted (Effective Altruism #34; Intrepid Foundation #86; Dawn Wade #87). Finally, the UK ‘Gift Aid’ scheme – whereby both the donor and the charity retain some form of tax break on donations – was highlighted as a possible example to review to boost charitable giving in Australia (UNICEF Australia #172).
Crucially, it is important to note that these recommendations are not new and were previously covered by the Commonwealth’s NFP Sector Tax Concession Working Group (2013) over a decade ago and the 2010 Productivity Commission into the Contribution of the Not-for-Profit Sector where it noted: “The Australian Government should progressively widen the scope for gift deductibility to include all endorsed charitable institutions and charitable funds”. (Research Report, 2010, 178-179).
#2 Encouraging Later-in-Life or Legacy Giving:
The topic of legacy giving, through gifts in wills or bequesting of superannuation balances, was also regularly highlighted throughout the 2023 Philanthropy Productivity Commission submissions.
While $2.6 trillion is set to be passed between generations over the next 20 years to 2040 – at present around only 7 per cent of Australians are leaving bequests in their wills (Fundraising Institute of Australia #134; Philanthropy Australia #162). Bequests are a consistent and essential revenue stream to many NFPs in Australia. Consequently, fostering incentives to make ‘living’ bequests, as exists in leading philanthropic countries, could make a substantial difference to levels of philanthropic giving in Australia.
To remedy this, several submissions recommended that the Productivity Commission undertake policy design work aimed at delivering maximum benefit and establishing a Living Legacy Trust structure, drawing on previous work and advice from interested philanthropists. For example, the living legacy trust structure could establish a new tax incentive, where donors could place their capital in a trust for the benefit of a charity upon the donor’s passing. Submissions also recommended that the Productivity Commission re-examine the merits, benefits and costs of removing capital gains tax on donations of shares to DGR charities (Mission Australia #61; Philanthropy Australia #162; Center for Social Impact #191; The Smith Family #216).
The need to harness the untapped potential of super balances at death was likewise featured in various submissions. Australia has an ageing population and superannuation balances at death are set to reach at least $130 billion by 2059 (Philanthropy Australia #162). However, at present, where members of the public allocate a portion of their superannuation to be donated to a NFP at their passing, they are required to fill out what is called a ‘binding death nomination’ where the money is transferred to their estate, the amount is then taxed and then paid out. To make this form of giving more streamlined and compelling for the Australian public, several submissions advocated for the lifting of these tax penalties. In particular, individuals should be able to nominate charities as beneficiaries and the eventual donation to these charities, especially if the charity has DGR status, should be exempt from taxation – consistent with the way in which donations are treated during lifetime (Alannah & Madeline Foundation #47; the Smith Family #216; Save the Children #246). Ultimately, this reform could be a powerful lever to enhance Australian giving. Moreover, it would also be highly cost-effective for the Government – as whilst it should be tax free it will not attract a tax deduction (Philanthropy Australia #162; Center for Social Impact #191).
Finally, several submissions highlighted the need for a more structured option to donate at tax time. Australians could be ‘nudged’ into making a tax-deductible charitable donation when they complete their tax returns, through the inclusion of specific questions and opportunities, built into the tax return process itself (Alannah & Madeline Foundation, #47). With around $30 billion being returned from income taxes each year, this prompt could provide billions in additional funds to charities and could efficiently enhance Australian giving culture (Philanthropy Australia #162; Center for Social Impact #191).
#3 National giving campaign
A third theme that emerged in our review was the need for a national giving campaign. Sustained campaigns have shifted our national behaviour in fields including tobacco, sun protection, HIV, and depression. A campaign to inspire Australians, normalise and enhance community understanding of the value of philanthropy and to give the public simple, practical ways to give could unleash the generosity and ‘fair go’ ethos that is an essential part of the Australian identity (Alannah & Madeline Foundation #47; AIDN #143; Philanthropy Australia #162; The Smith Family #216). However, changing culture and doubling giving can only succeed if key actors in society also change their behaviour. A giving campaign should also target markets with great potential for growth, including high net worth Australians and business (Philanthropy Australia #162).
Importantly, there were diverse visions for how this campaign should look for different organisations. For some, the Productivity Commission should consider a national female-led philanthropy campaign (Nobel Ambition #131), for other organisations it could be an opportunity to highlight the existing and strong foundations of Australian philanthropy including the effectiveness and responsiveness of the ACNC – ultimately to foster public trust and confidence in registered charities (Australian Communities Foundation #100; The Smith Family #216). Indeed, the need to highlight the considerable regulatory and compliance work being undertaken in the philanthropy sector or key resources such as the ACNC’s searchable public charity database was highlighted. Whilst this is not an ‘emotional’ topic to convey to a public audience, it would be an impactful strategy to securing public support for philanthropic giving (AIDN #143).
At AIDN, we were inspired to see these innovative and creative submissions and look forward to working with our network to see these changes put into practice.
Notes and references:
1) Commonwealth’s NFP Sector Tax Concession Working Group (2013) and Productivity Commission into the Contribution of the Not-for-Profit Sector (2010).
2) AIDN has welcomed the news that from January 2024 Deductible Gift Recipient (DGR) status has been streamlined for organisations applying under four unique DGR registers (environmental organisations, harm prevention charities, cultural organisations, and overseas aid organisations). This is part of the Government’s commitment to boosting philanthropy and supporting a vibrant charitable sector (Treasury 2023).
3) Extending DGR status to all registered charities “but restricted to activities that are not for the advancement of religion, childcare and education” (Philanthropy Australia #162; Center for Social Impact #191).