Federal Budget Targets Philanthropy

As part of the Federal Budget the Commonwealth Government is set to introduce a number of changes to enhance philanthropy in areas of taxation and compliance.

The Government has targeted philanthropy by extending a tax deduction for the donation of small parcels of shares; and by streamlining the compliance requirements of deductible gift recipients (DGRs), while reducing their compliance costs.

The changes will provide more options for philanthropy by allowing taxpayers to claim a tax deduction for the donation of publicly listed shares acquired more than 12 months ago and valued at $5,000 or less to a deductible gift recipient.

Taxpayers will still be subject to capital gains tax.

The government says the aims are to:
– Increase public confidence in specifically listed DGRs by extending the Commissioner of Taxation’s power to review DGRs specifically listed in the tax law to ensure their activities align with the purposes and activities that they were listed to undertake. These powers are consistent with the review powers vested in the Commissioner of Taxation for those DGRs endorsed under the general categories. The Government and the Parliament will retain the power to approve (or revoke) specifically listed DGRs.

– Lower the compliance costs for certain DGRs by removing the requirement to maintain separate gift funds for each DGR endorsement or listing and allowing entities to maintain one gift fund for all DGR supported activities and purposes.

– Increase the options available for taxpayers to make tax-deductible donations to deductible gift recipients (DGRs) and allow DGRs to receive small parcels of shares;

– Ensure that the activities of specifically listed DGRs are subject to review by the Commissioner of Taxation in the same way that endorsed DGRs are; and

– Reduce administration and compliance costs for DGRs by minimising the number of gift funds that certain DGRs with multiple DGR endorsement or listings are required to maintain.

The cost to revenue of the initiatives is $10 million in 2007-08 and $11 million in both 2008-09 and 2009-10.

Under the current system taxpayers would need to sell their small parcels of shares and donate the proceeds to a DGR in order to receive a tax deduction. Taxpayers could only receive a deduction for shares donated to a DGR that were purchased during the 12 months before they were donated or where the shares are valued at more than $5,000.

DGRs were required to maintain one gift fund for each fund, authority or institution they operated.

The Government will also broaden the scope of the Foundation for Rural and Regional Renewal (FRRR) to allow it to receive tax deductible donations from regional community foundations and to use these funds exclusively for projects in those regions, with effect from 1 July 2007.

The FRRR, a joint Government initiative with the philanthropic sector, was established in 2000 and listed as a deductible gift recipient (DGR), to promote rural and regional renewal, regeneration and development in Australia in social, economic, environmental and cultural areas.

The Budget says this measure allows the FRRR’s funding decisions to reflect the donors’ choice of geographic region, and for donations to be used exclusively for projects in specified regions. The FRRR will remain responsible for assessing all community-funded projects against the established FRRR criteria, and for ensuring that funded projects fall within the scope of the FRRR purposes.

The measure provides an additional avenue for funding charitable rural and regional community projects within the broad DGR policy framework, which will give certainty to community foundations that local-level fundraising and philanthropic efforts within their communities are guaranteed to benefit their local community.

The government says the impetus for the measure stems from a view that worthy community projects are unable to receive deductible donations from community foundations in rural and regional communities because of the small number of DGR organisations in those communities that undertake local projects.

Donors will be able to direct DGR funds to an expanded range of charitable projects within rural and regional communities, subject to the FRRR’s approval.

The cost to revenue of the initiative is $1.2 million in 2008-09 and $1.3 million in 2009-10.

The proposal complements the FRRR’s existing activities, and is a simpler and more targeted model to that recommended by the Prime Minister’s Community Business Partnership, which sought to expand the scope of community foundations to allow them to use deductible donations to fund non-DGR projects in rural and regional Australia.