While “religious charities” are the most common type of charitable activity, they do not come with an automatic DGR tax status. We explore this in greater detail and look at strategies that can be used for charities attempting to gain DGR status.
Last updated 27 April 2022
According to the ACNC’s most recent Charities Report, the most common reported charitable activity by charities is Religious Activity. It made up 30.4% of reported activity with the next highest activity Primary and secondary education at just 8.7%.
A staggering 18,918 charities (39.1%) of charities have Deductible Gift Recipient (DGR) status.
However, most religious charities are not automatically eligible for DGR status as a religious charity.
In this article we explore what DGR status means, whether religious charities are eligible and some strategies for gaining DGR status for your religious charity
Advancement of religion for the public benefit
Where a charity’s purpose is the purpose of ‘advancing religion’, it is deemed to be for the public benefit.
According to the ACNC, a religion involves a belief in a supernatural being, thing or principle and acceptance of canons of conduct which give effect to that belief. Advancing religion involves promoting those beliefs, principles, observances and standards of conduct.
Charities seeking registration under the advancing religion sub-type are expected to demonstrate to the ACNC how the charities’ activities advance religion.
A religious organisation that is a registered charity with the ACNC under the advancing religion sub-type may be eligible for income tax, fringe benefit tax and goods and services tax concessions.
DGR eligibility and endorsement
Organisations endorsed as DGRs are entitled to receive gifts which are deductible from the donor’s income tax – providing an incentive to donate to the particular charity.
The Australian Tax Office (ATO) endorses DGR status to organisations, based on their purpose or the purpose of a fund, authority or institution it operates.
This confers an important benefit, since it allows the charity to promote its DGR status to donors.
There are two types of DGR endorsement by the ATO:
- where an organisation as a whole falls within a DGR category
- where a fund, authority or institution that is operated by an organisation falls within a DGR category.
There are approximately 50 DGR endorsement categories available. A detailed outline of the categories can be found here.
Notably however, advancing religion is not a DGR type. So, religious organisations are not generally entitled to DGR status in their own right.
However, certain funds, authorities and institutions operated by a religious organisation may fit one of the DGR types, and may be eligible for DGR status for donations specifically made to them.
Some examples include:
- An Australian Disaster Relief fund operated by a registered charity
- A public fund for religious instruction in government schools
- A school building fund
- A public fund for provision of family counselling or family dispute resolution
in each case operated by a registered charity.
Other pathways to DGR eligibility
Advancing religion is not a charitable activity that is specifically eligible for DGR endorsement; however, a religious organisation registered under more than one charitable sub-type, may be eligible for DGR endorsement under one of its other charitable sub-types.
For example, a religious charity also registered as a public benevolent institution (under the welfare and rights category), may be eligible to obtain the DGR status if its main purpose is to provide for the relief of poverty, sickness, disability, destitution, suffering, misfortune or helplessness.
If DGR status is critical to your organisation’s capacity to attract donors, it may be more important to make religious activity secondary to the primary purpose of the relief of poverty in the design of your organisation’s charitable purposes.
For example, you might make the relief of poverty your primary purpose but require that in undertaking that purpose your charity does so consistently with the values and principles of a particular faith.
Further ACNC and ATO considerations
Registered religious institutions may be entitled to tax concessions, including income tax exemption, fringe benefits tax (FBT) concessions and goods and services tax (GST) concessions.
To be considered a religious institution, a registered religious charity needs to be able to demonstrate it is an organisation of substance.
The ACNC has noted:
- An institution is an establishment, organisation or association, that exists to promote some object, especially objects of public utility, or religious, charitable or educational objects.
- To be an institution your charity must not be merely a fund. It must do more than just distribute funds to other organisations or individuals, or simply make property available for others (as a fund may do). It must have its own activities, engage others to undertake activities on its behalf or be part of a relationship of collaboration (such as being part of a structure of organisations) that is organised and conducted for or promotes benevolent relief…
- its size and permanence are also relevant to whether your charity is an institution.
On the other hand, the ATO has indicated that:
An institution is not:
- a fund – for example, a trust merely to manage or hold trust property to make distributions to other entities or people
- a structure with a small and exclusive membership that is controlled and operated by family members and friends and carries out limited activities.
The ATO provides the following example:
Example: Not an institution
- A corporation is set up and controlled by the small and exclusive membership of a family. Its object is to spread the gospel. The only activities are holding assets and arranging for the father of the family to speak at churches on some Sundays.
- The corporation is not an institution.
Tax concessions available from the ATO for religious institutions
Even if your organisation doesn’t meet the DGR requirements there are still valuable tax concessions available:
- Income Tax Exemption: This allows the charity to be exempt from lodging an income tax return or pay income tax.
To obtain this concession, the registered religious institution must be a registered charity and be endorsed by the ATO as exempt from income tax.
A registered charity is to be endorsed by the ATO for income tax exemption if it:
- Has an Australian Business number (ABN)
- Meets at least one of the following tests: in Australia test, deductible gift recipient test or prescribed by law test.
- Meets both of the following conditions: governing rules condition and income and assets condition.
- FBT Concessions: Fringe Benefits Tax is a tax that employers pay for benefits paid to an employee in addition to their salary or wages.
If you are eligible for the FBT rebate, you will receive a refund equal to 47% of the gross FBT payable up to a cap of $30,000.
However, to access this rebate, the organisation must be a registered charity and endorsed as a charity by the ATO.
- GST Concessions: A religious institution may be exempt from paying GST on religious services.
A religious service is a service supplied by an ACNC-registered religious institution and is integral to the practice of that religion.
Examples of these services include worship, Friday prayer, Sunday school, religious retreats, religion study groups and funerals.
Are you thinking about DGR status for your religious charity?
Please get in touch with Birchgrove Legal NFP Team today on (02) 9055 8348 for a confidential discussion.