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The Tax Institute welcomes the opportunity to provide comments to the Treasury in relation to the consultation on the Deductible Gift Recipient (DGR) Registers Reform exposure draft legislation and explanatory material.
In the development of this submission, we have closely consulted with our National Not-for-profit Technical Committee to prepare a considered response that represents the views of the broader membership of The Tax Institute.
Our feedback is set out below.
The requirement to maintain a gift fund
The Tax Institute is of the view that the mechanism for endorsement of the four DGR categories, referred to in the exposure draft legislation, is unduly complex in relation to the requirement to maintain a gift fund. The exposure draft legislation seeks to endorse a whole organisation as a DGR under section 30-120(a) of the Income Tax Assessment Act 1997 (ITAA 1997). Generally, where the whole organisation is endorsed under section 30-120(a) there is no need to comply with the gift fund requirements and section 30-130 does not apply. However, under the special conditions contained in section 30-45, 30-55 and 30-100 of the exposure draft legislation, it then requires compliance with section 30-130 (maintaining a gift fund).
The separate treatment of these four categories of DGR undermines the intention of reducing the red tape and harmonising the administrative requirements of the DGR categories. It also creates confusion as discussed in the next section of this submission. We have provided recommendations to simplify this as outlined below.
Section 30-125(6)(b) of the Income Tax Assessment Act 1997
The Tax Institute is of the view that the gift fund rules should be simplified so taxpayers and practitioners can easily and accurately apply them. For example, the words ‘by this section’ in section 30-125(6)(b) of the ITAA 1997, creates confusion (as outlined below) and the removal of this wording would better clarify its application.
We understand from our members that most of these funds are setup by establishing an entity with an ‘internal’ public fund, with the entity being endorsed as a DGR for the operation of that public fund under section 30-120(b). This means that the entity must maintain a complying gift fund under section 30-130, by virtue of section 30-125(2)(e). In effect, the public fund is the gift fund. Under the transitional rules in the exposure draft, entities that already have such an endorsement are instead deemed to have been endorsed under section 30-120(a). This would ordinarily mean that they do not require a gift fund. However, the requirement to have a gift fund is now built into the relevant item numbers in Subdivision 30-B. Our understanding is that this means that both paragraphs (a) and (b) of section 30-125(6) apply as follows:
- paragraph (a) applies because the entity has to comply with section 30-130; and
- paragraph (b) applies because the entity is not required ‘by this section’ to meet section 30-130, rather, it is required to do so by the relevant item number in Subdivision 30-B.
This results in two different sets of similar, but not identical, rules applying.
We recommend that the exposure draft is updated to delete the words ‘by this section’ from section 30-125(6)(b), so that the test is no longer required to be met. The application of two different sets of rules is complex for taxpayers and practitioners to understand and is likely to result in inadvertent misapplication of these rules. Alternatively, we consider that it would be preferable to simplify the gift fund rules in their entirety.