If your Church or Charity offers tax deductibility for some (but not all) donations, be aware that the ATO is watching you!
Many Churches and charities that do not have DGR status (ie, deductible gift recipient status, which gives donors a tax deduction for their donations) set up separate DGR entities or funds to take advantage of rules which may allow tax deductibility for certain parts of their mission. Obviously that is a “carrot” for donors to make or increase a donation, but it comes with several corresponding “sticks” for your organisation:
- Time and complexity – each extra fund or entity takes extra hours from your admin and finance teams to manage which cannot then be devoted to your missions. There are different rules for different entities as well, which can sometimes be forgotten over time, or when new staff come on. For example, some DGR entities have rules about who can be on their Board, which may not match up with the people who are elected to your main Board or Parish Council, or you may have to allocate overheads between different entities that share staff and premises.
- Cost – each separate entity requires separate regulatory filings, some of which have fees attached, and each of which will have to be reviewed/audited by your external auditors.
- Confusion – your stakeholders (eg congregation, donors, suppliers, the people you serve) may be confused about who they are dealing with in any one instance. Sadly a social media post, or even a website or email communication, does not often lend itself to a clear explanation of which part of your overall organisation is doing the talking.
But we all know this – the new news is that the ATO has announced as one of its key focuses “In entity groups with a mix of DGR and non-DGRs, are donations reaching the correct entity?”. This has 4 aspects:
· Is your DGR entity receiving donations for causes which fit the criteria it must meet to keep DGR status?
· Do your donors/congregation members understand they may need to specify which entity in your organisation should receive the donation?
· Do you have processes to ensure that each donation received goes into the right bank account to get to the right recipient?
· Does the right entity in your organisation send the right receipt specifying if a gift is tax-deductible or not to the right donor?
If the ATO comes knocking one day and finds a problem, not only will that cause big problems for your organisation, it could cause big problems for your donors, especially if they have submitted incorrect tax returns based on your receipts. That’s a good way to trash your reputation and lose donors!
So, while having a DGR entity within your organisation can enable you to raise more money, remember – big brother is watching you!