A new deductible gift recipient category for community sheds is introduced by the ATO

In the last few years, there has been a steady growth in the number of community sheds across Australia. In recognition of the importance of community engagement, the Australian Taxation Office (ATO) has now introduced a new deductible gift recipient (DGR) category for community sheds^[1] with effect from 1 October 2020.

Provided an organisation meets the eligibility requirements, an organisation can seek endorsement under this new category through the Australian Charities and Not-for-profits Commission (ACNC) or through the ATO (for organisations already registered with the ACNC).

Community sheds that are registered with the ACNC under the charitable subtype of a Health Promotion Charity or a Public Benevolent Institution may need to assess their eligibility to continue being registered under these subtypes.

Here we outline the key benefits of the DGR tax concession, the eligibility requirements and how to apply.

Why DGR is an attractive tax concession

A DGR is a not-for-profit organisation that can receive tax deductible gifts and contributions from the public. This is a very attractive tax concession for an organisation to have, as it encourages donations from the public and allows an organisation to diversify its revenue streams. Some funding bodies also require an organisation to be endorsed as a DGR before they will provide grants.

Community sheds include diverse organisations such as men’s sheds and women’s sheds that undertake a range of activities, such as sharing hobbies and interests or participating in community projects. Until now, for a community shed to be endorsed as a DGR, the organisation had to meet the requirements of one of nearly 50 DGR endorsement categories or be listed by name in the tax law. Although some community sheds have been successful in obtaining DGR endorsement under the category of a Health Promotion Charity or a Public Benevolent Institution, these DGR endorsement categories are very specific and do not necessarily fit the purposes of all community sheds.

According to the ATO,^[2] there are over 1,000 men’s sheds operating in communities across Australia and a smaller number of women’s sheds. In the last few years, there has been a steady growth in the number of community sheds across Australia, in recognition of the importance of community engagement, particularly during the period of COVID-19 restrictions.

Eligibility requirements

A “community shed” is defined as a public institution with the following characteristics:^[3]

• The dominant purposes are advancing mental health and preventing or relieving social isolation.
• The purposes are advanced principally by:
  • providing a physical location, and
  • supporting individuals to work on projects or undertake other activities in the company of others at that location.
• Either:
  • there are no particular criteria for membership of the community shed, or
  • the criteria for membership of the community shed relates only to an individual’s gender or indigenous status (in that membership is, for cultural reasons, open only to individuals of Aboriginal or Torres Strait Islander heritage) or both.

In addition to meeting the above characteristics, to be eligible for DGR endorsement a community shed must:

• have an active ABN
• be located in Australia
• be registered as a charity with the ACNC, and
• have a DGR winding up and revocation clause in its governing document.

How to apply for DGR endorsement as a community shed^[4]

Organisations that are registered with the ACNC (but not as a Health Promotion Charity or a Public Benevolent Institution) can apply directly to the ATO to have their community shed endorsed under the new DGR category.

Organisations that are not currently registered as a charity must apply to the ACNC to become a registered charity before being eligible for DGR endorsement. Once registered, the ACNC will forward the application to the ATO to process DGR endorsement under the new category.

Organisations that are registered with the ACNC as a Health Promotion Charity or a Public Benevolent Institution should use the ACNC’s self-assessment tool to help review their registration and consider whether the organisation:

• is still entitled to be registered as a Health Promotion Charity or a Public Benevolent Institution, or
• should update its registration and apply to the ATO for endorsement under the new DGR category for community shed.

The ACNC will start reviewing DGR-endorsed charities in 2020-2021, and may contact a charity if they identify an issue with its registration. In these circumstances, the ACNC will work with the charity to resolve the issue.

It is important to note that as the law is effective from 1 October 2020, endorsements under the new DGR category will not be applied prior to this date. However, applications for charity registration made after 1 October 2020 can be backdated to the date from which the community shed meets all the requirements for registration.

^[1] https://www.acnc.gov.au/node/5893387.

^[2]  https://tv.ato.gov.au/ato-tv/media?v=bi9or7on9ybxza.

^[3] Subsection 995-1(1) of the Income Tax Assessment Act 1997 (Cth)

^[4] https://www.acnc.gov.au/node/5893387.