The introduction of a new deductible gift recipient (DGR) category is an uncommon occurrence, warranting attention when a development arises. With the Australian Government pursuing its broader objective of doubling philanthropic giving in Australia by 2030, these reforms represent a significant step forward in the sector.
Amendments made in mid‑2024 to the Income Tax Assessment Act 1997 (Cth) (ITAA97) created a new class of DGR, referred to as ‘community charities’. With the introduction of the Taxation Administration (Community Charity) Guidelines 2025 (Community Charity Guidelines) now in force and ministerial declarations being made, the framework has moved from policy announcement to practical implementation. This offers new opportunities for philanthropy and community‑based charities across Australia.
For further information on DGR endorsement generally, please refer to our article ‘Could your organisation be endorsed as a deductible gift recipient?’
The following provides a summary of the key updates:
What is the new DGR category?
This new DGR category represents a variation on public and private ancillary funds. The primary restriction on public and private ancillary funds is that they can only give to DGR endorsed entities and are restricted in many ways to ‘giving’ rather than ‘doing’. These limitations have, for the most part, been removed for community charities.
A community charity must be established and operate only for:
- Providing money, property or benefits to a DGR (other than another community charity) for any of the purposes for which that DGR may receive such gifts; and
- Engaging in the principal activity of a DGR (other than a specifically listed DGR and another community charity) or pursuing the principal purpose of such a DGR.
Significantly, the second limb may be met by funding an organisation which is not endorsed as a DGR, provided any such funding is given for a purpose consistent with a general DGR category.
The amendments to the ITAA97 and resulting new DGR category create a hybrid framework for DGR endorsement by community charities. A community charity is a trust, a constitutional corporation or a body corporate which:
- Has been named in a ministerial declaration (i.e. a legislative instrument that specifically names a trust or incorporated entity and provides an eligibility pathway for DGR endorsement from the Australian Taxation Office (ATO)); and
- Agrees to comply with the Community Charity Guidelines.
If the above is met and the community charity is registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC), it will be eligible for DGR endorsement by the ATO.
How is this pathway different from public or private ancillary funds?
Private and public ancillary funds (Ancillary Funds) are limited to providing money, property, or benefits to other DGRs and are not permitted to directly engage in charitable activities themselves. Under the guidelines for both types of funds, their purpose is to donate to existing DGRs which align with their philanthropic objectives. There are, however, similarities with Ancillary Funds that are worth noting:
- Both require a minimum annual distribution of 4% of the market value of the charity's net assets (as at the end of the previous financial year), with some exceptions in the early years of establishment. However, the government has announced an intention to increase the minimum annual distribution rate for public and private giving funds to 6% of net assets, subject to amendments to the relevant guidelines and transitional arrangements; and
- Both must have an investments policy.
By contrast, a community charity has the flexibility to:
- Engage directly in its own charitable activities, maintaining full control over its operations and initiatives; and
- Support a broad range of activities within the same organisation, as long as those activities align with DGR categories.
This flexibility provides community charities with greater autonomy, allowing them to pursue multiple charitable goals under one umbrella, without the need to establish separate entities for each initiative.
Who will this impact?
The community charity DGR category commenced from July 2024. The first ministerial declaration in March 2025 named four early adopters, and in February 2026 the ministerial declaration was expanded to add a further 34 entities, bringing the total to 38. These entities are now named in the ministerial declaration and can seek DGR endorsement from the ATO (once registered with the ACNC and otherwise meeting the requirements). These foundations operate across different regions in Australia and support a wide range of local causes, including education, mental health, social inclusion, environmental sustainability and disaster recovery.
Addressing challenges and unlocking new opportunities for community charities
Under the previous system, a charitable organisation had two ways to obtain DGR endorsement:
- The organisation fits within one of the 52 existing DGR categories; or
- The organisation is specifically listed by name under the ITAA97. The decision to specifically list an organisation as a DGR is typically reserved for exceptional circumstances and is made by the Federal Government.
However, for some charitable organisations, neither of these pathways may be suitable or feasible. For example, an organisation may wish to undertake several charitable activities, each of which may fall under a different DGR category. Under the previous framework, the organisation had to either choose to pursue a single activity or establish multiple separate charities to cover its diverse initiatives.
The community charity category addresses these challenges by providing a clearer and more accessible pathway for community-based groups to register as DGRs. By securing DGR status, charities have the potential to tap into a broader donor base, which may significantly enhance their fundraising efforts and enable them to better support their local communities.
Furthermore, community foundations faced obstacles hindering their ability to attract donations and support their local communities. For example, they struggled to attract funding from Private Ancillary Funds which are funds set up by individuals and families for private giving. Additionally, community foundations were unable to directly support community groups which did not have DGR status, limiting their capacity to provide essential assistance to grassroots initiatives.
The creation of a new DGR category tailored for community charities offers numerous benefits for charities which support local communities, enabling them to access more streamlined processes for obtaining tax-deductible donations. The move to simplify and streamline DGR registration creates a more accessible system for organisations working at the grassroots level, allowing them to raise more funds and pursue their charitable purposes to a greater extent.
Implications for community charities
The new DGR category and accompanying Community Charity Guidelines represent significant opportunities for community charities to better serve their local communities. By being eligible for DGR endorsement under the new category, organisations can attract more philanthropic support, which is important for long-term sustainability. The new guidelines will also foster better governance, transparency and compliance, aligning the sector with best practices in charitable administration.
One important requirement that distinguishes community charities from other income tax-exempt charities is the obligation to lodge an annual income tax return, even if the charity is exempt from income tax. This is a requirement that does not apply to all other income tax-exempt charity types, and it is essential for community charities to ensure compliance with this filing obligation.
Community charities will need to review their structures, operations, and compliance with the new requirements to take full advantage of these changes. This is an important time for foundations to update their processes, ensuring they meet the necessary criteria to qualify for DGR status and maintain their compliance with the new taxation guidelines.
In summary
These changes represent important reform for community-focused charities across Australia. With the community charity framework now in operation and additional entities named in the ministerial declaration, the new DGR category offers greater opportunities for tax-deductible donations, while the Community Charity Guidelines provide clearer governance and compliance settings. Community charities should continue to familiarise themselves with the requirements to support their charitable purpose and maintain endorsement.
How can we help?
If you would like to find out more about community charities, discuss DGR endorsement or ensure you are currently compliant with your DGR requirements, please get in touch with our specialist Charities and Social Sector Lawyers.