As a continuation of our deductible gift recipient (DGR) series, we explore the characteristics and requirements of the DGR category – overseas aid fund (OAF). OAFs are a type of fund eligible to be endorsed as a DGR and receive tax deductible gifts, under item 9.1.1 in section 30-80 of the Income Tax Assessment Act 1997 (Cth) (ITAA).
What is Deductible Gift Recipient endorsement?
In general terms, organisations (or funds) with DGR endorsement are permitted to receive gifts of money or property from donors and issue a tax deductible receipt.
Obtaining DGR endorsement is desirable for many organisations, as DGR endorsement allows a donor to claim certain donations as a deduction when filing a personal income tax return and can therefore help attract more donations. DGRs may also be eligible to receive funds from a number of philanthropic bodies (such as ancillary funds) which are restricted to only donating to certain types of DGRs.
What are the general DGR requirements?
To be eligible for DGR endorsement, an organisation or fund must generally:
- be a not-for-profit;
- have an Australian Business Number (ABN);
- fit into a specific DGR category/type and satisfy any specific eligibility criteria for that DGR type (in this case OAF);
- be established and operated in Australia;
- have specific rules for transferring surplus gifts and deductible contributions if the organisation is wound up or its DGR endorsement is revoked; and
- if applicable, comply with the public fund or gift fund requirements (see below).
To gain a deeper understanding of DGR endorsement, you can read our article, ‘Could your organisation be endorsed as a deductible gift recipient?’
What is an Overseas Aid Fund?
An OAF is a public fund established and maintained solely for the relief of persons in declared developing countries.
Along with the general DGR requirements above, to receive tax deductible gifts, an organisation establishing an OAF must:
- apply through the Department of Foreign Affairs and Trade (DFAT) to be admitted as an approved organisation under the Overseas Aid Gift Deduction Scheme (OAGDS); and
- once approved, establish an OAF and seek approval from the Treasurer to be a developing country relief fund.
What are the requirements to be an approved organisation under the OAGDS?
The OAGDS is in place to provide donors and the public with confidence that an approved organisation has the capacity to effectively deliver and manage overseas aid activities in partnership with in-country organisations. It also ensures approved organisations have appropriate safeguards and risk management mechanisms in place for child-protection and countering terrorism funding.
As set out in the OAGDS Eligibility Criteria, to be eligible as an approved organisation, the organisation must:
- have a voluntary governing body (i.e., its directors are not paid);
- be a registered charity with the Australian Charities and Not-for-profits Commission (ACNC);
- deliver overseas aid activities;
- have the capacity to manage and deliver overseas aid activities;
- deliver the activities in partnership with in-country organisations, based on principles of cooperation, mutual respect and shared accountability; and
- have appropriate safeguards in place to manage risks associated with child protection and terrorism.
Overseas aid activities
Overseas aid activities include development and/or humanitarian assistance activities.
Development activities are activities which improve the long-term well-being of individuals and communities in developing countries. To be eligible the activities must:
- demonstrate fair distribution (improve the well-being of those in need without favouritism or discrimination by race, religion, culture or political persuasion);
- be informed by local people (as the primary stakeholders in development); and
- deliver sustained or lasting benefits, such as through capacity-building and/or an exit strategy.
Humanitarian assistance activities are activities which save lives, alleviate suffering and maintain human dignity during and in the aftermath of humanitarian crises in developing countries. The activities must:
- be in response to a humanitarian crisis (i.e., threatens the lives, health, livelihoods, safety, security or wellbeing of a community or other large group of people);
- meet an immediate need (generally food, shelter, protection, psycho-social support and medical attention but may include education); and
- have a planned transition or exit strategy that supports the sustainable recovery and resilience of the affected population in the medium and long-term.
These activities must be delivered in a developing country or countries as declared by the Minister for Foreign Affairs (the Minister). A list of declared developing countries can be found on the DFAT website here. This list is reviewed every three years and was last updated in March 2022.
Ineligible activities include those which:
- support partisan political and/or proselytism activities;
- do not meet locally identified needs;
- create dependency;
- do not lead to lasting benefits; or
- do harm.
Applicants will need to demonstrate they have the ability to separate their management of overseas aid activities from other activities the organisation supports. DFAT will review an applicant’s governing document, strategic plan or other documents to establish its priorities.
More information on activities and good practice principles can be found in the OAGDS Guidelines.
Capacity to manage and deliver
An applicant will need to demonstrate to DFAT its ability to manage and deliver its aid activities, evidence of which may include project plans, budgets, partnership agreements or processes for monitoring, reporting, reviewing and assessing projects and activities.
Partnering in delivering overseas aid activities
DFAT requires applicants to explain how they will work with developing country partner organisations or groups, to ensure all parties contribute and add value to the delivery of aid activities, with shared values and objectives for aid activities.
Child protection and terrorism safeguards
Applicants will need to have child protection and counter terrorism policies in place. Processes will also need to be implemented to ensure:
- Australian Federal Police criminal history checks are undertaken for those who have direct contact with children in the organisation; and
- potential partners and key individuals and entities receiving funds are screened against the DFAT Consolidated List and terrorist organisations listed under the Criminal Code Act 1995 (Cth).
In many respects, these requirements align with those placed on registered charities by the ACNC. Charities operating overseas have an obligation to comply with the External Conduct Standards, which are a set of minimum standards for conduct, governance and behaviour. For more information on complying with these obligations, you can read our article, ‘Where in the world are you operating? Five considerations for charities operating overseas’.
What are the requirements for a developing country relief fund?
Once DFAT has approved the applicant, the organisation will need to establish the OAF and seek approval from the Treasurer. In order for an OAF to be declared a developing country relief fund, the Australian Taxation Office (ATO) will require the OAF to have its own rules and objects and meet the public fund requirements. These rules and objects may be in a separate document or baked into the organisation’s governing document.
As set out in the ATO Guidance, the rules and objects will need to include provisions which stipulate the OAF will:
- have its own name which reflects the fact that it is a developing country relief fund;
- issue its own receipts for donations in the name of the OAF;
- receive contributions from the public;
- have a separate bank account to deposit tax-deductible donations with clear accounting procedures to allow for transparency and accountability;
- have its own management committee of at least three people to manage the public fund (with the majority of the management committee meeting the ‘responsible person’ requirement as set out by the ATO);
- advise the ATO of any changes to the rules and objects affecting the operations or financial arrangements of the OAF; and
- ensure surplus gifts and deductible contributions are transferred to another OAF in the event the organisation is wound up or DGR endorsement is revoked.
Once the OAF has been approved, a notice will be published in the Government Notices Gazette (or Special Notices Gazette) and declared as a developing country relief fund.
What conditions apply to a gift made to an OAF?
Section 30-85(1) of the ITAA only permits the deduction of a gift made to an OAF where the declaration outlined above is in force at the time the gift is made.
What are the considerations when applying under this DGR category?
As demonstrated above, the application process to achieve tax deductibility under the OAGDS is quite involved and requires a significant effort by organisations (and their advisors). If DGR endorsement is the sole objective, organisations may wish to explore other available DGR categories for endorsement. However, it is acknowledged there are organisation specific reasons (including those related to external accreditation and funding sources) why an organisation may wish to pursue or maintain its status as an OAGDS.
How can we help with DGR and OAF?
If you would like to find out more about DGR endorsement, establish an overseas aid fund or ensure you are currently compliant with your DGR requirements, please get in touch with our specialist Charities + Social Sector Lawyers.