As a continuation of our deductible gift recipient (DGR) series, in this article we explore the characteristics and requirements of the DGR category – Public Fund for Persons in Necessitous Circumstances. This category is a type of fund eligible to be endorsed as a DGR and receive tax deductible gifts, under item 4.1.3 in section 30-80 of the Income Tax Assessment Act 1997 (Cth) (ITAA).
What is deductible gift recipient endorsement?
If your organisation has DGR endorsement it can receive gifts of money or certain types of property from donors and issue a tax deductible receipt. This allows donors to claim the donation as a deduction when filing their personal income tax return. Unsurprisingly, DGR endorsement is appealing to many organisations because of this added incentive for donors to give.
DGR endorsement is also beneficial because DGRs are eligible to receive funds from a number of philanthropic bodies (such as ancillary funds) which are restricted to only donating to certain types of charitable DGRs.
What is a public fund for persons in necessitous circumstances?
An organisation seeking DGR endorsement through registration as a necessitous circumstances fund will receive DGR endorsement for the operation of a specific fund, rather than endorsement for the whole organisation.
A necessitous circumstances fund is a public fund established and maintained to provide relief for individuals in Australia who are in necessitous circumstances. This is the sole purpose of the fund.
In addition to the general DGR requirements mentioned below, the fund must be either:
- an Australian government agency;
- a registered charity; or
- operated by an Australian government agency or a registered charity.
What are 'necessitous circumstances'?
The term ‘necessitous circumstances’ refers to financial necessity rather than needs based on age, health or some other criteria, and involves some degree of poverty. It does not extend to needs generally. The concept of poverty does not require abject poverty or destitution but does not mean just being without luxuries. For example, an individual could find themselves in necessitous circumstances when their financial means fall short of supporting a modest standard of living in Australia. An indication of this situation arises when an individual's income falls within the range that qualifies them for government benefits based on income assessments.
Additionally, factors like health issues, disabilities, or family responsibilities can contribute to non-financial needs which result in financial necessity.
The necessitous circumstances do not need to be permanent and may be a direct result of a crisis such as a natural disaster.
What qualifies as ‘providing relief’ in necessitous circumstances?
The provision of relief under this category is provided by giving money or goods directly to the person(s) in need. Relief of poverty comes within the charitable purpose of advancing social and public welfare. To relieve poverty implies that those persons have a need attributable to their condition or circumstances which requires alleviating, and which cannot be alleviated without third party support. For more information see our article, Charitable Purpose Series – Advancing Social or Public Welfare.
The fund must exclusively provide benefit to persons in necessitous circumstances in Australia. Where a fund also services persons not in necessitous circumstances it does not qualify under this DGR category.
A fund can give money or goods to an organisation, but only in certain circumstances. The purpose of the recipient organisation must be to provide care and relief of persons in necessitous circumstances.
The governing document of the fund must specify who the fund is for, e.g., if it is to relieve a specific individual or a wider affected group, to their particular necessitous circumstances. It is not enough to state a fund is on trust for someone or a group of affected people.
In exceptional circumstances a fund can be established for the benefit of a person in Australia but will actually provide relief overseas. However, this would be in limited circumstances such as an Australian person obtaining medical treatment overseas which cannot be undertaken in Australia.
What are some examples of necessitous circumstances funds?
The ATO provides various examples of necessitous circumstances funds, which include a:
- local community raising funds for an individual permanently debilitated in an accident where the individual requires medical treatment and has no insurance or means to pay for the treatment;
- fund created to support victims of fires or flooding; and
- fund to support young brain cancer patients and their families who cannot pay for treatment.
What are the general DGR requirements?
To be eligible for DGR endorsement, an organisation or fund must generally:
- be a not-for-profit which, in almost all cases, must also be a registered charity;
- 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 a necessitous circumstances fund);
- 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.
To gain a deeper understanding of DGR endorsement requirements generally, you can read our article, ‘Could your organisation be endorsed as a deductible gift recipient?’
What if my organisation is not registered as a charity?
Prior to the changes to the ITAA introduced by the Treasury Laws Amendment (2021 Measures No. 2) Act 2021 (Cth), non-government necessitous circumstances funds (and other types of DGRs) were not required to be registered as charities with the Australian Charities and Not-for-profits Commission (ACNC) or operated by a charity registered with the ACNC. However, all non-government necessitous circumstances funds seeking to obtain or maintain DGR endorsement must now be either:
- registered with the ACNC; or
- operated by a charity registered with the ACNC.
Due to the transitional arrangements in place, existing DGRs and DGR applicants had until 14 December 2022 before the requirement to become a registered charity with the ACNC applied. There was also an option to apply to the Commissioner within this window for an extension (of up to three years, in limited circumstances). This means any existing DGRs that did not become a registered charity or obtain an extension are now non-compliant and risk loss of DGR endorsement.
When considering registration as a charity with the ACNC, it is also important to note necessitous circumstances funds are exempt from one of the key requirements. That is, necessitous circumstances funds are to disregard the requirement that its purpose be directed to a benefit that is available to the members of the general public, or of a sufficient section of the general public, if the purpose is the purpose of relieving the necessitous circumstances of one or more individuals who are in Australia.
- When establishing a fund of this kind, be sure to clearly identify the financial need that the fund is established to support;
- A necessitous circumstances fund can use an application form to obtain the required financial information from those requesting assistance. This will not be required in circumstances such as a natural disaster where the need is evident; and
- The fund must only support people in necessitous circumstances. If the fund extends beyond this to provide relief not in necessitous circumstances it will not qualify under this DGR category.
How can we help?
If you would like to find out more about DGR endorsement, establish a public fund or ensure you are currently compliant with your DGR requirements, please get in touch with our specialist Charities + Social Sector Lawyers.