If you would like to learn about whether your environmental organisation can receive tax deductible gifts then read on!
In this article we explore the Commonwealth tax-deductibility scheme for environmental organisations, including eligibility and reporting obligations.
The Register of Environmental Organisations (REO) provides deductible gift recipient (DGR) endorsement for organisations and their public funds with an environmental purpose.
What is deductible gift recipient endorsement?
If your organisation has DGR endorsement it can receive gifts of money or 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.
For more information on DGR endorsement, and how to become endorsed, click here to read our article, ‘Could your organisation be endorsed as a deductible gift recipient?’.
What is the Register of Environmental Organisations?
One of the categories set out in the DGR table at section 30 of the Income Tax Assessment Act 1997 (Cth) (ITAA) is a public fund listed on the REO. The REO is a register of environmental organisations and their public funds which have been assessed as eligible to receive tax deductable gifts from the public under the ITAA.
Until 2021 and the introduction of reform to the laws relating to the DGR framework, there was no requirement for registered environmental organisations and certain other DGR category entities, to be registered with the Australian Charities and Not-for-profits Commission (ACNC). Following amendments to the ITAA, all registered environmental organisations must now be registered as a charity with the ACNC, otherwise their DGR endorsement will be revoked.
The REO is currently administered by the Department of Climate Change, Energy, the Environment and Water (DCCEEW). Please note legislation is currently before Parliament to transfer administration of the REO from the DCCEEW to the Australian Taxation Office (ATO). If this legislation passes, the ATO will be responsible for the administration of the REO and assessment of the eligibility for any environmental organisations seeking DGR endorsement.
What other tax concessions are environmental organisations entitled to?
As a registered charity, an environmental organisation is entitled to income tax exemption and the goods and services tax concession. Unlike some DGR endorsed entities, inclusion on the REO does not bring with it eligibility for fringe benefit tax (FBT) exemption and instead gives access to the FBT rebate.
What are the requirements for endorsement as an ‘environmental organisation’?
1. An eligible purpose
To be eligible for entry on the REO, organisations must have a principal purpose of either the:
- protection and enhancement of the natural environment or a significant aspect of the natural environment; or
- provision of information or education, or the carrying on of research about the natural environment or a significant aspect of the natural environment.
Reference to the ‘natural environment’ distinguishes the natural environment from other types of environments (such as built, cultural or historical). According to the Register of Environmental Organisations Guidelines 2003 (the REO Guidelines), the natural environment and concern for it includes significant natural areas such as rainforests, wildlife and their habitats, issues affecting the environment such as air and water quality, waste minimisation, soil conservation, and biodiversity and promotion of ecologically sustainable development principles.
The natural environment does not include constructions such as retaining walls of dams, cultivated parks and gardens, zoos and wildlife parks (except those parks and zoos principally carried on for the purposes of species preservation) or cultural sites and heritage properties.
Charities registered under the subtype of ‘advancing the natural environment’ may be an appropriate fit to be listed on the REO if they are seeking DGR endorsement. For more information on this charitable subtype, click here to read our article, ‘Charitable Purpose Series – Advancing the Natural Environment?’
2. Establish and maintain a public fund
An organisation seeking DGR endorsement through inclusion on the REO will receive DGR endorsement for the operation of a specific fund, rather than the whole organisation. As outlined in the ATO Public Fund Guidance and the REO Guidelines, a public fund operated by an environmental organisation must:
- have its own name;
- operate on a not-for-profit basis and in Australia;
- have its own objects and rules clearly set out in the entity’s constitutional documents which satisfy the requirements of the DGR category it is falling under;
- invite and receive contributions from the public;
- issue its own receipts for donations;
- have its own bank account to deposit tax-deductible donations with clear accounting procedures to allow for transparency and accountability to ensure property and money donated to the fund is used for the purpose it was donated; and
- 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, who, because of their tenure of some public office or their position in the community, have a degree of responsibility to the community as a whole as recognised by the ATO).
3. Compliance with Ministerial Rules
An environmental organisation listed on the REO must agree to comply with any rules the Assistant Treasurer and the Minister for the Environment make to ensure gifts made to the fund are used only for its principal purpose. To be endorsed, environmental organisations must ensure their governing document (e.g. constitution) includes a clause specifying they will accept any rule the Ministers make to ensure gifts made to public funds will only be used for the environmental purposes.
Presently there are two Ministerial Rules. The first requires environmental organisations to answer all questions from the DCCEEW. The second requires environmental organisations to inform the DCCEEW of any changes to:
- its name or name of the public fund;
- its membership of the management committee of the public fund; or
- the model rules of the public fund.
4. Minimum membership requirement
Under section 30-275 of the ITAA, a body corporate (except a statutory authority) or a co-operative society is an environmental organisation only if its membership consists principally of bodies corporate or it has at least 50 members who are individuals that are regarded as financial members and entitled to vote at a general meeting of it. The Minister for Environment may also determine an organisation to be an environmental organisation under special circumstances, even if it does not meet either of these requirements.
5. Have a conduit policy
Environmental organisations must also have a conduit policy, which prevents the organisation from acting as a collection agency or being directed by a donor to act as a conduit by passing a donation of money or property to other organisations, bodies or persons.
DGR funds may be passed however, to a non-DGR entity where that organisation does environmental projects or other nature conservation work.
What are the reporting requirements for an environmental organisation?
In addition to reporting obligations with the ACNC, organisations on the REO have reporting requirements under the Ministerial Rule. In accordance with this rule, environmental organisations must report on donations made to the organisation’s public fund on an annual basis, by lodging a statistical return form with the DCCEEW. With anticipated DGR reform, reporting obligations will likely shift to the ACNC or ATO. The purpose of this reporting is to provide information on the expenditure and management of the public fund.
How can we help?
If you would like to find out more about DGR endorsement , would like to establish an environmental organisation or if you need to register your environmental organisation with the ACNC, please get in touch with our specialist Charities + Social Sector Lawyers.