1. Provide Deductible Gift Recipient (DGR) status to all registered charities, initially excluding certain categories of organisations such as those focused on childcare, primary and secondary education and the advancement of religion, as outlined in the PC Report Future Foundations of Giving.

Despite some reform, the system of determining Deductible Gift Recipient (DGR) status still largely favours larger charities that can afford lawyers to assist the progression of their applications.  Many smaller charities do not have the capacity to apply for DGR status, and therefore cannot access the community support that comes when donations are tax deductible.  DGR remains a complex, costly and inequitable system – with less than half of all charities having DGR status.  It makes good policy sense that all donations made to registered, complying charities should be tax deductible.  This is the practice in comparable countries like the UK and Canada.  Australia’s DGR system is broken and needs urgent repair.

The Productivity Commission Future Foundations for Giving Report made the following recommendation 6.1:

The Australian Government should amend the Income Tax Assessment Act 1997 (Cth) to reform the DGR system to focus it on activities with greater community-wide benefits. The scope of the reformed system should be based on the following principles.

• There is a rationale for Australian Government support because the activity has net community-wide benefits and would otherwise be undersupplied.
• There are net benefits from providing Australian Government support for the activity through subsidising philanthropy.
• There is unlikely to be a close nexus between donors and beneficiaries, such as the material risk of substitution between fees and donations.

In applying these principles, the Australian Government should:

• extend eligibility for DGR status to most classes of charitable activities, drawing on the charity subtype classification in the Australian Charities and Not-for-profits Commission Act 2012 (Cth) to classify which charitable activities are eligible for DGR status and which are not
• expressly exclude the following classes of charitable activities or subtypes:
  • • • primary, secondary, religious and informal education activities, with an exception for activities that have a specific equity objective (such as activities undertaken by a public benevolent institution)
      • the activities of early childhood education and care and aged care (other than activities undertaken by a public benevolent institution)
      • all activities in the subtype of advancing religion
      • activities in the other analogous purposes subtype that are for the purpose of promoting industry or a purpose analogous to an exclusion in another subtype

This measure would have an initial projected annual expenditure of approximately $130 million which was previously offset by past savings in ending uncapped FBT entitlements. It would also increase investment in the charitable sector.

2. Create more incentives for giving now as Australia experiences the largest ever inter-generational wealth transfer over the coming two decades.

Living Legacy Trusts

Over the next two decades $2.4 trillion in wealth is expected to pass from Australian ‘baby boomers’ to the next generation.  It is expected that charities will benefit from this wealth transfer through bequests. However, giving by bequest is currently low – in 2012 only 7.6% of final wills had a direct charitable bequest, and charitable bequests accounted for only 2% of the total value of estates.

Living Legacy Trusts involve a donor placing an asset in a trust for the benefit of a charity upon the donor’s passing.  The asset is irrevocably committed to the charity, but the donor can still receive an income stream from the asset while they are alive. In return for irrevocably committing the asset to the charity, the donor receives a tax deduction when they place the asset in the trust, worth a percentage of the asset’s value. This percentage may vary with factors including the donor’s age.  There are also models where intermediaries may be established to manage the donations and enable charities access to the donated funds prior to the passing of the donor.  This immediate access is particularly important given the current economic climate.

This measure encourages giving and enables intending donors to act on their bequest intentions at the time of greatest need (rather than time of death). It extends the policy intent of DGR concession, while supporting donors to maintain a self-supporting income stream.

This measure will have minimal impact to revenue over the next two years, with its impact increasing as the structure becomes more attractive over time. Deloitte Access Economics modelling suggests a cost to revenue of $870 million over 10 years, which would be more than offset with the growth in legacy giving over a ten-year period.

Opt-out workplace giving provisions

When in place, ‘opt out’ systems of workplace giving have ensured much higher levels of success in workplace giving programs. 

Less than 2% of working Australians currently donate to charity from their pre-tax income through workplace giving. When in place, the ‘opt out’ approach to workplace giving can result in 60-70% of employees in an organisation participating.  With ‘opt-in’, average participation rates are less than 5%.  Uncertainty over provisions in the Fair Work Act are an impediment to more widespread use of the ‘opt-out’ approach. Clarifying the Fair Work Act would help increase the number of Australian employees participating in workplace giving. Growing to 10% of employees donating 0.35% of their pre-tax income, would raise over a quarter of a billion dollars each year through workplace giving.  This is a realistic target based on local and international experience that would increase philanthropy and the engagement of Australians in the broader NFP sector.

CCA anticipates there would be limited additional costs to government in this measure.

Superannuation charitable investment options.

Using employee super contributions to drive improvements for communities is increasingly being adopted around the world.  CCA support a model similar to that applying in France where all employees are given the option of investing 5-10% of their superannuation into ‘solidarity organisations’ (the equivalent of our charities).  In 2008 the French government regulated that all super funds needed to provide this option to employees, and since that time the amount invested has grown to over $5.5 billion.  This has stimulated social entrepreneurship and improved both the capital base and capacity of solidarity organisations.

The success of the French 90/10 rule shows what could be achieved if Australia chose to provide employees with some limited choice about how their superannuation contributions are invested.  If just 2% of the MySuper funds were invested this way it would generate almost $10 billion, or enough to significantly reduce homelessness by investing in social housing initiatives that could assist 50,000 Australians struggling to maintain secure and appropriate housing.

This measure could be transformative in encouraging the charities sector to find ways of establishing social enterprises that strengthen our communities.  It would also link into the work of the Social Impact Investing Taskforce and provide a boost to impact investing across the charities and NFP sector.

This measure has minimal government impact as costs are almost non-existent – it is simply about enabling a different use of a very small part of Australia’s $2 trillion superannuation investment pool.

3. Fix fundraising regulations

This measure would save millions of dollars a year in red tape, duplication and dysfunctional compliance activities that provide no benefit to the community.  Simply ensuring fundraising activities are covered by the Australian Competition and Consumer Commission (ACCC) and noted through the ACNC would ensure any deceptive or misleading conduct associated with charitable fundraising, whatever the platform, could be closed down and perpetrators prosecuted. 

CCA and many other groups have repeatedly called for the fix fundraising solution to be implemented, but still charities languish in a bygone era of accountability that has little relevance or effectiveness, and costs charities millions in wasted effort.

It is now five years since a Senate report recommended harmonization of fundraising regulations.  The need to address the barriers created by fundraising regulations has also been highlighted in a recommendation from the Royal Commission into National Natural Disaster Arrangements. 

All Australian governments say that they support the need to streamline fundraising regulations so that every charity big and small across Australia does not have to make separate fundraising applications and returns for every individual jurisdiction just because they have a ‘donate here’ button on their website.  Yet meaningful change is yet to happen. 

There is no cost to government in ensuring appropriate application of Australian Consumer Law.

4. Boost sector investment and productivity by increasing certainty in government funding, concessions and regulations, and ‘paying what it takes’ to operate programs and services.

This measure is focused on achieving a more stable financial and regulatory framework for all not-for-profits, particularly in relation to government funding and interaction with the sector.  CEO Forums across the country run by CCA with the support of key organisations have clearly showed that uncertainty of government funding and the failure to cover the full direct and indirect costs of delivering services is a critical barrier to investment in the future sustainability of organisations.  The Centre for Social Impact’s research found that only 39% of government grants were reported to cover all costs of service delivery (CSI Pulse of the Sector).  The implementation of the Government’s pre-Election commitment to review and reform the funding models for contracted services to support longer-term planning and better service provision (including, but not limited to the recent Department of Social Services consultation on a stronger, more diverse and independent community sector), should result in initiatives across all government portfolios involved in contracting charities and not-for-profit to deliver services such as:

• an agreed notice period of six months prior to the ending of any major government contract, incentive or concession, with limited exemptions for cases of fraud, other criminal actions, etc.
• increasing the length of government contracts where possible to at least five years,
• more transparent and accessible processes for reviewing the performance of NFPs,
• more transparent and accountable processes for government funding decisions relating to NFPs,
• a commitment to covering the full direct and indirect costs of delivering services (pay what it takes),
• a commitment to fairness for NFP grantees, particularly the inclusion of reasonable indemnity clauses, a mutual right to terminate and the incorporation of regular review points to consider and adjust for factors outside of the NFP’s control,
• an approach to risk that recognises governments are partners in – not simply funders – of service delivery. When entering into service agreements and contracts for the delivery of services, government agencies should develop an explicit risk management framework in consultation with providers through the use of appropriately trained staff.  This should include:
  • • • allocating risk to the party best able to bear the risk,
      • establishing agreed protocols for managing risk over the life of the contract.

(Recommendation 12.6 Contribution of the Not-for-Profit Sector, Productivity Commission, 2010)

• funding practices that recognise non-profit organisations are better positioned than for-profit corporations to provide community services, including via provisions in funding agreements with States and Territories. (An example is prioritising the involvement of NFP community providers in the boost to VET funding, valuing their established outperformance of for-profit providers in engaging disadvantaged and vulnerable communities.)

These measures would all boost investment in organisational capacity across the NFP sector.

At the centre of many concerns across the NFP sector is the ability of small and large community organisations to deal with an increasingly uncertain future.  While governments are not responsible for all disruptions and challenges to the NFP sector, increasing certainty in government funding is a critical measure that would build capacity and effectiveness. 

CCA anticipates these measures would produce savings with very limited (mostly internal) outlays.

5. Develop a Charities Transformation Fund to support cyber-security and sector capacity development through: adoption of technology; staff training and development; research and evaluation; and infrastructure improvements, including adapting and responding to climate change.

The Australian government invests billions of dollars in charities and not-for profits to provide critical services and supports to communities across Australia.  Unfortunately, there is often little allocation of funding to enable funded organisations to meet growing cyber-threat, respond to climate change or improve their services through capacity development in critical areas like technology, staff training and development, research and evaluation, and infrastructure.

The significant levels of cyber-attacks that charities and not-for-profits (NFPs) are experiencing is costing the sector (and its funders) millions of dollars.  This sector is one of the least prepared sectors in terms of capacity to prevent or respond to cyber security incidents. The latest Digital Technology in the NFP Sector (November 2024) report from Infoxchange highlights the urgent need for charities and their funders to review and invest in cybersecurity, finding the workforce in 47% of charities has not received cyber-security awareness training. The risk factors that compound the current sector lack of preparedness include:

• the growing number and complexity of cyber security incidents experienced by charities and NFPs
• the size of the sector- employing over 2.5 million Australians (charities and NFPs) and turning over more than $200 billion
• the extent and nature of the data this sector holds – not just the financial data of millions of donors but also highly sensitive personal information of millions of vulnerable Australians
• the relative risk of government investments into the sector – over $103 billion of government funding annually is invested in the charities sector alone
• the lack of resources in the sector – most charities are actively encouraged to spend less on administration and more on serving their communities, thereby driving huge underinvestment in areas like digital capability
• the lack of accessible appropriately targeted resources to support training and organisational systems change.

In other areas, significant productivity and performance gains for community and government could be realised if more charities were supported to invest in evaluation and information systems that would allow them to better understand their impact (Infoxchange finds only one in four believe they have this capacity). Similarly, better supporting the development and wellbeing of the 1.47 million workers and 3.5 million volunteers that power the delivery of support to communities will improve productivity and reduce risk. 

While the government should not be solely responsible for sector capacity, it is important to acknowledge that significant economic and social benefits flow from growing our social capital; funders share the risks inherent in areas such as cybersecurity and climate change; and that increased productivity will only come if there is increased capacity to support and develop the sector’s workforce and improve organisations and the way they operate.  A transformation fund would enable charities to respond to what has become a challenging operating environment and improve services to communities, especially in this time when many communities are experiencing higher needs for support from charities.

CCA believes at least $300 million should be allocated to this fund.

6. Develop a Charities Investment Fund that could provide charities reduced interest loans for impact investment or longer-term line of credit options to enable greater leverage of charity assets and capacity.

Access to bridging finance is limited within charities and few have established lines of credit to smooth out inconsistent or lumpy income streams, despite the sector’s asset base of around $420 billion.

Establishing a fund that could provide longer term 5-to-10-year loans at subsidised interest rates – possibly with potential first loss risk partly underwritten through philanthropic backing – would enable charities with relatively strong balance sheets to continue to operate and maintain service capacity, even when temporary cash flow issues may otherwise have forced cutbacks and retrenchments.

CCA believes many charities would benefit through such a fund which could also underwrite a level of impact investment within the charities sector. 

It would also enable charities to effectively reduce the risk of fully realising their potential by underwriting a level of risk on recuring and likely funding.  Knowing there is a fall back if charities over-commit prior to having the cash in hand will free up significant new investment in the provision of much needed programs and services.

CCA anticipates the cost to government of supporting this fund would be an initial outlay of $500 million which would be invested in the charities sector and provide a small financial return over time.

7. Establish an Ombudsman’s Office or its equivalent to support the advancement of policies and programs to improve productivity and outcomes for the charities sector.

There is currently not one person employed by the government whose primary goal involves advocating for or supporting the charities and not-for-profit sector.  This contrasts with other organisations like small business or other large industry groups – primary industry, transport, communications, travel and tourism, etc.

Over the years various advisory bodies have been established by governments to foster stronger relationships and improve government policies and practices in dealing with the charities and community sector, as well as support the enhancement of charity and community organisation capacity and effectiveness.  All these groups have been both temporary and under-resourced.  While there has been some improvements including the establishment of the ACNC, very slow progress has been made on broader sector reform.

The lack of a champion for the charities and not-for-profits could be partly addressed by following the model of the Australian Small Business and Family Enterprise Ombudsman.  This office not only facilitates smoother access to government programs and supports, but provides additional add on programs and services as well as offering a dispute resolution and advocacy to improve the operating environment for small business across Australia.

CCA expects the initial budget costs of supporting a charity and NFP sector Ombudsman’s Office would be approximately $5 million per annum.

8. Introduce a targeted ‘estate duty’ for people with estates valued at over $10 million with appropriate incentives for donations to charities, safeguards relating to family businesses and farms, and mitigation of any potential adverse impacts.

National estate duties exist in many countries including: the United Kingdom, Germany, Italy, Belgium, the Republic of Ireland, France, the Czech Republic, Canada and the USA.  Not only do these duties provide substantial government revenue, they also increase philanthropy by offering relief from estate duties for any money left to charity.  The Henry Review drew on this international experience in supporting estate duties as a taxation measure.  Among other benefits, estate duties can apply a small brake on growing levels of inequality in our communities. 

Until 1979, many Australian governments gained substantial income through various forms of death or estate duties. 

Australia’s growing gap between rich and poor, and the gap between government income and demand for government supported services, can both be partially addressed by applying a form of estate duty on the richest 1% in our communities. 

A targeted 35% estate duty on all estates over $10 million (with appropriate exemptions) would raise substantial new government revenue and stimulate philanthropy.

ATO figures suggest over 25,000 people have assets above $10 million.  If 4% of these families paid 35% in estate duties, it would equate to a minimum revenue of $3.5 billion.

9. Review the generous tax concessions provided to gaming, catering, entertainment and hospitality income for mutual organisations, especially licensed clubs.

The mutuality principle that rightly applied in the late 1800s in Australia is no longer appropriate or consistent with existing taxation arrangements, particularly for organisations involved in gaming.  Large licensed clubs that act as gaming venues should not be able to treat over 75% of their income as tax free, especially when they have not satisfied the basic requirements of being a not-for-profit organisation that exists to provide a public benefit.  As pointed out in the Not-for-profit Tax Concessions Working Group Report (May 2013), concerns with the current application of the mutuality principle include:

– integrity concerns about member and non-member receipts; 

– competitive neutrality concerns where mutual organisations are trading in competition with taxable businesses; 

– social policy concerns about significant gambling and hospitality receipts of some organisations, which are not subject to income tax at the Commonwealth level; and 

– concerns about private member benefit.

It is recommended, on public benefit grounds, that the tax law should be amended to treat all member and non-member income of mutual organisations as assessable for taxation purposes in line with normal income tax principles. 

If this recommendation is not supported, all income from gaming, catering, entertainment and hospitality trading activities of mutual organisations should be treated as assessable. 

It is difficult to justify the hundreds of millions of dollars of tax concessions provided to large licensed gaming clubs based on the mutuality principle.  It is time to review these concessions taking into account any unintended consequences on mutual organisations that do provide a real benefit to members.

CCA anticipates this measure could generate significant additional government revenue.