Minimum Tax on Discretionary Trusts - CCA submission to Treasury
Imposing an upfront 30% tax on charitable distributions made by discretionary ‘family’ trusts (a Trust Tax) will have a significant and adverse impact on giving and funding to our sector – even if a tax rebate or refund is provided to deductible gift recipient (DGR) charities. This was not the policy intention. The government should counterbalance these reforms by widening eligibility for DGR status, with other key measures, to prevent a reduction in charitable giving.
Most of the 65,000 registered Australian charities (comprising of DGR and non-DGR entities), and the estimated 300,000 not-for-profits (NFPs) – the vast majority who are smaller local community organisations, are currently eligible to receive tax free donations from discretionary trusts.
Despite most charities and non-DGR entities retaining income tax-exempt status, there will be a significant disincentive for discretionary trusts to maintain current levels of giving to these organisations as a result of the proposed Trust Tax.
Under the government policy change, DGR status will become even more valuable – making reform of the DGR system one of the most important and urgent sector reform priorities.
If the government’s intention is to support charitable giving and maintain its commitment to double philanthropic giving by 20301, DGR status should be made fit for purpose as recommended by the Productivity Commission’s Foundations for Giving Report (2024).
A stronger and more resilient Australia must be imagined, planned for, enacted and monitored.
Without appropriate measures to minimise the unintended consequences of the Trust Tax, charitable and not-for-profit giving will be adversely impacted.
Summary of recommendations
Our recommendations:
1. To complement the equity and fairness objectives of the Trust Tax reforms, the government must offset the significant and adverse impacts it will have on charitable giving by introducing fit for purpose deductible gift recipient (DGR) reform, including expanding DGR status to include the majority of charities registered by the Australian Charities and Not-for-profits Commission (ACNC) as recommended by the Productivity Commission’s Foundations for Giving Report (2024).
2. Ensure that no upfront Trust Tax is applied to distributions made by discretionary trusts to an expanded list of DGR charities as part of DGR reform. These distributions must be tax deductible upfront and in full, without the need for a rebate or refund process imposing extra administrative burdens and delays.
3. Allow distributions made by discretionary trusts to non-DGR charities and not-for-profit organisations (NFP) who will not obtain DGR status as part of DGR reform to be tax deductible up to an annual cap for the purpose of the Trust Tax.
4. The government should commission and release a cost-benefit analysis as part of this consultation process, including addressing the economic, community and social impact of reforming and expanding DGR.
5. As part of DGR reform, the government must address the significant data and research gaps in the charities and NFP sector and support a research ‘centre of excellence’. This would also help facilitate real-time and transparent tracking of the flow of philanthropic funds in and out of our sector and provide a more accurate view of the impact on charitable giving due to changes in government policy.