INTHEBLACK July 2025 - Magazine - Page 20
F E AT U R E
“The Australian not-for-profit sector provides many services
such as healthcare and education on behalf of government
and relies on government funding to provide such services.”
RAM SUBRAMANIAN, CPA AUSTRALIA
POLICY OPTIONS
The giving gap poses a challenge to
government philanthropic strategy.
Policy settings could aim to increase
the levels of donations, as Labor pledged
in 2022 and as Singapore appears to
be doing. [See breakout.] Alternatively,
Australia’s philanthropic strategy could
be designed to encourage altruism without
placing excessive strain on the public purse.
Annually, tax deductions for gifts and
donations from individuals and corporations
(including donations made to ancillary funds)
cost the public purse about A$2.2 billion,
according to Treasury estimates.
Presiding commissioner of the Future
foundations for giving report, Alex Robson,
says doubling donations by 2030 wasn’t
a target of the PC report. “You’d probably
get to a doubling with no policy change,”
he says. “We didn’t take a view on that.”
Instead, the report’s recommendations
focus on the tricky balancing act
of removing friction from the system
to encourage giving, while doing as little
damage as possible to public finances.
EXAMINE TAX DEDUCTIBILITY
Robson characterises Australia’s tax
deductions for philanthropy as already
generous given an international comparison.
In Australia, “you could claim a billion
dollars against your taxable income if
you give to a charity with deductible gift
recipient status, whereas in many other
jurisdictions it’s not like that,” he says.
“If you look at the US, for example,
there are various kinds of restrictions
on the amount that you can claim.”
Even in Singapore, with its 250 per cent
tax deductions, the tax impact may not
be as beneficial to the donor as it is in
Australia because of Singapore’s lower tax
rates of 24 per cent or less. Also, Singapore
has a narrower range of charities that qualify
20 INTHEBLACK July 2025
for tax-deductible status, implying a higher
degree of control over donors’ choices.
Illustrating the delicate fiscal trade-off
between giving and tax deductibility,
Ram Subramanian, financial reporting lead
at CPA Australia, points out that Australian
government funding provides more than half
of charity revenue, and that all philanthropic
financial donations (not just tax-deductible
donations) provide only 6.9 per cent.
“This reflects the fact that the Australian
not-for-profit sector provides many services
such as healthcare and education on behalf
of government and relies on government
funding to provide such services,”
Subramanian notes.
The PC report did not recommend
increasing the tax deductibility of donations.
Robson says that price elasticity
(for example, the tax price) modelling
suggests that “for a small change in tax
deductibility, you get an extra donation,
but that’s exactly offset by a reduction
in government revenue. So society as
a whole is no better off or worse off.”
REFORMS TO DGR
AND ANCILLARY FUNDS
Instead of raising tax deductibility, one
of the Productivity Commission’s
most powerful recommendations was
reform to the Deductible Gift Recipient
(DGR) system, which defines which charities
are eligible to provide a tax deduction. There
are about 25,000 entities with DGR status,
but the report describes the DGR system
as “not fit for purpose”.
“The DGR should be as broad as
possible to cover as many entities as possible,”
says Robson.
The report noted that applying for DGR
status should be fair, simple and transparent.
It should direct donations toward charitable
activities that are likely to provide the
greatest net benefits to the whole community.
