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  • Endorsement for the operation of a fund, authority or institution

    To be endorsed as a DGR for the operation of a fund, authority or institution, an organisation must maintain a gift fund for the principal purpose of the fund, authority or institution.

    An exception is where the organisation is already endorsed as a DGR as a whole and is seeking endorsement for a fund, authority or institution that it owns or includes. In this situation, the organisation does not need to maintain a gift fund.

    Example: Gift fund not required

    A public university is endorsed as a DGR as a whole. The university is seeking endorsement for the operation of a public library. The university does not need to maintain a gift fund for its library, as the university itself is endorsed as a DGR as a whole.

    End of example

    On this page:

    Gift fund

    A gift fund has all these characteristics:

    • it is a fund
    • it is maintained and used only for the principal purpose of the fund, authority or institution
    • all gifts and deductible contributions of money or property for that purpose are made to it
    • any money received by the organisation, because of such gifts or deductible contributions is credited to it
    • it does not receive any other money or property
    • the organisation is required – by a law, its constituent documents or governing rules – to transfer any surplus assets of the gift fund to another gift deductible fund, authority or institution when the fund, authority or institution is wound up or the DGR endorsement is revoked, whichever occurs first.

    How do you set up a gift fund?

    A gift fund should be set up as part of your organisation or of the fund, authority or institution it operates. The gift fund may have its own rules or constitution, or they may be part of the governing documents of your organisation or of the fund, authority or institution.

    The rules or governing documents should provide evidence of the gift fund's existence, name, purpose and operations.

    A gift fund can receive either gifts or deductible contributions, or both. However, if a gift fund's rules only allow the receipt of gifts and your organisation wants to receive deductible contributions, the gift fund rules must be amended to allow the receipt of deductible contributions to the fund.

    If your organisation is endorsed or seeking endorsement for more than one fund, authority or institution that it operates, it must meet the gift fund requirements for each of its funds, authorities or institutions. Your organisation can do this by maintaining a single gift fund or multiple gift funds.

    Example: Setting up a gift fund

    A school is seeking endorsement for a school building fund, a scholarship fund and a public library that it operates. The school can choose to maintain:

    • separate gift funds for the school building fund, the scholarship fund and the library
    • a single gift fund for two of them and one separate gift fund for the other
    • a single gift fund for all three.
    End of example

    Your organisation does not need a separate bank account for the gift fund, however banking money in a separate account will provide clear evidence of the existence of a gift fund. Money or property of a gift fund should not be mixed with other money or property of your organisation.

    Many types of DGRs must be public funds, including necessitous circumstances funds, school building funds and ancillary funds.

    A public fund must have a separate bank account and clear accounting procedures.

    The existence of a public fund does not necessarily meet the gift fund requirement. However, if the public fund only receives gifts or deductible contributions, and the appropriate winding-up rules exist, the public fund itself may be the gift fund. In this case, there would be no need for a separate gift fund.

    Example: Separate fund not required

    A war memorial repair fund only receives gifts. All gifts and earnings from them are used in the restoration of the war memorial. The fund has appropriate rules covering winding up and revocation of endorsement.

    The war memorial repair fund itself meets the gift fund requirement. It does not need to set up a separate fund.

    End of example

    How do you operate a gift fund?

    When running a gift fund you should separately record:

    • all gifts and contributions, through a bank account or other cash management system for money, and a property register
    • transfers from the gift fund, whether as payments, disbursements or for use by the fund, authority or institution
    • investment returns on money or property that has been transferred out.

    The money and property of the gift fund must be clearly separate from that of the rest of your organisation and accounted for accordingly.

    Example: Not maintaining a gift fund

    A public art gallery receives gifts, entrance fees and sale proceeds from its gallery gift shop. All amounts received at the gallery, such as gifts, fees and sales, are banked into its donation account. The gallery is not maintaining a gift fund.

    End of example

    If your organisation maintains one gift fund for two or more funds, authorities or institutions that it operates, it must keep records identifying:

    • gifts and deductible contributions made to the gift fund and any money credited to the gift fund for each of the funds, authorities or institutions
    • gifts, deductible contributions and money in the gift fund have been used for the principal purpose of the fund, authority or institution to which they relate.

    Which amounts go to the gift fund?

    The following amounts must be credited to a gift fund:

    • all gifts of money or property made for the principal purpose of the fund, authority or institution, including    
      • testamentary gifts (that is, gifts made under a will)
      • gifts that are not tax deductible for the donor
      • distributions from other charities or DGRs, if made for the principal purpose
      • the whole amount of deductible contributions made to a fundraising event staged to raise funds for the principal purpose
       
    • money received because of these gifts and deductible contributions, including    
      • proceeds from the sale of gifted property
      • investment returns from money or property that continues to be part of the gift fund.
       

    Amounts that are not gifts or deductible contributions are not to be credited to a gift fund. They include:

    • receipts from sponsorships or commercial activities
    • proceeds of raffles, charity auctions, dinners and similar events, if the proceeds are not deductible contributions.

    If money or property is incorrectly received, it must be removed from the gift fund as soon as practicable, with the accounts adjusted and noted accordingly. The gift fund will need procedures to make sure only proper amounts are credited into it.

    When money is not banked before being used for the purposes of the DGR, it must be properly accounted for in the gift fund's records.

    What should a gift fund be used for?

    The gift fund must only be used for the principal purpose of the fund, authority or institution.

    If the fund is operated only for some minor purpose, it will not meet the gift fund requirement.

    Example: Not acceptable use of gift fund

    A local government council that is a DGR for the operation of its public library sets up a fund for donations towards the annual picnic for its library staff. The fund is not for the principal purpose of the public library and so cannot be a gift fund.

    End of example

    Uses of a gift fund for the principal purpose of the fund, authority or institution include:

    • transferring money or property to your organisation or to the fund, authority or institution for its current and continuing use
    • purchases of property or services for use by the fund, authority or institution or by your organisation for the principal purpose of the fund, authority or institution
    • reasonable costs of managing the gift fund – for example, bank charges, stationery, accounting and audit fees for the gift fund
    • professional fees for fundraising
    • investment, if it is consistent with carrying out the principal purpose of the fund, authority or institution.

    Example 1: Acceptable use of gift fund

    When a public museum operated by a historical society receives gifted artefacts for the museum's collection its gift fund identifies the artefact by recording its characteristics, its date of receipt, and that it is being held by the museum as part of its collection. These activities show the gift fund is being used for the principal purpose of the museum.

    End of example

    Example 2: Acceptable use of gift fund

    The gift fund of a cultural organisation pays leasing charges on cars the institution provides to its employees. This is an acceptable use of the gift fund.

    End of example

    If your organisation maintains one gift fund for two or more funds, authorities or institutions that it operates, it must use the following only for the principal purpose of the fund, authority or institution:

    • gifts and deductible contributions made to the gift fund
    • any money credited to the gift fund.

    Example: Acceptable use of gift fund when entity operates two funds

    A school is endorsed as a DGR for the operation of a school building fund and scholarship fund. The school maintains a single gift fund for its two funds. The school must use the gifts and contributions made to each fund for the principal purpose of the fund to which the gift or contribution relates. For example, the school cannot transfer funds from its school building fund to its scholarship fund to provide money for scholarships.

    End of example

    What happens on winding up or revocation of endorsement?

    Your organisation must be required by a law, its constituent documents or governing rules to transfer any surplus assets of the gift fund to another gift deductible fund, authority or institution on the earlier of either:

    • the fund, authority or institution being wound up
    • the DGR endorsement being revoked.

    If your organisation operates a fund, authority or institution that is a registered charity, any surplus assets of the gift fund must be transferred to another charity (DGR fund, authority or institution) with similar charitable purposes.

    If your organisation is seeking to be a DGR endorsed for the operation of a fund, authority or institution, the following acceptable clause should be included in your constitution:

    Acceptable clause

    If the fund, authority or institution is wound up or if the endorsement (if any) of the organisation as a deductible gift recipient for the operation of the fund, authority or institution is revoked, any surplus assets of the gift fund remaining after the payment of liabilities attributable to it, shall be transferred to a fund, authority or institution to which income tax-deductible gifts can be made.

    End of example

    If the fund, authority or institution is a registered charity, the above clause must state that the surplus assets of the gift fund shall be transferred to a charity (fund, authority or institution) with a similar charitable purpose to which income tax-deductible gifts can be made.

    If your organisation is a DGR for more than one fund, authority or institution it operates, it may transfer the assets to another of its gift deductible funds, authorities or institutions upon winding up or revocation of endorsement, if the rules of the fund, authority or institution allow such a transfer.

    Your organisation does not need to meet this requirement if it is established by an Act or the Commonwealth Parliament, and that Act, or another Act, does not provide for the winding up or termination of your organisation.

    What if you do not maintain a gift fund?

    If your organisation is seeking endorsement for the operation of a fund, authority or institution and is not maintaining a gift fund, it cannot be endorsed as a DGR. The only exception is if your organisation is already endorsed as a DGR as a whole.

    If your organisation is endorsed as a DGR for the operation of a fund, authority or institution and stops maintaining a gift fund, it stops being entitled to endorsement. Your organisation must then notify us in writing so that we can revoke your organisation's endorsement.

    However, if the failure to maintain a gift fund is an administrative error, not intentional and corrected quickly, endorsement will not be withdrawn.

    Example: Failing to maintain gift fund – administrative error

    A public library ran a charity ball and banked all proceeds in the library's gift fund account. When preparing the treasurer's monthly report, the mistake was discovered. The money was immediately transferred to the library's general bank account. The correction was noted in the gift fund's books.

    The library's endorsement would not be revoked and it would not have to notify us because it had a system that would identify errors, it rectified the deposit in a short time and noted the error in its accounts.

    End of example
      Last modified: 17 Dec 2018QC 52594