Explanatory Memorandum(Circulated by authority of the Minister for Housing and Assistant Treasurer the Hon Michael Sukkar MP)
Chapter 3 - Deductible gift recipient status for community sheds
Outline of chapter
3.1 Schedule 3 of the Bill amends the ITAA 1997 to introduce a new general category of DGR for community sheds. The new DGR category applies to public institutions that are registered charities and satisfy the definition of a community shed.
3.2 To be a community shed a public institution must:
- have the dominant purposes of advancing mental health and preventing or relieving social isolation;
- principally advance these purposes through providing a physical location at which individuals are supported to work on projects or undertake other activities in the company of others; and
- have membership that is open to members of the public.
3.3 All legislative references in this Chapter are to the ITAA 1997, unless otherwise stated.
Context of amendments
3.4 As part of the 2019-20 Budget, the Government announced the establishment of a new DGR general category to enable Men's Sheds and Women's Sheds to access the DGR concession. This Schedule implements the announced measure.
3.5 The income tax law allows income tax deductions for taxpayers who make gifts of $2 or more to a DGR. To be a DGR, an organisation must fall within one of the general categories set out in Division 30 or be specifically listed by name in that Division.
Comparison of key features of new law and current law
|New law||Current law|
|Public institutions that are registered charities and satisfy the definition of a community shed are eligible to access DGR status.
A public institution is a community shed if it:
Gifts of $2 or more made by taxpayers to an eligible community shed that has received DGR status are tax deductible.
Detailed explanation of new law
3.6 Schedule 3 to the Bill amends the ITAA 1997 to introduce a new general category of DGR for community sheds. The new DGR category applies to public institutions that are registered charities and satisfy the definition of a community shed. [Schedule 3, items 1 and 2, table item 1.1.9 in subsection 30-20(1)]
3.7 All legislative references in this Chapter are to the ITAA 1997, unless otherwise stated.
3.8 To eligible to be a DGR under the new category, an entity must be a public institution. [Schedule 3, item 3, the definition of community shed in subsection995-1(1)]
3.9 An institution is an organisation that both has a structure distinct from other organisations or entities and undertakes activities on its own behalf. It is distinct from a fund that is a mere repository of moneys and does not undertake activities of its own.
3.10 For an institution to be a public institution, it must be open to the public (or a sufficient section of the community) to join as a member and not carry on its activities on for private profit or gain.
3.11 To be eligible to be a DGR under the amendments, an entity must also be registered as a charity under the Australian Charities and Not-for-profits Commission Act 2012. [Schedule 3, item 1, table item 1.1.9 in subsection 30-20(1)
3.12 This requires, among other things, that all of the purposes of the institution are charitable and that it must not operate for the profit of its members.
3.13 This requirement ensures community sheds are subject to appropriate regulatory oversight, consistent with other DGRs.
3.14 Finally, an entity must meet the definition of a community shed. A community shed is an public institution that:
- has the dominant purposes of advancing mental health and preventing or relieving social isolation;
- principally advances these purposes through providing a physical location at which individuals are supported to work on projects or undertake other activities in the company of others; and
- has completely open membership, or
- has membership that is open to all persons of a particular gender or with Indigenous heritage or both.
[Schedule 3, item 3, the definition of community shed in subsection995-1(1)]
Dominant purposes of advancing mental health and preventing or relieving social isolation
3.15 Community sheds include diverse organisations such as Men's Sheds and Women's Sheds that undertake a range of activities, such as sharing hobbies and interests or participating in community projects.
3.16 However, the distinguishing factor between a community shed covered by the new DGR category and other community organisations is that the activities of a community shed are for the dominant purposes of advancing mental health and preventing or relieving social isolation. The purpose of advancing mental health is a subset of the purpose of advancing health, which is one of the long established charitable purposes identified in the Charities Act 2003. The purpose of preventing or relieving social isolation is a related but distinct purpose, which requires that an organisation seek to address the particular harms that arise from a lack of social contact and loneliness.
3.17 Only organisations with these dominant purposes are eligible to be a DGR because of the amendments. [Schedule 3, item 3, paragraph a of the definition of 'community shed' in subsection 995-1(1)]
3.18 An organisation has the dominant purposes of advancing mental health and preventing or relieving social isolation if those purposes, considered collectively are the sole, ruling or prevailing purposes of the organisation and any other purposes are, in comparison, minor, subordinate or incidental.
3.19 In determining this, the two purposes must be considered in combination together, rather than separately. It is not necessary that each purpose individually be dominant or that they are both pursued equally, but instead only that the two purposes taken together are dominant and not merely minor, incidental or ancillary.
Physical location and support
3.20 Community sheds are also distinguished from other institutions that may have similar purposes by the specific means they principally adopt to advance this purpose - the provision of a physical space in which individuals are supported in pursuing activities or undertaking projects in the company of others.
3.21 Given this, an institution must provide a physical location to be eligible to be a DGR because the amendments. However, that physical location is not required to be fixed or permanent. The physical location is also not required to be a structure and may be outdoors. Arrangements to facilitate electronic communication, such as an online forum or chatroom, do not constitute a physical location. [Schedule 3, item 3, paragraph b of the definition of 'community shed' in subsection 995-1(1)]
3.22 It is also not sufficient that the institution only provide a physical location without further support or encouragement. Rather the institution must additionally support or encourage the use of the location, through facilitating work on projects or other activities at the location, as a key part of how it achieves its dominant purposes.
3.23 A community shed could demonstrate it is supporting its purpose of advancing mental health by providing a physical location where members have access to information and other resources to inform their understanding of mental health issues. A community shed is not expected to provide professional mental health services.
3.24 Likewise, a community shed would usually give effect to its purpose of preventing or relieving social isolation by providing a welcoming environment for individuals from across the community (noting permitted restrictions on membership discussed below) and supporting social connections amongst members. For example, this could involve a community shed organising projects or other activities that foster supportive peer relationships for people at risk of social isolation.
3.25 To be the principal means by which an institution seeks to achieve its purposes, it must be the main means it adopts or the means it uses more than any other. In this context, principally has the same meaning as it does in item 13 of the table in subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012, as referred to in the definition of registered health promotion charity in the ITAA 1997.
3.26 Finally, community sheds must, broadly, be open to the community to join and generally not impose criteria restricting membership based on matters such as age, race or background. [Schedule 3, item 3, paragraph c of the definition of 'community shed' in subsection 995-1(1)]
3.27 However, two restrictions are permitted.
3.28 The first relates to criteria restricting membership to individuals of one gender. This restriction recognises that some of the individuals who are most likely to benefit from the work of community sheds in addressing social isolation are most likely to be comfortable in a space with others of the same gender. [Schedule 3, item 3, subparagraph c(ii) of the definition of 'community shed' in subsection 995-1(1)]
3.29 Similarly, the second restriction, relating to criteria restricting membership to individuals with Indigenous heritage, recognises the special cultural position of Australia's Indigenous people and the benefits community sheds can provide in giving a space for Indigenous cultural traditions to be shared. [Schedule 3, item 3, subparagraph c(ii) of the definition of 'community shed' in subsection 995-1(1)]
3.30 It should be noted that these restrictions relate to the definition of community shed for the purposes of the DGR tax concession. Nothing in these amendments affects any restrictions or obligations that other legislation may impose on membership, participation or anything else.
3.31 Consequential amendments are made to the index in section 30-315 of Division 30 to reflect the new category of DGR. [Schedule 3, item 2, table item 34AA of subsection 30-315(2)]]
Application and transitional provisions
3.32 The amendments made by Schedule 3 commence on the first day of the first quarterly period following Royal Assent. [Clause 2]
3.33 The amendments apply to gifts and contributions made on or after 1 July 2020. [Schedule 3, item 4]