By Shane Wright and Lucy Carroll
A plan to stop private schools collecting tax-deductible donations for major building programs has been killed off by the federal government despite the Productivity Commission declaring the nation’s charitable giving system was no longer “fit for purpose”.
Among 19 proposals from the commission to boost charitable giving, the $2 threshold to make a tax-deductible donation would be abolished, enabling any donation to be used to offset a person’s annual income tax.
Private schools will not lose the charitable status of building funds despite a recommendation from the Productivity Commission.Credit: Louie Douvis
To qualify for tax-deductible donations, a charity would have to carry out activities that generate net community-wide benefits which would ordinarily go unsupplied and also provide services that are unlikely to be provided directly by government.
According to the commission, this would sharply increase the number of charities receiving support, from around 25,000 now to between 30,000 and 40,000.
But the proposals in the commission’s final Future Foundations For Giving report, released Thursday, would also end the charitable status of 5,000 school building funds and organisations that provide religious education in government schools.
Parents and alumni contributed $1.23 billion towards private school capital projects in 2022, according to the latest data from Independent Schools Australia.
The commission argued school building funds should lose their tax-deduction status because parents and students gained a private benefit, such as school fees that are lower than they would be if not for the effective subsidy from all taxpayers.
“Potential donors are most likely to be people directly involved with the school and benefit directly from donations, such as students, their parents or alumni,” it found.
It noted that many schools argued there was no “explicit quid pro quo” between donations to building funds and lower private school fees.
“However, there is little doubt that substitution – broadly defined – between donations and fees does occur,” it found.
But Assistant Minister for Charities Andrew Leigh said the government would not support the proposal.
“A world-class education system is essential to tackling inequality, driving economic growth and supporting well-paid, secure jobs and our school system is a key part of it,” he said.
Many principals and private sector representative bodies fiercely opposed the proposals when the commission first raised them last year, saying the move to strip tax-deductible gift recipient status from school building funds would put financial pressure on families and lead to further fee hikes.
About 130 private schools and more than 800 parents made individual submissions following the draft report.
A submission from the Association of Independent Schools of NSW said the recommendation was “misconceived and that its rationale is flawed and not supported by evidence”, while the National Catholic Education Commission said it was “particularly disappointed with the overreach and disregard for public policy objectives”.
Charities Minister Andrew Leigh says the government will not back a proposal to cut donations to private school building funds.Credit: Alex Ellinghausen
Leigh said while the government, which has set a target of doubling charitable giving, would not back the changes to school building funds, the government would consider the other recommendations.
The commission found the complex rules around what defined a charity eligible for tax-deductible status created perverse outcomes. Charities that relieve poverty qualified for tax-deductible donations but those that attempted to prevent poverty did not.
In 2021, Australians donated $13.4 billion to charities while 6 million volunteered. The commission estimates donations will increase to more than $26 billion by 2030.
While the total value of donations has climbed over recent decades, a smaller proportion of the public is giving.
Charities that provide broad support to a particular group of people, such as women, young people, members of the LGBTIQA+ community or Indigenous Australians also often failed to qualify for tax-deductible status.
“Reform is needed to simplify the deductible gift recipient (DGR) system and refocus it on activities that are likely to generate the greatest net benefits for the community as a whole. This would create fairer and more consistent outcomes for charities, donors and the broader community,” the commission found.
Companies that claim to give to charity would have to report their donations in their annual returns as separate line items. The tax office would report the scope of donations from the business sector, by company size, taxable status and industry.
The commission also recommended the Australian Charities and Not-for-profits Commission, which regulates the sector, provide “more meaningful and accessible” information to donors so they can better track how their money is used.
Charities would also have to report how much money they received from charitable bequests.
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