Think Nicholsons

Sep 14

Tax deductibility for community sheds

This week sees some good news for 'men's sheds' and other community sheds - they may soon be able to receive tax deductible gifts from donors. The Australian Taxation Office (ATO) has released some new guidelines, which begin from 1st October 2020, which make tax deductible status achievable for many sheds.

The key requirements are:

  • the shed must have the main purpose of advancing mental health, and preventing or relieving social isolation.  This is likely to fit really well with a typical community shed.
  • there will typically be a physical location (in Australia) where people can work on projects 'in the company of others' - again, consistent with a typical shed arrangement.
  • membership must be open to the public (can be limited to a gender or an Indigenous group).

All three of those requirements must be met - but this should be quite straightforward for many typical community sheds.



It is quite rare for new tax deductible (Deductible Gift Recipient or 'DGR') categories to be added - typically this only happens once every few years - so this is great recognition of the preventative health benefits of community sheds.  Community sheds are filling a role which is fairly similar to some aspects of a health promotion charity or public benevolent institution (other DGR categories) and it is refreshing to see them recognised in this way. 


Should a community shed consider applying for DGR status?


If achieved, DGR status should make it easier for sheds to raise funds from the public (it probably won’t make a lot of difference to fundraising from business supporters).  This may help sheds to meet their expenses and to expand their facilities and activities, benefiting its members.

Sheds need to consider that, to raise funds from the public, they must meet the fundraising registration requirements in their State - which may come with administrative, reporting, and auditing obligations.  For example, in Queensland, you will need to apply for Collections Act registration with the Qld Office of Fair Trading - which comes with a requirement to be audited annually.  Justice Connect publishes an excellent guide to fundraising requirements here
Unfortunately, there will probably be a bit more administration and accounting needed to comply with the requirements of DGR status.  



What should a community shed do to qualify?

First, find your governing rules (they might be called 'Rules', 'By-laws', a 'Constitution' or similar) and read them thoroughly.



Second, consider how well your current Rules match the guidelines.  It is likely that most typical community sheds will already have activities which match really well - but the Rules might need a slight adjustment, or two, so that:



- the objectives clearly mention relief of social isolation and the mental health benefits of that, through working on projects as part of the shed's community of peers; and

- you have an appropriate 'winding up and revocation' clause. There is a good example of an appropriate clause here


If necessary, hold a meeting in the appropriate way (your Rules will tell you how), and make appropriate changes to deal with those things.


Third, if you haven't already done so, consider applying to the Australian Charities and Not-for-Profits Commission (ACNC) for registration as a charity.  There is a specific fact sheet published by ACNC about registration - please note, that was published before the new 'community sheds' category existed, so is slightly out of date.  ACNC are also holding a specific community sheds webinar on 14 October 2020 to provide more information. Charity registration is a precondition to achieving DGR status - but you can effectively apply for both at once.



If you are already registered as a charity with ACNC, then you can apply directly to the ATO for DGR status.  If you have changed your Rules recently (as mentioned above) then you will also need to keep ACNC informed about that change.


We hope that this guide to the changes is useful to community shed committees and members, as they consider the availability of DGR status to support their valuable role in improving mental health. 



 Please contact Stephen Robertson or Simon Thompson from our office, if you have any questions.



† click the heading "Winding up and winding up clauses" at that link - please note that clause is written for a company, so may require some tweaking if your shed is an incorporated association.

Stephen Robertson

Partner
Stephen is a commercial lawyer with extensive experience in advising businesses in areas of acquisitions and divestments, commercial agreements, structuring, legal risk and revenue issues. He also advises on property law, with a focus on commercial and industrial property.