Independent schools’ tax break under threat

The acronym “DGR” is important to some Christian organisations but will be new to some readers. DGR stands for “deductible gift recipient” and means that someone giving to an organisation with DGR status can claim a tax deduction.

DGR status is given to tens of thousands of charities. However, the Productivity Commission (PC) proposes that the Federal Government change the rules, opening up DGR to some new charities and removing it from others.

“Christian schools face the prospect of losing millions of dollars in tax-deductible funding under recommendations in a new report,” is how Hope Media reported the Productivity Commission proposals. “At present, tax-deductible giving may include donations made to schools to cover new building costs or religious-based learning.

“The PC is recommending putting an end to this, in a move that has alarmed Christian schools and groups such as the Christian Media & Arts Australia charity (CMAA).


Tax-deductible giving “is what enables private schools, including faith-based schools, to successfully fundraise and keep their school fees affordable,” the CMAA said in a statement.

“It’s also what enables scripture classes to keep operating in thousands of schools across the country.”

The PC proposals retain DGR for the vast majority of charities but remove it for about 5,000, which are “Mainly charities that have DGR status for school building funds or to provide religious education in
government schools.”

An article in the Australian Financial Review by Alex Robson, the deputy chair of the PC, explains why the commission is recommending these charities lose DGR status.

“Deductible gift recipient eligibility should be guided by three simple economic principles: whether activities are expected to generate net community-wide benefits; whether subsidising donations is the best way to support those activities; and whether there is a material risk that tax-deductible donations can be converted to private benefits for donors.

“For example, while there are sound economic and social reasons for government support for school infrastructure, there is a material risk that tax-deductible donations to school building funds could be converted to private benefits for donors.”

Further, The PC draft recommendations state, “The scope of the reformed DGR system should be based on the following principles:
• There is a rationale for Australian Government support because the activity has net community-wide benefits and would otherwise be undersupplied.
• There are net benefits from providing Australian Government support for the activity through subsidising philanthropy.
• There is unlikely to be a close nexus between donors and beneficiaries, such as the material risk of substitution between fees and donations.”

The failure to demonstrate community-wide benefits and interaction between school fees and donations is causing the PC to consider withdrawing DGR from these charities.

An article by Murray Norman of the SRE (volunteer Scripture teaching in public schools) lobby Better Brighter Futures pushes back with the argument that religious people are generous donors, citing research from Jonathan Haidt and the American Enterprise Institute.

However, the relatively small SRE charities may have suffered from other problematic DGR giving to some independent schools.

Norman wrote, “The removal of DGR status for building funds for faith-based schools will have a profound impact on low-fee faith-based schools whose students cost the government far less to educate than if those same students were in a local public school.”

However, the issue for the PC may be the large amounts of money generated through DGR for high-fee schools.

“For dozens of private schools across Sydney’s most affluent suburbs, the past few years have seen a surge in building projects that, in many cases, have completely transformed classrooms and facilities,” Lucy Carroll reported for the Sydney Morning Herald, examining some $15b of projects.

“As enrolments have ballooned and competition intensified, some of the wealthiest institutions have poured millions of dollars into orchestra pits, state-of-the-art theatres, Olympic-sized pools, and student centres – one designed to mimic a Scottish castle.”

The high-profile, high-fee schools are the issue. The arms race between rival schools can be seen each year in the awards issue of ArchitetureAU. They are worthy winners architecturally, but should they be subsidised using the DGR system?

There is possibly a good case to be made for low-fee schools, perhaps in a country town, to receive DGR if the facilities are widely available, and so a community-wide benefit – as per the PC’s DGR principles – can be established.

Churches have been known to declare building projects as “educational”‘” in progress to gain DGR status. Past tax office rulings can be cited to show this has been permitted in the past, but if the Federal government accepts the PC changes, this loophole will be stopped.

Some Christians believe that we are in a culture war and that we need to fight to retain the legal privileges we currently have.

But is this a good ditch to die in? Defending the right of some schools to get even wealthier seems an odd priority. If an independent school’s DGR for building projects is desirable – then why not a fee-level cut-off? Or why not pool the funds and award them on the basis of need? If the objection is that parents would be less likely to give – then the PC’s case that community-wide benefit is lacking is made.

Image: Cranbrook Schools Bellevue Hill Campus Redevopment won the National Architecture Awards, National Award (Education), 2023 and the Australian Institute of Architects (NSW)
William E Kemp Award for Educational Architecture, 2023