Budget Reform Projected to Reduce Philanthropic Giving by $2.9 Billion Across First Five Years

03 Jun Budget Reform Projected to Reduce Philanthropic Giving by $2.9 Billion Across First Five Years

Summary

The Commonwealth Government proposes to ‘introduce a 30 per cent minimum tax on discretionary trusts to improve the fairness of the tax system’ as a component of the 2025-26 Federal Budget.[1] The new tax on family discretionary trusts is ‘estimated to increase [tax] receipts by $4.5 billion over the five years from 2025-26.’[2] However, the Budget Papers do not identify the impact that the measure will have on philanthropic giving. We calculate that the impact on the Australian business sector could see $2.984 billion in cash donations lost to the charity and not-for-profit (‘NFP’) sector across the first five years of the reform from its commencement date on 01 July 2028. This amount is increased to $8.731 billion dollars if business giving undertaken through ‘business and community partnerships’ and ‘community sponsorships’ is included in the analysis. These estimates are conservative because they do not account for behavioural changes that discretionary trust businesses may make in response to the additional financial pressures created by the tax, and any resulting reduction in their capacity to support charities and not-for-profit organisations through donations.

Who Will the Reform Impact?

We expect these changes would particularly affect charities that do not hold deductible gift recipient (‘DGR’) status. Those income tax exempt charities that will be impacted include the following:

• human rights organisations;
• charities whose activities are focused on prevention of disadvantage;
• social welfare charities engaging in advocacy to further a charitable purpose;
• charities advocating for policies they believe are necessary to achieve charitable ends, including to avert major global catastrophes;
• religious institutions;
• educational organisations;
• charities focused on the prevention of human injuries;
• charities focused on public interest journalism; and
• charities that pursue multiple purposes, including charities that support groups of people rather than a single activity (for example charities that support women, young people, consumers or Aboriginal and Torres Strait Islander people and communities).

In addition to these charities, it is expected that the reform will also impact upon charitable trusts that rely on discretionary trust distributions to fund future grants and charitable activities. In addition, various discretionary trusts also give to NFP organisations that are not eligible to be charities, but are otherwise tax exempt pursuant to Division 50 of the Income Tax Assessment Act 1997 (‘ITAA’). These entities include:

• Community service organisations;
• Cultural organisations;
• Educational organisations;
• Health organisations;
• Employment organisations;
• Resource development organisations;
• Scientific organisations; and
• Sporting organisations.

Do We Know the Revenue That Would be Lost to Charities, NFPs and Those They Serve?

We do not know the amount of distributions that flow to charities and tax exempt NFPs through discretionary trusts, as trustees are not required to identify their trust’s income tax exempt or charitable beneficiaries in their tax returns in a way that readily enables quantification at a sector-wide level. However, a degree of guidance can be obtained by applying existing academic research on Australian business philanthropy to the proportion of discretionary trusts within the Australian business sector, as disclosed in the Budget Papers.

The most recent Australian study on philanthropic giving by Australian businesses (McGregor-Lowndes, Myles et al., 2017) found that businesses donated $3.521 billion in cash in the 2015-16 financial year.[3] The study measured giving directed at a range of philanthropic purposes, comprised of Education and research, Health, Social services, Environment and animal protection, Culture and recreation, Philanthropic intermediaries and voluntarism, International development, Business and professional associations and trade, Development and housing, Law, advocacy and politics and Religion. Not all of these purposes are charitable at law, but having regard to these categories it is considered reasonable to assume that the vast majority of the surveyed giving would be directed to either DGRs, charitable or not-for-profit income tax exempt entities.

In respect of small to medium-sized enterprises (‘SMEs’), the study found that in the 2015-16 financial year cash donations comprised $2.999 billion in cash donations.[4] In respect of large businesses, the study found that giving in cash equated to $522 million in the 2015-16 financial year.[5]

The Australian Charities and Not-for-profits Commission (‘ACNC’) reports data on charities on a calendar year basis. According to the ACNC’s Charities Report 2016 (the latter calendar year overlapping with the McGregor-Lowndes et al. report data), the total giving to charities (including both DGRs and charities that are income tax exempt entities) was around $10.5 billion (this does not include giving to the non-charitable income tax exempt NFP entities included in the McGregor-Lowndes et al. analysis of business giving).[6] According to the ACNC’s Charities Report 2023 (the most recent available), in 2023 the total giving to the charity sector had increased to $14 billion.[7] This represents a one-third increase in donations to charities across the period from 2016 to 2023. Assuming the same proportionate increase is applied to the $3.521 billion in total business giving obtained by McGregor-Lowndes, et al. for the financial year 2015-16, this would equate to $4.694 billion donated in cash by all Australian businesses to the bodies identified in that survey (including DGRs, charities and not-for-profit entities) in the 2022-23 financial year.

According to the Australian Centre for Philanthropy and Nonprofit Studies’ most recent analysis of deductible giving in Australia, in the 2022-23 financial year $4.1 billion of total giving took the form of tax-deductible donations made and claimed by individual Australian taxpayers to Deductible Gift Recipients.[8] If that proportion is applied to the total donations reported by the ACNC in the calendar year 2023, this would equate to 29.29% of total donations being given on a deductible basis, with 70.71% being given to tax-exempt charities. Assuming that 70.71% proportion holds if the wider-NFPs included in the McGregor-Lowndes et al. study are incorporated within the charity proportionate component of the ACNC data (the relative proportion of non-DGR giving is likely to be greater on that basis, but we have assumed the conservative proportion for the purposes of the analysis), applying that rate to the projected giving through all businesses in the 2022-23 financial year of $4.694 billion would see $3.320 billion paid by Australian businesses to non-DGR charities and NFP income tax exempt entities in that year.[9]

The Government’s Budget Paper No.1 states that ‘[a]s of 2022-23, Australia has around 840,000 discretionary trusts’.[10] The Australian Bureau of Statistics reports that at 30 June 2023 the number of active trading businesses in the Australian economy was 2,589,873.[11] Discretionary trusts thus account for 32.43% of the Australian business sector. Assuming that discretionary trusts give at a rate that is representative of the wider Australian business sector, applying that 32.43% rate to our projected giving through all businesses to non-DGR charities and NFP income tax exempt entities in the 2022-23 financial year of $3.320 billion would mean that $1,076,701,185 was distributed to charities and NFPs by discretionary trusts in that year.[12]

As shown by the following table, applying the average nominal growth rate in Australian philanthropy of 7.9% projected by the Productivity Commission,[13] the 30% tax rate would see $509,735,774 lost to the charity and NFP sector in the first year of its operation following the implementation of the reform on 01 July 2028 (financial year 28-29). Applying the Productivity Commission’s growth rate to the first five-year period following the implementation of the reform (financial years 2028-29 to 2032-33) would see $2.984 billion dollars in donations lost to the charity and NFP sector. The following table calculates the donations foregone against the level of philanthropy that would have eventuated absent the reform.

McGregor-Lowndes, et al. also recorded the amount of moneys that were given by Australian businesses through ‘business and community partnerships’ and ‘community sponsorships’ separately from the category of ‘donations’. If money given through partnerships and sponsorships is added to the amount recorded in cash donations the amount of giving through Australian businesses is considerably higher. It is reasonable to assume that discretionary trusts will prefer to maximise the amount of giving through such partnerships and sponsorships by making payments as pre-tax distributions. Including these amounts, the study found that businesses donated $10.3 billion in cash in the 2015-16 financial year.[14] In respect of small to medium-sized enterprises (‘SMEs’), the study found that in the 2015-16 financial year giving in cash (including donations and giving through partnerships and sponsorships) comprised 53% of total giving, equating to $4.5 billion in cash donations.[15] In respect of large businesses, the study found that giving in cash (including donations and giving through partnerships and sponsorships) comprised 81% of total giving, equating to $5.8 billion in the 2015-16 financial year.[16]

If these figures are incorporated into the above analysis, applying the average nominal growth rate in Australian philanthropy of 7.9% projected by the Productivity Commission,[17] the 30% tax rate would see $1,491,193,016 lost to the charity and NFP sector in the first year of its operation following the implementation of the reform on 01 July 2028 (financial year 28-29). Applying the Productivity Commission’s growth rate to the first five-year period following the implementation of the reform (financial years 2028-29 to 2032-33) would see $8.731 billion dollars in donations lost to the charity and NFP sector.

These estimates are conservative because they do not account for behavioural changes that discretionary trust businesses may make in response to the additional financial pressures created by the tax, and any resulting reduction in their capacity to support charities and not-for-profit organisations through donations. While these figures rely upon a number of stated assumptions, they suggest a very substantial and detrimental impact on Australian philanthropy as a result of the proposed budget reform.

Dr Mark Fowler

Principal of Fowler Charity Law and an Adjunct Associate Professor in the Law School of the University of Notre Dame Australia, an Adjunct Associate Professor in the Law School at the University of New England and an External Fellow at the Centre for Public, International and Comparative Law, University of Queensland.

[1] Treasury, Commonwealth of Australia, Budget (Budget Paper No. 2: Budget Measures of 2026-27, 02 May 2026) 22.

[2] Ibid.

[3] Myles McGregor-Lowndes et al., Giving Australia 2016: Business giving and volunteering commissioned by the Australian Government Department of Social Services, Individual Giving and Volunteering The Australian Centre for Philanthropy and Nonprofit Studies, Queensland University of Technology, Centre for Social Impact Swinburne, Swinburne University of Technology and the Centre for Corporate Public Affairs, (Report, August 2017) 21. McGregor-Lowndes et al. did not identify the proportion within this amount that was attributable to payroll giving programs. However, they cite 2013 data which disclosed that the total donated through workplace giving (which included not only employee giving but matched contributions by employers that may also have been given through discretionary trusts) across small, medium and large businesses in 2013–14 was $31 million. The calculations in this note have not been adjusted for payroll giving as the impact is considered to be minimal.

[4] Ibid 21. The other forms of donations were in the form of goods and services.

[5] Ibid. Again, this amount includes cash donations, but not giving in the form of goods and services.

[6] Powell A, Cortis N, Ramia I and Marjolin A, ‘Australian Charities Report 2016’ (2017), Centre for Social Impact and Social Policy Research Centre, UNSW Australia 10 <https://doi.org/10.4225/53/5ac41fa615886>. This figure does not include donations to Basic Religious Charities, the quantum of which is not known. It includes payroll giving. It also does not include giving to organisations exempt pursuant to Division 50 of the Income Tax Assessment Act 1997 (Cth) (‘ITAA’).

[7] Australian Charities and Not-for-profits Commission, Australian Charities Report 11^th Edition (2025) 6. The total given included an extra $4.9 billion from Minderoo Foundation, but this has been removed from the reported figure as it is not representative of the general trend in giving. As noted above, the total of business giving identified by is McGregor-Lowndes et al. is directed to a wider body of entities than charities.

[8] Myles McGregor-Lowndes, Marie Balczun and Alexandra Williamson, ‘An Examination of Tax-Deductible Donations Made by Individual Australian Taxpayers in 2022–23’ (Working Paper No 79, Australian Centre for Philanthropy and Nonprofit Studies, 2025) 6 https://doi.org/10.5204/rep.eprints.258919. Not all deductible gifts are claimed by the taxpayer donor. Again, the total given included an extra $5 billion from Minderoo Foundation, but this has been removed from the reported figure as it is not representative of the general trend in giving.

[9] Again, because the ACNC data does not include giving to NFP tax exempt entities, the total giving to non-DGR tax exempt entities and charities would be higher. This would mean that the proportion of donations to DGRs would be less, with the result that giving through businesses to charities and NFP tax exempt entities in the 2022-23 financial year would be higher than the figure of $4.694 billion identified here.

[10] Treasury, Commonwealth of Australia, Budget (Budget Paper No. 1: Budget Measures of 2026-27, 02 May 2026) 161.

[11] Australian Bureau of Statistics, Counts of Australian Businesses, including Entries and Exits (22 August 2023) <https://www.abs.gov.au/statistics/economy/business-indicators/counts-australian-businesses-including-entries-and-exits/jul2019-jun2023>.

[12] The figures in this analysis assume that all forms of giving by discretionary trusts would maximise the amount that may be given by making pre-tax distributions.

[13] Productivity Commission, Future foundations for giving Inquiry report (Report, 10 May 2024) Report no. 104 3.

[14] McGregor-Lowndes et al. (n 3) 32, 69. This comprised donations and also monies gifted in ‘business and community partnerships’ and ‘community sponsorships’. ‘Business and community partnerships’ were defined by the study to be ‘a collaborative arrangement (formal or informal) between a business and non-related community organisations, institutions, government bodies or individuals for mutually beneficial outcomes and social impact. Such an arrangement involves the voluntary transfer of money, goods or services in exchange for strategic business benefits, such as improved staff expertise, wider networking, enhanced community reputation and/or other quantifiable benefits’: xi. ‘Community sponsorships’ were defined to be ‘business support of an NPO or community group to enable them to sustain their operations, stage an event, support fundraising, or achieve a specific objective (e.g. send an exchange student from a local community overseas). Unlike commercial marketing sponsorships, the business is not motivated by, and does not seek, to position its brand proposition through the sponsorship, nor position the sale of its products or services’: xi.

[15] Ibid 70. The other forms of giving were in the form of goods and services.

[16] Ibid 32. Again, this amount includes donations, sponsorships and partnerships, but not giving in the form of goods and services.

[17] Productivity Commission (n 13) 3.