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The tax benefits of charitable giving

Category Tax Tips

Giving to charity has tax benefits

Making a charitable donation is not only a great way to give back to society, it can also help offset your annual tax bill. If you’re feeling a little generous, here’s how you can claim back on your charitable tax donations.

What can you claim a deduction for?

From street fundraising to bushfire, flood and natural-disaster appeals, donations can be made in many different ways to a host of organisations created to aid different causes – but not all of them will result in a tax deduction.

In order to claim a tax deduction for a donation, the donation generally must be made to an organisation that the ATO has awarded the status of deductible gift recipient (DGR), and the total donation must exceed $2. In addition, the gift must truly be a gift and not result in a material benefit or advantage. The most common gift is money, however deductions may be claimed for other types of gifts, such as a certain type of property. There are rules around how much you can claim – usually this depends on the value of the property – however for gifts of money you are eligible to claim back the amount in total. In certain circumstances, you may elect to spread the gift deduction over a period of up to five years.

Unplanned generous donations – such as those on street corners – count towards your tax deductions too. If in the last financial year you have made one or more donations of $2 or more to bucket collections conducted by an approved organisation for bushfire and flood victims, you can claim a tax deduction equal to your contribution without a receipt. This is provided that your contribution does not exceed $10.

There are special rules for contributions that individuals make for DGR fundraising events, such as fetes, balls, gala shows, dinners and charity auctions. If you make a contribution to a DGR for attending or participating in the fundraising event, or being the successful bidder at a fundraising auction in Australia, a deduction could be available. There are, however, certain exclusions where there is a material benefit in exchange for your donation.

Ultimately you will pay less tax on your wages, and more money will reach the charity

Workplace giving

While this financial year has come to a close, it might be worth looking in to creating a workplace giving program in your company. This is a simple agreement between an employer and employee that allows workers to make regular contributions to DGRs.

As an added benefit, donations are made from your salary before tax has been applied. This means that you will ultimately pay less tax on your wages, and more money will reach the charity of your choice.

What can’t you claim a deduction for?

Common fundraising initiatives that you can’t get a deduction for include raffles or art union tickets, donations made for items such as chocolates and pens, the cost of attending fundraising dinners (even if the cost exceeds the value of the dinner), membership fees, payments to school building funds (for example, as an alternative to an increase in school fees).

You can get a limited deduction for contributions made to political parties, even though they are not DGRs. The most that contributors or donors can claim in an income year is $1500 for contributions and gifts to political parties, and $1500 for contributions and gifts to independent candidates and members.

Ensuring you get your deduction

While you don’t need a receipt to claim a tax deduction for a donation of less than $10 (to an approved organisation for an approved appeal), for all other donations you will need to keep records of your donation to ensure you are able to claim a deduction.

Most DGRs will provide you with a receipt, however DGRs are not required by law to issue them. If you don’t receive a receipt, you can support your claim by recording the name of the donor, the date the gift was received by the DGR and the amount or value of the gift.

Make sure your rebate earns a good rate of interest if you bank it!

If your employer has a workplace giving program and you donate through that, you should keep your payment summary or other documents that confirm your donation. Generally this is provided to you by your employer at the end of the financial year. And when you get your rebate, consider using it to reduce any debt gathering high interest or make sure it earns a good return by putting it in a high interest account.

Important Information
The tax related information contained in this is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice or tax advice. You should seek independent professional tax advice before making any decision based on this information.