Receiving a tax deduction for gifts and donations is a nice thing to get. You contribute to a good cause and as an additional side-kick you save tax.
Tax Deduction for Gifts and Donations
The tax deduction for gifts and donations sits in Division 30 of ITAA 97 Deductions for Gifts and Contributions. There is a lot in that title. Let’s dissect it.
Gift v Donation
The ATO website and internet is scattered with the phrase “gifts and donations”. And we utter gifts and donations in one breath as if they were two different things. But they aren’t.
In conversational English we think of a gift as a thing and a donation as a money. But for tax purposes there is no difference.
In fact, for tax purposes there is only gifts. Div 30 only talks of gifts – gifts and contributions. The word donation doesn’t pop up in Division 30.
Gift v Contribution
A gift is when you give money or property and receive nothing in return.
A contribution is when you give money or property and receive something in return. It might be a raffle ticket, chocolate or a ball signed by celebrity Rugby players. It might be a ticket to a gala dinner, a gym membership or a waiver of school fees. Whatever it is, any benefit in return makes your giving a contribution.
And this is an important distinction because you generally can’t claim a tax deduction for a contribution. There is one very specific exception around the minor benefit rule for fundraising events. But apart from that no tax deduction for contributions.
A gift can consist of money and it can consist of property.
Money is straight forward. The gift is whatever money you paid. If it is in foreign currency, you translate it into Australian dollars. That’s all.
Property, on the other hand, is a completely different story. It is complicated. You really need to look at Subdivision 30A.
Property you donate could be trading stock, financial assets like shares, real estate, jewellery – the possibilities are endless.
The big question is how you value the property. What amount do you claim as a tax deduction?
If you donate trading stock from your business outside the ordinary course of business, you use the market value on the day of making the gift.
If you donate ASX listed shares, you use the market value on the day of making the gift.
For any other property the deduction you can claim depends on how long you owned the property before making the donation.
If you acquired the property within twelve months of making the gift, you claim a deduction for the cost or market value on the day of making the gift, whichever is lower.
The same applies if you held the property fore more than 12 months but the property is worth less than $5,000.
If you acquired the property more than 12 months before making the gift and the Commissioner values it at more than $5,000, you use the Commissioner’s valuation. And it is up to you to obtain the necessary valuation.
Donation in Kind and In-Kind support
Donations in kind and in-kind support are not clearly defined terms. But they are sometimes used to describe scenarios where the donor donates trading stock or gives their time and expertise or picks up the bill so the charity doesn’t incur the expense.
When assessing these scenarios, it is good to remember that you can only claim a tax deduction for gifts of money and property. Nothing else.
So when assessing whether some form of giving is tax deductible or not, you always bring it back to these two things: money and property. If the gift is money or property, it might be possible to claim a deduction. If it is not, then no.
Donating trading stock is a gift of property and falls under the rules for trading stock.
Donating your time and expertise is not a gift of money or property and so there is no tax deduction. Let’s say you are an auditor and do the charity’s audit worth $1,000 for free. There is no gift of actual money or property and so no tax deduction.
Or you are a hairdresser and give five free-haircut vouchers to the charity auction. No gift of money or property and so no tax deduction.
However, you could invoice the audit or haircuts and recognise it as assessable income and then donate the payment back to the charity. But the effect on your taxable income would be nil.
Paying an expense on behalf of the charity is a gift of money. Donors might pay the venue hire for the charity’s fundraising event. So ultimately donate money that the charity uses to cover an expense.
What you can claim as a tax deduction or not is outlined in Div 30 ITAA 97. You can claim a tax deduction if the following applies.
1) Your gift of money must be at least $2. You find the $2 minimum under the special conditions in Subdiv 30A. But if you pay in several instalments to the same charity and the total is over $2, then you pass the $2 minimum.
2) You make the gift to a deductible gift recipient (DGR). ABN Lookup will tell you whether a charity has DGR status.
3) You voluntarily make the gift and receive no material benefit in return. Or you voluntarily make a contribution to a fund-raising event or charity auction and only receive a minor benefit in return.
4) The gift is money or property. It can’t be your time or services.
5) Your gift complies with any extra conditions that apply to some specific DGRs.
6) You have a receipt for your donation. You need a receipt to claim a tax deduction but there is one small $10 exception. If you donated $10 or less to a bucket collection by an approved organisation for bushfire and flood victims, you don’t need a receipt to claim a deduction.
What not to claim
Crowdfunding platforms usually don’t have DGR status. So even though payments to these are often labelled donations, you can’t claim a tax deduction.
Whenever you receive a benefit in return, no tax deduction. There is just one contribution you can claim in parts and that is a contribution to a fundraising event or charity auction that passes the minor benefit rule.
And if you no longer have a receipt, you can’t claim. This one often gets overlooked.
So that is a brief overview of the tax deduction for gifts and donations.
Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 18 January 2019