As most of us know, donations of $2 or more are deductible, and there is flexibility in the rules around donating to emergency relief bodies in that no receipt is required if giving less than $10 (so-called “bucket” donations).
To be able to claim a tax deduction for a donation or gift to an organisation, the receiver of that donation must be endorsed as a “deductible gift recipient” (DGR). If you want to make sure, this can be checked on the ABN Lookup web page. Click here.
Other factors to consider when claiming a deduction for a donation
But while this is the main condition imposed on claiming a deduction for donations, it is not the only factor the ATO considers.
- The nature of the donation (whether money or property, which includes financial assets such as shares)
- And that it is a voluntary transfer of assets from donor to recipient, performed as an act of “disinterested generosity”.
- There should be no “material benefit” or advantage arising for the giver through the action of the gift or donation.
The outcome is that if a donating taxpayer receives something in exchange for their donation (such as a bandana or a pen) the rules state that they cannot claim for the donation in their tax return — even if the receiving organisation is a DGR.
Relevant material benefits and advantages listed by the ATO include:
- Raffle or art union tickets
- Items such as chocolates and pens
- The cost of attending fundraising dinners, even if the cost exceeds the value of the dinner
- Payments to school building funds made, for example, as an alternative to an increase in school fees
- Payments where you have an understanding with the recipient that the payments will be used to provide a benefit to you.
Note however that the ATO recognises that a donor being given a lapel sticker to acknowledge their gift, or being mentioned by name in an organisation’s newsletter for the same reason, is not deemed to be an “advantage”, and will not deny a deduction.
Where the donor is a corporate entity however, acknowledgement, especially for example by way of signage, may constitute a benefit, and render the donation ineligible for deduction. There may be a case however to treat the contribution as a business expense, or even as a “sponsorship supply”, depending on circumstances.
It should be emphasised that the voluntary nature of giving is central to the tax deductibility of donations.
By way of example, there was a mining company in Western Australia that was given the alternative of either paying a royalty to the government or an equivalent amount to a DGR resident in WA. The mining company made a donation to the WA State Library Board.
The ATO denied the company’s claim for a deduction, mainly because the miner had no choice about making a payment, only about which entity this payment went to, and it was deemed in the subsequent court case that it was not sufficient that one of these choices was a DGR.
A deduction for a gift or donation cannot add to or create a tax loss. However, a donating taxpayer can choose to spread the tax deduction for a donation over a period of up to five financial years, by using the “Election to spread gift deduction” form (ask us if you require this form).