'Tis the Season of Giving - making and deducting charitable donations
With an estimated 80% of the Australian population donating to charity each year, we are a nation of givers. Surprisingly, though, many people forget to include their donations as deductions at tax time.
Paying taxes can feel like a burden, and we often reluctantly part with our hard-earned money at tax time. But there is another dimension to our tax system that is fundamental to the purpose of providing support for our society: the ability to make charitable donations and claim them as tax deductions. This positive aspect and Australians’ willingness to donate are highlighted in times of disaster, as we have recently seen so starkly in the wake of Tropical Cyclone Debbie. With this in mind, we take a look at tax and charity – whom to give to, how to claim donations as tax deductions, tax relief for those affected and considerations for setting up charitable funds.
Claiming gifts and donations
In 2016, the Australian public gave $12.5 billion to charities and not-for-profit organisations and Australian businesses gave $17.5 billion.
With an estimated 80% of the Australian population donating to charity each year, we are clearly a nation of givers. Surprisingly, though, many people forget to include their donations as deductions at tax time.
Here are some guidelines about what consider when donating and making claims, and what you need to include as evidence to help us prepare your tax return.
Have you made a donation of $2 or more to a deductible gift recipient (DGR)? You can only claim a deduction if the organisation is entitled to receive tax-deductible gifts and contributions. Check with us, or take a look at the list of DGRs that’s available on the ATO’s website.
Is there anything in it for you, apart from the joy of helping others? Any gift or contribution you make that personally benefits you can’t be claimed as a tax deduction. Buying raffle tickets, fundraising items like confectionery, tickets for fundraising dinners and other social events, or paying membership fees can be charitable acts, but they also give you benefits – a chance to win prizes, the ownership of items, a fun night out – so aren’t deductible.
Did you contribute through a charity auction? You can make a partial claim for donations you make through certain fundraising events, such as auctions. The market value of the item you win in an auction must be subtracted from the total bid to identify the deductible amount. The market value of the item represents a benefit to you, and the rest of your bid is effectively a donation. For example, if you make a winning bid of $200 on an autographed football that has a market value of $50, you can claim $150.
Have you made small donations to disaster appeals? If you make a contribution of $10 or less to a “bucket appeal” conducted by an approved organisation for bushfire and flood victims, you don’t need a receipt to claim the amount as a deduction.
Have you kept evidence to support your claim? Make sure you keep a receipt for each donation or provide us with bank statements that show your donations. Many charitable or not-for-profit organisations will issue you an annual statement of the amounts of your donations. For donations deducted by your organisation’s payroll, your annual group certificate will show the total amount.
Tax assistance for people affected by disasters
Did you know that the Government offers tax assistance to help people affected by disasters? The ATO understands that dealing with tax is not a top priority for those grappling with destruction and loss, and offers the following relief options:
Business activity statements (BASs) and annual income tax returns can be deferred without requiring a special application. See the ATO website for the deferred dates according to postcode for people affected by Cyclone Debbie.
Refunds are fast-tracked for taxpayers affected by disasters like cyclones, fires or floods.
The ATO can help to reconstruct tax records if your documents have been damaged or destroyed.
If you have a tax debt, the ATO can suspend debt recovery and offer a number of other support measures, such as:
- tailored repayment arrangements;
- remission of interest, where appropriate; and
- interest-free repayment arrangements for eligible small businesses.
Setting up a charity or fund
In times of large-scale disaster, the Government works swiftly to approve existing and new charitable funds as DGRs so that they can receive tax-deductible donations from the public.
If you’re considering establishing a charitable organisation or a fund, you’ll need to register it with the Australian Charities and Not-for-profits Commission (ACNC) and apply for formal endorsement from the ATO.
Both organisations’ websites provide information about what you need to do, and we can talk you through important considerations about the organisation’s structure, and tax and legal implications.
There are also a number of fund types to choose from if you specifically intend to collect for disaster relief purposes.
Note that fundraising activities are regulated by the state and territory governments, so there are different requirements for licensing and reporting depending on your location in Australia. Your charity or fund may need to register with the local government to collect charitable donations and comply with particular fundraising regulations in your state or territory.
Have questions?
For more advice about your tax affairs or about establishing a charity or fund, get in touch with us.