How to unwrap a tax deduction when you give to charity this Christmas

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What is a gift for tax purposes?

You can only claim a tax deduction for gifts or donations to organisations which are deductible gift recipients (DGRs). You can check whether an organisation is a DGR here.

When you make a gift, you do not receive a material benefit in return for your payment. This is contrasted with a contribution (for example, purchasing a ticket to attend a fundraising dinner) where you receive a benefit in return.

charity donations tax deductions charitable

For you to claim a tax deduction for a gift, it must meet these conditions:

  • The gift must be made to a deductible gift recipient (DGR).
  • The gift must truly be a gift. A gift is a voluntary transfer of money or property where you receive nothing in return.
  • The gift must be money or property, which includes financial assets such as shares.

What gifts are tax-deductible?

For gifts of money, you can claim a deduction where the amount of the gift is $2 or more.

You can claim the deduction in the tax return for the income year in which the gift is made.

Your receipt - which you will need to substantiate the deduction - should tell you whether or not you can claim a deduction.

If you used the internet or phone to make a donation over $2, your web receipt or credit card statement can be used to substantiate the deduction.

If you donated through third parties, such as banks and retail outlets, the receipt they gave you is also sufficient. If you contributed through 'workplace-giving' your payment summary shows the amount you donated.

Bushfire and flood donations

If you make donations to bucket collections for bushfires and flood victims of $2 or more, you can claim a tax deduction for your contributions without a receipt provided the contribution does not exceed $10.

What you can't claim

You can't claim as a gift or donation anything that provides you with a personal benefit, such as:

  • raffle tickets
  • items such as chocolates and pens
  • the cost of attending fundraising dinners, even if the cost exceeds the value of the dinner (but see below)
  • payments to school building funds made, for example, as an alternative to an increase in school fees

Contributions

If you attend a fundraising event, you may still be able to claim a tax deduction even though the payment you have made is not regarded as a gift for tax purposes.

You can claim a portion of your contribution to the event as a tax deduction if the contribution is for an eligible fundraising event, organised for a DGR and conducted in Australia, including fetes, balls, gala shows, dinners, performances and similar events

If you make a contribution of money (such as buying a ticket), you can only claim a deduction if the amount spent is over $150. If you make a contribution of property, the property must be valued at more than $150 (if purchased within 12 months of making the contribution) or $5000 (if purchased more than 12 months before the contribution).

Fundraising events held by political parties are ineligible for this concession. If the contribution is made to a political party, see below.

Political contributions

Political parties are not DGRs. However, in some circumstances, gifts and contributions made by individuals to political parties and independent candidates and members can be claimed as income tax deductions.

To claim a deduction, contributions must be more than $2. The most you can claim is

  • $1500 for contributions and gifts to political parties and
  • $1500 for contributions and gifts to independent candidates and members.

Businesses can't claim deductions for political contributions.

Receiving a gift

Assuming you aren't a DGR, gifts that you receive (perhaps for a wedding, or a birthday) aren't taxable and you don't need to declare them for tax purposes.

The exception is where the "gift" is really something else entirely. If you've received an amount of income that is described as a "gift" that is actually taxable, you'll be taxed on the substance of the transaction (ie, what the "gift" really is) rather than the form (ie, the "gift" itself).

An example might be receiving a "gift" from parents, and at the same time agreeing to give up certain rights in the family company.

The parents or the child might argue that the two are unconnected but the ATO may make a connection between the two events and argue that the "gift" is really a consideration for giving up the rights.

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Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales. Previously, he was a tax adviser for over 20 years, specialising in individual and small business tax, in both the UK and Australia. As well as operating his own private practice, Mark spent seven years as a Senior Director with the Australian Taxation Office. He is the author of Life and Taxes: A Look at Life Through Tax.