How to claim Christmas donations as a tax deduction
With Christmas just around the corner, thoughts turn to giving to good causes.
Did you know that in certain circumstances not only can you make a gift to charity but you can get a tax deduction for doing so?
Here's my guide to tax-deductible giving.
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: Deductible gift recipients | ABN Lookup (business.gov.au). Most major charities are DGRs.
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.
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
Buying a ticket for fundraising events
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 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 deduction.
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.
If you run a business and you give festive gifts to customers and suppliers, you can generally claim a tax deduction for the cost of those gifts where the gift is given with a view to generating future income in the business.
So, if you give a festive gift of a decent bottle of malt whisky to your best customer, with a view to building goodwill which leads to more sales next year, the cost of the malt is tax deductible.
Your business can't claim a deduction for gifts of capital items, such as a piece of technology (a tablet computer for instance) and nor can you claim a deduction if the gift is for private purposes - so if your top supplier is also your brother-in-law, you might struggle to get the deduction.
The dividing line between a gift (such as giving a bottle of wine) and the provision of non-tax deductible entertainment (such as taking the client to a bar and purchasing a bottle of wine for consumption in the bar) can be hazy, particularly where the "gift" is, for instance, a voucher for a meal in a restaurant or a theatre show.
Talk to your accountant if you're not sure whether you're giving a gift or providing entertainment.
Receiving a gift
Assuming you aren't a DGR, gifts that you receive (perhaps for Christmas, 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 consideration for giving up the rights - which is subject to Capital Gains Tax!
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