“We make a living by what we get. We make a life by what we give.” Wise and inspirational words from Winston Churchill.
Around four million taxpayers each year make almost $4 billion of tax-deductible donations to various charities around the country. West Australians top the list for the average amount of donation per person. But not everyone understands the rules around the deductibility of donations.
Those that give may be rewarded through our tax system by receiving a tax deduction for donations given to certain organisations, known as Deductible Gift Recipients (DGRs). But like many components of our complicated tax system, the integrity of the rules is exposed to misunderstanding and misuse.
In the 2019 year, nearly two thirds of the charitable donation claims that were adjusted by the ATO were because the taxpayer could not prove they had made the donation. For this reason the ATO has put out a timely reminder, listing the four main reasons that donations may or may not be tax-deductible.
Firstly, the donation can only be deductible if it is made to an organisation that is endorsed as an Australian registered DGR. An organisation’s DGR status can be checked using the on-line ABN lookup tool at abr.business.gov.au. It’s important to understand that not all charities and not-for-profits are DGRs.
Crowd-funding is proving popular as a modern means of charity, but crowd-funding contributions will rarely be tax-deductible unless the funding organisation is a DGR. Foreign charities are also often not registered as an Australian DGR.
Secondly, donations are generally not tax-deductible where the taxpayer receives or expects to receive a monetary or personal benefit in return. Common examples include buying raffle tickets or chocolates for fundraising purposes, although receiving a token like a pin, wristband or sticker will not deny you of your deduction. Some crowd-funding models also provide reward in return for payments and would therefore not be deductible, regardless of DGR status.
The third reason is based on record-keeping. Most charities issue receipts for donations, but some don’t. Where you have third party evidence like a credit card statement that makes it clear you have donated to a DGR, the ATO will likely accept your claim. They’ll also accept a claim for bucket collections of $2 or more without receipts up to a maximum of $10 per year.
Lastly, the ATO says that some people incorrectly claim deductions for donations they intend to make in their will, or claim for workplace giving that has already reduced taxable income through the payroll system.
Donations made by the executor of a deceased estate are never tax-deductible, so if this is part of your estate planning strategy you should chat to your tax advisor to ensure you get the best outcome.
Author: Mark Douglas