Donating to charity is all about doing a little good in the world. However, your thoughtful donations come with an attractive bonus – they can help you reduce your tax bill. On the surface, tax-deductible donations seem like a win-win situation. As with most things tax-related, however, the reality isn’t as simple as you’d like to think.
To ensure you’re able to make the most of your donations, we’ve developed the following guide to charitable donations and taxes. From telling the difference between a contribution and a donation to determining whether a charity is reputable and registered, you’ll find all the info you need to make informed decisions.
Express tax tip: Have you saved all the receipts for this financial year’s charitable donations? You can use our online tax return form to lodge your return the quick and easy way. One of our expert tax accountants will review your submission, check your charitable donations and other deductions, and ensure everything is correct.
Is the Charity a Deductible Gift Recipient (DGR)?
To be able to claim a charitable donation on your taxes, the charity must be registered with the Australian Taxation Office (ATO) as a Deductible Gift Recipient (DGR). A DGR is an organisation or fund that can receive tax-deductible gifts. It’s crucial to understand that you can only claim tax deductions for gifts or donations to organisations that have the official DGR status. If the organisation is not registered as a DGR, you will not be able to claim a deduction for any donations you make.
Pro tax tip: Claiming your donation won’t affect what the charity receives. You reduce your tax bill once you’ve made the claim, but they still receive the full amount.
How to Check if a Charity Is a DGR
If you’ve donated to a crowdfunding campaign, beware. You might be donating to a good cause, but if it’s not registered with the ATO, you won’t be able to claim your donation as a tax deduction.
If you’re unsure, it pays to check whether your chosen charity is reputable and registered as a DGR. You can do this on the Australian Charities and Not-for-profits Commission website.
How Do You Claim Charitable Donations?
Whenever you make a donation, it’s a good idea to get a tax receipt to back up your claim. You can claim a tax deduction for donations under $10 without a receipt. However, to claim deductions for donations over $10, you will need to provide your receipts when filling out your tax return.
To claim a tax deduction for a donation, you must be able to meet the following four conditions:
- Your donation must be to a DGR organisation;
- You must have voluntarily transferred money without receiving anything in return;
- The donation must be money or property, which can include financial assets such as shares;
- Your donation must comply with all relevant gift conditions.
What’s the Difference Between Contributions and Tax-deductible Donations?
The ATO regards a gift as a donation of money or property that is made without any material benefit to the donor. If you’ve received anything in return for your donation, it is deemed a contribution and won’t be tax deductible.
Who Can Claim Charitable Donations as Tax Deductions?
Wondering whether businesses can claim charitable donations? You’ll be pleased to know that the ATO allows both individuals and businesses to claim a tax deduction for donations. Indeed, a donor can be an individual, company, trust, or any other type of taxpayer.
Pro tax tip: Keen to learn more about the ins and outs of tax? Consider enrolling in ITP’s Income Tax Course. Whether you want to handle your individual taxes with ease, handle your own small business bookkeeping, or launch a career as a tax professional, this comprehensive course is the ideal place to start.
When Is a Donation Not Tax Deductible?
For your donation to be a legal tax deduction, you must not receive anything in return. There are times and events where you might make a donation and receive something from the organisation in return. Unfortunately, these cannot be counted as true donations.
Some examples of expenses that are not tax-deductible include:
- Money spent at auctions;
- The purchase of raffle tickets;
- Purchasing low-cost food items;
- Buying tickets for fundraising events
- Paying membership fees
- Making payments for a school or church building;
- Costs incurred while providing a voluntary service;
- Gifts made in a will;
- Purchase of gift vouchers.
If you’ve received a pin, token, wristband, or sticker for your donation, you’re in luck. You can still claim the deduction. Since pins and tokens are used by DGRs as marketing and promotional material, the ATO deems them as having no material value. So they do not affect your ability to make a claim.
What Charitable Donations Can You Claim?
Your claimable amount will depend on the type of donation you’ve made. If you donate money, you can only claim donations of $2 or more. If you’ve made non-monetary donations, there are different rules depending on the type of property or shares you’re donating.
Pro tax tip: If you’re considering donating items of cultural value, there are special circumstances under Australia’s Heritage and Cultural programs where these gifts can also be tax deductible.
When Do You Claim Charitable Donations?
You’ll generally need to claim your donations in the year in which they were given. In certain circumstances, you can elect to spread the tax deduction over five income years. However, in such circumstances, it’s best to seek the advice of a tax agent who can help you maximise your tax deductions.
Are Political Donations Tax-Deductible?
If you’re an individual, you may be able to claim donations made to a political party as a tax deduction. This includes membership subscriptions to a registered political party. Just note that your gift or donation must be more than $2. If you donated property, it must have been purchased 12 months or more before making the donation. The most you can claim in an income year is $1,500 to political parties and $1,500 to independent candidates and members.
The ATO stipulates that political gifts or contributions must be “made in a personal capacity” to be eligible as tax deductions. This means businesses are not allowed to claim deductions for any political donations or gifts they give.
You now have a solid understanding of the rules surrounding tax-deductible donations. Of course, as with all things tax-related, there are more detailed and specific rules and regulations surrounding tax deductions and charitable donations. If you have a question that wasn’t covered here or are dealing with a unique type of donation, contact ITP today. One of our friendly certified tax accountants will be happy to advise what and when you can claim so you can maximise your tax return.