Deductions for donations — up to a point

 

Most taxpayers are aware that donations of $2 or more are deductible, and there is flexibility in the rules around donating to emergency relief bodies in that no receipt is required if giving less than $10 (so called “bucket” donations).

For taxpayers to be able to claim a tax deduction for a donation or gift to an organisation, the receiving entity must be endorsed as a “deductible gift recipient” (DGR), which can be checked on the ABN Look-up web page.

While this is the main condition imposed on claiming a deduction for donations, it is not the only factor the ATO considers. Also relevant is the nature of the donation (whether money or property, which includes financial assets such as shares), and that it is a voluntary transfer of assets from donor to recipient, performed as an act of “disinterested generosity”.

This last point is important, as the ATO stipulates that there should be no “material benefit” or advantage arising for the giver through the action of the gift or donation. The term “gift” is not defined in ITAA97, and for the purposes of Division 30 the word “gift” has its ordinary meaning, so it is in taxation ruling TR2005/13 where we find the legal requirements that determine a tax-deductible gift.

The outcome is that if a donating taxpayer receives something in exchange for their donation (such as a bandana or a pen), they cannot claim for the donation in their tax return — even if the receiving organisation is a DGR. Relevant material benefits and advantages listed by the ATO include:

  • raffle or art union tickets
  • items such as chocolates and pens
  • the cost of attending fundraising dinners, even if the cost exceeds the value of the dinner
  • membership fees
  • payments to school building funds made, for example, as an alternative to an increase in school fees
  • payments where you have an understanding with the recipient that the payments will be used to provide a benefit to you.

Note however that the ATO recognises that a donor being given a lapel sticker to acknowledge their gift, or being mentioned by name in an organisation’s newsletter for the same reason, is not deemed to be an “advantage”, and will not deny a deduction. Where the donor is a corporate entity however, acknowledgement, especially for example by way of signage, may constitute a benefit, and render the donation ineligible for deduction. There may be a case however to treat the contribution as a business expense, or even as a “sponsorship supply”, depending on circumstances.

It should be emphasised that the voluntary nature of giving is central to the tax deductibility of donations. This was illustrated by the decision in Cyprus Mines Corporation v. FC of T where a mining company, under agreement with the WA government, was given the alternative of either paying a royalty to the government or an equivalent amount to a DGR resident in WA.

The court held that the subsequent payment by Cyprus Mines to the State Library Board was not a gift, as the miner had no choice about making a payment, only about which entity this payment went to, and it was deemed that it was not sufficient that one of these choices was a DGR.

A deduction for a gift or donation cannot add to or create a tax loss. However a donating taxpayer can choose to spread the tax deduction for a donation over a period of up to five financial years, by using the “Election to spread gift deduction” form (NAT 73763).

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