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Understanding charity donations and tax deductions

Tax deductions can make a substantial difference when it comes to reducing your taxable income. While there are many different types of deductions , those related to gifts and donations are often overlooked. If you make a donation to a non-for-profit, it may be considered a tax deduction if it follows certain requirements as outlined by the Australian Tax Office. Let’s take a deep dive into understanding charity donations and tax deductions.

What is a gift?

When you make a donation to a non-for-profit, it may be tax deductible, if it can be identified as a gift. According to the Australian Tax Office (ATO), a gift is a voluntary donation of money or property that has no material benefit to the donor.

In order for your gift to be considered tax deductible, it must be made to a deductible gift recipient, known as a DGR. It is also expected that the donor, be that an individual, a company or a trust, does not expect anything in return.

What is not considered a gift?

There are times when giving to charity may seem like a gift, but it is not. For example, the ATO has stated that purchasing raffle tickets, the cost of attending a fundraising dinner or buying items at a charity auction are not considered gifts. To determine what donations can be correctly identified as a gift, it may help to hire an accountant.

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What is a contribution?

On the other hand, a contribution is a donation where the donor does receive material benefit in return. While some contributions to a DGR can still be considered tax deductible, it only applies for individual taxpayers. For a contribution to be considered tax deductible, it must be in respect of an eligible fundraising event and comply with any extra conditions as requested by the ATO.

If a business shows support to a DGR through some form of sponsorship, it is not usually considered a gift. You may, however, be able to claim it as a business expense. It’s best to check with your accountant.

What do I need in order to claim?

You need to keep a record of all tax deductible gifts and contributions to help submit your tax return. If the DGR issues a receipt for your deductible gift, it must have the name of the fund, authority or institution to which the donation was made, their ABN and state that the receipt is for a gift.

If it’s for a deductible contribution, the receipt must also include the name and ABN, state that the contribution was made in return for a right to attend an event or for the purchase of goods at a fundraising auction. It must also state the amount and the GST-inclusive market value of the benefit received in exchange for the contribution.

For more small business tax articles, check out these resources.

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