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Giving to charity can be a great way to help others and give your tax return a boost, but not all donations are tax deductible. Here’s what you need to know about making a tax deductible donation.
Donating to a charity or cause you care about is a win-win for both you and the charity. Charities rely on the generosity of donors to help them do their work, while you get the satisfaction of supporting a worthy cause. Even better, many donations are tax deductible, meaning they reduce your assessable income.
When I worked for a bank, there was a matching donations program where the bank matched most donations to a recognised charity. This program worked to make employees feel that the bank was backing the interests they cared about. It also worked to make the employees (at least this one) feel that the donation had much greater impact – in fact, twice the donation I was making from my own pocket.
Many organisations have these programs and it’s a good idea to find out if your own employer has one in place.
Sometimes a large donor will support a particular charity and match donations for a limited time – again, this gives a greater impact to your donation which may make you feel twice as good! Always make sure that these are legitimate charities and offers.
Charities can include humanitarian aid, medical causes, religious institutions, environmental issues and even theatre groups. However, not all good causes are registered charities, and it is only registered charities that are eligible for tax deductions.
How do I make a tax deductible donation to charity?
The ATO has rules that govern whether a donation can be claimed as a deduction on your tax return.
To be eligible, your gift or donation needs to be made to a charity that has ‘deductible gift recipient’ (DGR) status. Most DGR charities will list this on their website, but you can also look it up on the Australian Business Register.
In addition, it must be a donation of money or property of more than $2. It can include financial assets like shares.
In some cases, there are special rules (gift conditions) that affect the types of deductible gifts the charity can receive. Always check with the charity before making a donation, especially if it’s a substantial sum.
When is my donation not tax deductible?
If you receive anything in return for your donation, the ATO won’t consider it a ‘gift’ for tax purposes, meaning it’s not deductible. For example, buying raffle tickets or paying to attend a fundraising dinner. The ATO views this as an exchange of goods for money, therefore it’s not tax deductible. If you receive something small, with no monetary value as a thank you, for example a sticker, that’s ok.
Keeping track of tax deductible donations
To claim a tax deduction, you need proof of making the donation. That can be in the form of a receipt, bank statement or other written record. Most charities will issue you with a receipt when you make a donation, although they’re not legally required to. Always ask for a receipt and save it together with your other tax deductible receipts.
You can claim donations for gifts of up to $10 without a receipt.
Many charities now prefer regular monthly donations to cut down on administration and to ensure that the donations will continue. If you are signing up for these, you should keep a note somewhere that keeps track of what you’re giving – like any subscription they can get out of hand and you might start doubling up unknowingly.
How do I claim my donation as a tax deduction?
For gifts of money over two dollars you can claim the full amount of the donation in your tax return. Simply include your deductions in the Gifts or Donations section of your tax return.
Different tax rules apply for donations of property or shares, so seek professional tax advice.
How much tax could I get back?
Some charities have donation calculators on their website to help you estimate your potential tax benefit, like this one from World Vision Australia. Be aware that your actual tax refund may differ from that shown, depending on your overall tax position. Always seek professional tax advice if you’re considering making a substantial donation or looking to reduce your tax bill.
What else to consider when making a donation
Do your research when choosing a charity, especially if you’re looking to make a regular or large donation. Choose a charity or cause that’s important to you and check their credentials. Look into the kind of activities they do and find out how your donation will be used.
You can search the Australian Charities and Not-for-profits Commission (ACNC) register to find out more information about the charity, including financial information, a summary of activities and annual reports.
Beware that scammers often pose as legitimate charities and may contact you via phone, SMS or email asking for donations. Always look up the charity on the Australian Business Register and/or the ACNC register as outlined above.
The Money & Life website is operated by the Financial Advice Association (FAAA). The views expressed in this article are those of the author and not those of the FAAA. The FAAA does not endorse or otherwise assume responsibility for any financial product advice which may be contained in the article. Nor does it endorse or assume responsibility for the information.
