Tax and GST can be a complex topic at the best of times, but gifts and donations tend to bring a new level of unclarity with many individuals missing out on a chance to claim on something that is well within their rights to.
It’s because these spends are typically not planned for or rather infrequent that they do not get documented with the intention of reporting later. If you are starting to plan your tax and BAS reporting, let’s understand what is classed as a gift and donation and how you should be reporting that expenditure.
What does the ATO define a gift or donation as?
A gift is a donation that is not exchanged for a service or benefit and is purely extended for the sake of a donation. Conversely, if you or your business extend a gift to another party and you are awarded an account, membership or attendance, then there is an exchange of service and is not allowed to be treated as a gift or donation. So why does the ATO care about this when calculating GST and tax? As it is classed within a reporting system, it needs to clearly have gone towards an unreturned recipient. In simple terms, a gift and donation must be extended with no gain or benefit in return to be deemed a claimable gift and donation.
Who can be the recipient of a deductible gift and donation?
Now that we know what the intention is to be of a claimable gift or donation, we can start to look at what these items and amounts can be. A gift is a voluntary contribution that is $2 or more to an approved organisation or entity is known as a GDR (gift donation recipient). These include organisations and charities that provide help in Australia, school building funds, environmental organisations, cultural organisations and registered political parties. Note that not all charities and organisations are GDR, like many online crowdfunding efforts. If you are in doubt, the receipt of your donation will typically indicate whether or not you can claim this gift as a donation. You can also call the ATO and explain the nature of the donation to get a clear answer.
When is a gift or donation deductible?
As before mentioned, the gift or donation must be made to an approved GDR without receiving a material benefit or gain. Beyond that, the gift must be either money or property including assets and shares. You must also ensure that you have complied with the terms put forward by your DGR, as things like income tax law will add a few conditions to that donation. Many individuals and businesses will still be confused from time to time if they are making a donation or a contribution, with the latter not deductible.
Examples of deductible and non-deductable donations
A deductible donation could be making a financial donation to a local school being built, a donation to a fire relief organisation or supporting a political party. Each of these donations is deductible and should be labelled as such on their receipt. A non-deductable donation would be buying an item at a charity auction, buying a bottle of wine for a client to win their business or supporting a crowd-funding platform online that supports a family in your suburb.
Get clear on what constitutes a gift and donation, and know what you can and cannot support throughout the year with the goal of claiming the amount at tax time. Making any donation is not required but simply a generous thought to an organisation or entity in need, so congratulate yourself on this noble contribution.
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