A Guide to Tax Deductible Donations

guide-to-tax-deductible-donations-online-taxIf you’ve made donations to charities throughout the year, then you might be able to claim the cost of those tax deductible donations as a tax offset. Not only can your donations help those in need, they can also save you money come 30 June.

Of course, as with all areas of taxation law, there are a few rules and regulations governing tax deductible donations. For instance, you can only make tax deductible gifts or donations to particular types of organisations, known as deductible gift recipients (DGRs). In addition, tax deductions for gifts or the donor can obviously claim donations. But, did you know that donors can be individuals, companies, or trusts? In fact, a donor can be any type of taxpaying entity. Let’s take a closer look at tax deductible donations.

What Qualifies as a Tax Deductible Donation?

 In order for your donation to qualify as tax deductible, the donation or gift:

  • Must be made to a DGR.
  • Must be an actual gift. That means that you can’t receive any material benefit from the donation or gift. For example, buying a piece of art at a charity auction is not a tax deductible donation, because you receive the piece of art as a material benefit. If you’d donated money to the charity without receiving the artwork in return, then the donation would be tax deductible.
  • Must be a gift of:
  • Money over $2.
  • Property, including shares, purchased in the last 12 months of any value, or property valued at over $500.
  • Stocks traded outside usual business operations.

Due to tax income law, particular DGRs carry additional conditions in order for your donation or gift to qualify as tax deductible. Your gifts to these DGRs may only be tax deductible between certain dates, or a specific use. Visit the ATO website here for further information on this.

You can also make donations through your employer through workplace giving programs and salary sacrifice arrangements.

How Much Can You Claim As A Tax Deductible Donations? 

The following provides a brief overview of how much you can claim as a tax deductible donation:

  • Gift of money: as long as the donation was more than $2 then you can claim the amount of the donation, as long as it doesn’t create a tax loss.
  • Property above $5,000: you can claim the entire value of the property as a tax deduction, as long as it was not purchased within the 12 months prior to the date on which the donation was. The ATO will decide the value of the property.
  • Property purchased within the last 12 months: you can claim the lesser amount of either:
    • The market value of the property on the day it was donated. In this case you can set the market value of the property (rather than the ATO setting it on your behlalf). Valuation expenses are also tax deductible, as long as the valuation was conducted for the purpose of valuing the property for the purposes of the tax deduction claim.
    • Amount you paid for the property.
  • Stocks: you can claim the market value of the stock on the day on which it was donated, as long as this doesn’t create a tax loss.
  • Shares: you can claim the market value of the shares, as long the value is greater that $2 and less than $5,000.

When Can You Claim a Tax Deductible Donation?

Usually, a claim is made in the year that the tax deductible donation took place. You can also spread any tax deductible donation claims over a five year period. The reasons for spreading out your claim could be:

  • To avoid creating a tax loss.
  • So you can deduct tax in years of higher income.

What Records Should You Keep in Order to Claim a Tax Deductible Donation? 

You should keep receipts of all tax deductible donations. These receipts should detail:

  • That the receipt is for a gift or a donation.
  • The name of the fund, authority or institution.
  • The Australian Business Number of the DGR, if it has one.
  • Name of the donor (you).
  • The date the donation was received.
  • The amount of the donation.
  • A description of the donation, particularly if it was property donation.

Making donations to a charitable organisation has obvious material benefits for the charity or DGR itself, but it can also have benefits for you when tax time rolls around. Most legitimate charity funds and organisations are DGRs. So, if they are, make sure you ask for receipt; while they aren’t legally required to provide receipts, any DGR serious about collecting donations will be only too happy to oblige.

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