When can you claim a tax deduction for a donation you make? 

Tax Deductible Donation

What makes a donation a tax deductible donation? If you have a tax receipt from an entity with DGR status that says it is a tax deductible donation, then it is. That is the short answer.

The long answer is more complicated. A tax deductible donation is either a tax deductible gift or it is a contribution that falls under s8-1 or the minor benefit rule.

Donation

A donation is any money or property you voluntarily give to a charity – be it a gift or a contribution. 

DONATION = GIFT + CONTRIBUTION

If you get nothing in return, your donation is a gift. If you get anything in return, your donation is a contribution.  

So every donation of money or property is either a gift or a contribution. Gift v contribution – that is the terminology the legislator uses in Div 30 ITAA97. The problem is that the ATO doesn’t. They talk about ‘gifts or donations’ in D9 of an Individual Tax return as well as on their website. Messy terminology. Don’t let that confuse you. The end result is the same.

Tax Deduction

Why does it matter whether your donation is a gift or a contribution? It matters for tax purposes. It matters if you want to claim a tax deduction since different rules apply depending on whether something is a gift or a contribution.

Gift

A gift is tax deductible if it meets the conditions listed in s30-15 ITAA97 and TR 2005/13. There are many fine nuances in these rulings, but roughly speaking, a gift is tax deductible if it meets six conditions. It must be

1 – a gift;
2 – of money or property;
3 – of sufficient value;
4 – made voluntarily;
5 – with a tax receipt;
6 – to a recipient with DGR status.

Contribution

A contribution is not deductible since you receive something in return. You are basically buying something, even if it is for a bad price. And so there is no tax deduction. But … there are two exceptions – the general deduction in s8-1 ITAA97 and the minor benefit rule. 

General Deduction s8-1

The general deduction in s8-1 (1) ITAA97 allows you to claim a tax deduction whenever you pay for something to gain assessable income. To get brand exposure or to buy donor data for example.

Minor Benefit Rule s30-15

The minor benefit rule in s30-15 ITAA97 allows you to claim a tax deduction for a contribution if your contribution passes two tests.

The contribution needs to be LIKE a tax-deductible gift …apart from the fact that it isn’t since you received something in return. So it must meet all the conditions a gift has to meet apart from being a gift. That is the first test.

The second test is passing the minor benefit rule. To pass there are five conditions about you, the charity and the event.

# 1    Individual

You must be an individual. Only individuals can claim a tax deduction under the minor benefit rule, but companies, trusts and partnerships can’t. 

# 2   Fundraising Event or Charity Auction

The minor benefit rule only applies to fundraising events and charity auctions. So it doesn’t apply to the cost of merchandise for example, you buy through a charity website.

# 3    Tickets

If you claim the price of a ticket, you can only claim up to two tickets. 

# 4   Minor Benefit

You must only receive a minor benefit in return for your contribution. There are specific rules about what makes a benefit a minor benefit, which we discuss below.

# 5   Less Than 15 Similar Events

The charity running the event must run less than 15 events of this type per year.

Minor Benefit

So the big hurdle is # 4. You must only receive a minor benefit in return. So let’s look at this in more detail.

Whenever you get a benefit in return, you didn’t gift. But if this benefit is so minor in comparison to what you pay – if you pay way above market value – then you must have done this to support the charity.  The dinner and auction was just the side show. It is a minor benefit in comparison to what this is about. This is the reasoning behind the minor benefit rule.  

Whether a benefit is a minor benefit depends on its market value and what you pay for it. The benefit you get must be worth $150 or less. And what you pay must be at least 5 times more than what you paid. These are the two deciding factors – market value and what you pay.

Market Value

The market value of the benefit must be $150 or less. If it is worth more than $150, no minor benefit. So if the ticket or auction item is worth more than $150, it doesn’t qualify as a minor benefit. 

But remember this is not about what you actually pay for the ticket or item. It is about what it is worth – the market value of your ticket to the event. And the market value of the auction item you successfully bid for.

What you Pay

You must pay at least 5 times more than its market value.

And this is just as important. It means that if the meal is worth $100 per head, then you must pay at least $500 for the ticket for it to qualify as a minor benefit. And if an auction item is worth $50, you must pay at least $250 for it.

The argument is that if you pay 5 times more for what it is worth, you clearly pay the money for other reasons than the benefit you get back. Your intentions are clearly altruistic.

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So this was a short overview of what makes a donation a tax deductible donation. Here is more about the minor benefit rule. If you get stuck, please call or email us. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

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Last Updated on 14 March 2020