How Donating to Charity Can Help Reduce Your Tax Bill
- July 31, 2017
- Posted by: Quarles Business and Financial Strategists
- Category: Tax and Accounting
A lot of Australians regularly make donations to charities to help them achieve their goals. You may be one of the many who does.
However, did you know that while your generous donations are contributing to the feeding, homing and caring for those less fortunate, they can also be used to reduce your tax bill?
Is charity tax deductible?
Yes. You are able to donate your money, assets or property to any organisation which is entitled to receive these gifts.
These organisations are called ‘deductible gift recipients’ (DGRs). You are only able to claim a tax deduction for gifts or donations to organisations that have a DGR. You can check if an organisation is legally registered as a deductible gift recipient organisation by searching the Australian Business Register.
Tax deductions for gifts are claimed by the person that makes the gift (the donor). Donations can be made on behalf of an individual or on behalf of a business.
A tax deduction for most gifts is claimed on the tax return for the income year in which the gift is made. However, you are able to choose to spread it over 5 income years under certain conditions.
What Is a Charitable Tax Deduction?
When you personally donate your money, assets or private property to a DGR without the expectation of a return, you are eligible for a charitable tax deduction.
These donations cannot be an investment, that is, they cannot be given to an organisation with the expectation that you will receive a return on that money or asset.
How Do Tax Deductions Work for Charity?
Tax-deductible donations are an excellent way to improve your tax return while also assisting a worthwhile cause.
Deductions are when your overall taxable income is reduced as of the result of an expense, in this case, your donations. By having a smaller taxable income, it means the amount of tax you are required to pay will, in turn, be reduced.
What Are the Requirements to Claim My Donations?
- The charity must be endorsed by the ATO as a Deductible Gift Recipient (DGR) organisation.
- The donation must be of $2.00 or more.
- You must keep proof your donation in the form of a receipt or bank statement.
- You must claim the donation on the tax return for the same income year that the donation was made.
- Certain political donations may also be claimed.
- Make sure you are not receiving a personal benefit back from the organisation (e.g. the value of a meal or a calendar purchased is not a deductible donation).
- Charitable raffle or lottery tickets are not considered donations.
How Much Can You Donate to Charity Without A Receipt?
If you donate cash, for instance, donations of $2 or more to bucket collections conducted by an approved organisation for bushfire and flood victims, you can claim a tax deduction equal to your contribution without a receipt, provided the contribution does not exceed $10.
Any other deductions must be able to be proven.
According to the ATO, income tax law in Australia does not specify whether the deductible gift recipient must issue a receipt for a gift or deductible contribution, however, it does specify the information that needs to be included on the receipt if the deductible gift recipient issues a receipt.
What Is the Minimum Amount of Donation for A Tax Deduction?
For your donation to be tax deductible, the amount needs to exceed $2.00.
Is There A Maximum Charitable Donation Deduction?
Yes and No. As long as your donation exceeds $2.00, you are eligible to claim it back on your tax return. This is the case unless:
- The donation causes you to increase a tax loss; OR
- The donation is in the form of property, valued at less than $5,000.
How Much Money Do You Get Back on A Tax Write Off?
Ultimately, the amount you can get back on your tax write off depends on the amount you have spent, in this case, as a gift or donation in the last income year. If you donate say $1000 to a DGR eligible charity organisation, you are able to claim all of this back at tax time. The refund is $1,000 x your marginal tax rate.
Other tax deductions such as work-related expenses are also able to be claimed back at tax time, as long as you are able to prove it with receipts or other documentation.
What to Consider When Deciding to Donate
So you’re thinking about donating to a charity, but what things should you consider?
Make sure you believe in the charity and are happy to support their cause. Think about if you are going to make a one-off or ongoing donation. Some charities also support automatic deductions from your salary through workplace giving. Also, be careful to check the legitimacy of the charity and ask if the donation will be tax deductible.
Is there a charity you are considering donating to, but unsure if the donation will be deductible or not? Check that the organisation is a DDR by visiting the Australian Business Register.