Deductions and Charity Events
With the ‘Silly Season’ about to begin for another year, our social calendars are becoming busier over the next few months. No doubt, many of us already have a Charity Event of some kind in their calendar to help the farmers or one of many other worthy causes.
This often begs a question: We are helping a good cause, does this mean we can get a tax deduction? Well the answer, as in most cases with tax, is… it depends.
Generally, a tax deductible gift or donation requires the donor to give a gift of money or property and receive nothing in return.
Though there are a variety of ways to donate to a cause, this article will focus on fundraising events and charity auctions held in Australia. At charity events like these, there are often two distinct contributions:
- Event attendance; and
- Purchase of goods and services at auction or similar format.
When paying to attend these events, or acquire goods, you are receiving something of value in return. However, in some cases, you are still able to receive a tax deduction.
There are a few steps to ascertain if any amount contributed, is tax deductible. These steps are to be completed separately for either of the above.
Step 1: Is the recipient a deductible gift recipient (DGR)?
First and foremost, in order to claim a tax deduction, the recipient of any donation must be a DGR and the donation itself needs to be $2 or more. You can check here if the charity is a DGR.
Step 2: Did you spend over $150 on your ticket to attend OR your purchase?
Say, you have confirmed the recipient is a DGR, the next step is to ascertain total spend for each category. To claim a deduction, your contribution of cash or property needs to be over $150.
Step 3: What is the GST inclusive market value of the cost to attend the event? OR What is the GST inclusive market value of the goods or services purchased at auction?
The GST inclusive market value to attend the event or any purchases made at the event must not exceed the lesser of: 20% of the amount of the contribution and $150. To assess the market value, this is a reasonable estimate based on an ordinary arm’s length transaction.
Step 4: Calculate the tax deduction
If all of the above are satisfied, the deduction is calculated by taking the total spent, less the market value attributed to the benefit received.
We have illustrated how these rules work in a few examples below:
John attends a charity lunch held by a local charity in Australia which is a DGR.
He pays $500 for the ticket while the market value of the lunch is valued at $99.
As his payment ($500) exceeds $150 and the market value of the benefit (lunch) received is less than $150 and is also less than 20% of the value of the contribution, he can claim a tax deduction for $401 ($500 - $99).
Jane attends a charity ball which includes entertainment and a dinner. She pays $350 for the ticket. The market value of the ball is $150. In this case, as the value of the benefit received is more than 20% of the payment, she is unable to claim a tax deduction.
At an auction during the charity ball, Jane purchased goods for $400, that have a GST inclusive market value of $75. As she paid more than $150 for the goods, the goods are worth less than $150 and the market value is less than 20% ($80) of the amount paid, a deduction is allowed.
In this case the deduction allowed would be $325 ($400 - $75).
In all cases, you should also remember to keep evidence (receipts) for the monies spent to document the deduction.
Though the rules are quite complex, in many instances a deduction can be claimed for having a great night out and helping a good cause.
If you would like more information on deductibility of attending charity events or auctions, please contact your usual Hanrick Curran advisor or alternatively Jamie Towers or Karen Thompson on 07 3218 3900.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.