For individuals, a non-deductible donation is generally treated as a private expense for tax purposes. For businesses, the tax implications of making a non-deductible donation are not always as straightforward. This article discusses some common tax issues associated with making donations.
But first, when is a donation tax deductible?
A tax deduction is only available for donations of $2 or more that are:
- Made to a deductible gift recipient (DGR)
- Made without receipt of material benefit or advantage (eg buying a raffle ticket or items at a charity auction)
- Evidenced by a record of donation
Additional conditions apply for donations (including membership fees) to political parties, independent candidates and members of political parties.
DGR status
The DGR status of an entity can be searched on the ABN Lookup. Some entities are only a DGR in relation to a particular fund, authority or institution that it operates. For example, many schools are only endorsed as a DGR in relation to a building fund, such that general contributions made to the school would not be tax deductible.
No tax deduction is available for donations made to social media or crowdfunding platforms unless the platform is a registered DGR. This means that donations to personal fundraisers, such as raising money for an individual’s medical bills, are not tax deductible.
What about that DGR I donated to through a GoFundMe or Facebook campaign?
In Australia, a tax deduction is available for donations to DGR fundraisers on GoFundMe and Facebook as both platforms have partnered with PayPal Giving Fund.1 Donations to a Facebook or GoFundMe fundraiser eligible for a tax deduction actually go to the PayPal Giving Fund, a DGR listed public ancillary fund that makes grants towards the donor’s recommended charity.
What records need to be kept?
Taxpayers should keep records for all tax deductible donations made. DGRs will typically issue a receipt for donations made, however, there is no requirement for a DGR to provide a receipt. Donations made through a workplace giving program can be evidenced by an employee’s income statement or payment summary, or by written records from the employer.
Employers making donations
Employers may facilitate donations to DGRs for their employees through workplace giving programs or salary sacrifice arrangements.
Under a workplace giving program, an employer forwards a portion of an employee’s salary to a nominated DGR. The employee claims a deduction for the donations in their tax return and may be eligible to have PAYG withheld at a lower rate.
Under a salary sacrifice arrangement, an employee agrees to have a portion of their salary donated to a DGR in return for the employer providing them with benefits of a similar value. In this case, the employer makes the donation and claims the relevant deduction. Donations made by an employer under a salary sacrifice arrangement generally does not result in the employer incurring an FBT liability. No deduction is available to the employee, as it is the employer who makes the donation to a DGR.
GST and crowdfunding
Crowdfunding refers to the practice of funding a project or business venture by connecting with potential donors through an intermediary, typically an online platform. Payments toward a crowdfunding campaign in exchange for goods, services or rights are not donations. A business may be entitled to an input tax credit for such a payment if it is registered for GST and the acquisition is made for a creditable purpose, eg where advertising rights are received in return. The ATO has issued an online fact sheet discussing GST implications for different crowdfunding models.
Donations to political parties
Donations to registered political parties or independent candidates are only tax deductible when made by an individual in a personal capacity, that is, outside of the course of carrying on business. The maximum deduction that can be claimed in an income year is $1,500 for donations to political parties and $1,500 for donations to independent candidates or members.
Businesses cannot claim deductions for donations to political parties and candidates. Political contributions and gifts are also specifically excluded from being deductible as a business expense. Employers that make a political donation on behalf of an employee or pay for the cost of attending a political fundraising dinner for an employee may be subject to FBT.
Deduction as a normal business expense
Subscriptions and donations to various kinds of organisations purely for business purposes, eg as a form of advertising, may be deductible as an ordinary business expense. Similarly, a business that supports a DGR through advertising or sponsorship may be entitled to a tax deduction as a business expense.
Lastly, what happens when tax deductible donations exceed assessable income?
In general, tax deductions for donations cannot give rise to a tax loss. Deductions for certain donations can be spread over a period of up to 5 years in instalments elected by the taxpayer. A written election outlining the percentage of the donation to be claimed for each of the 5 years must be made before lodging the relevant tax return.
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