Tips on Claiming Gifts & Donations in Your Tax Return

Posted on: 5 June 2015

Natural disasters and other tragedies are unfortunately a part of life. Many of you may have responded to seeing others in trouble by donating to charities at the front line trying to help. Now tax time is approaching, you might be wondering what the rules are concerning donations.

A tax accountant should be able to advise on the particular details of your situation; in the meantime here are some general pointers.

How gifts and donations reduce tax

Allowable donations reduce your tax bill because they are subtracted from you total taxable income. If your taxable income reduces, then this reduces the tax you pay. If your are paying tax as you go through your wages, you will have to wait until you submit your tax return before you can claim back a percentage of the donation. 

As an example, assume you are paying tax throughout the year at a rate of 20 percent; and suppose you have made a donation of $200 in the current financial year. You would have then paid 20 percent tax, or $40, on that $200 that you earned and then used as a donation.

When you submit your tax return, recording that $200 as a valid donation subtracts it from your taxable income. You will then receive back the $40 tax you paid on it during the year. In some cases, you might want to spread the cost of a donation over a period of five years. See a tax expert for advice on how to do this.

You cannot claim a donation that creates a tax loss. If a generous contribution is greater than your taxable income, you can only claim the amount of the donation that is equal to or less than your taxable income. For example, if you make a donation of $25,000 but your taxable income is only $20,000, then you can only claim the tax paid on $20,000 of the donation.

It makes sense sometimes to make your donations in June so you will have a shorter wait time to claim back the tax. Of course often this is not always possible as disasters happen all times of the year and people need urgent assistance.

Conditions for Donations to be Tax Deductible

For a donation to be deductible, it must be made to a deductible gift recipient or a DGR. DGR's are organisations entitled to receive tax deductible gifts; these organisations are either specified by name in tax law or endorsed by the Tax Office. Check with the ATO, the Australian Business Register or tax accountants like Boyd & Associates for a list of valid gift recipients.

Some organisations are given the status of being a deductible gift recipient for a limited time, which can happen in times of particular disaster relief appeals. If this is the case, you must make the donation within this period for it to be tax deductible.

The donation must also be at least $2 and it must be a genuine gift in that you are not receiving something in return. If you buy raffle or art union tickets, or receive items such as pens, chocolates, memberships or free entry to dinner functions in return, then the donation will not be tax-deductible. Minor objects such as badges, stickers or poppies are allowed, however.

Donating to charity is a worthwhile endeavour. Getting some reward at tax time is an added benefit well worth pursuing. Just remember that the tax implications of gifts and donations are complicated; a tax accountant should be able to advise on your particular situation. 

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