Donations are a great way to help worthwhile causes and (if you meet the conditions) reduce your tax at the same time.
How much tax will you save?
Your tax saving will generally be your marginal tax rate plus Medicare levy. If you are paying 32.5% marginal rate (for those between $37,000 and $80,000), you will save 32.5% tax plus 1.5% Medicare levy = 34% overall.
Bonus for those between $37,000 and $66,667
For those earning between $37,000 and $66,667 there is an added tax bonus. Between these amounts your low income tax offset reduces by 1.5c per dollar, so any deductions such as a donation will increase your refund by an extra 1.5%, making a 35.5% return on donation (or an extra $35.50 refund per $100.00 given).
What are the conditions to make a gift tax deductible?
The conditions to make a gift tax deductible are:
- Didn’t receive anything in return
You generally can’t claim a deduction if you receive anything in return. So the pen, dinner or raffle tickets you received mean the donation is not deductible. The one exception is a special charity dinner where the cost of dinner or an item is less than 15% of the market value. See your accountant if you suspect you have a claim.
- Receipt states tax deductible
You need a receipt that states the amount is tax deductible (note, organisations that are not tax deductible may also issue receipts for funds received).
The only time a receipt is not needed is where the ATO allows a donation to be claimed for money put in a bucket (an up to $10 deduction was allowed for the tsunamis a few years ago).
Gifts or donations must be $2 or more to be tax deductible.
- Approved Organisation
The organisation donated to must be a “deductible gift recipient” (DGR). Popular Australia charities like World Vision, The Smith Family, Red Cross, Vinnies and The Cancer Council are all DGRs and are tax deductible (as you would expect).
Some worldwide charities like UNICEF are deductible. Others charities like www.kiva.org may be deductible in their home country but are not deductible in Australia.
How to check if an organisation is a deductible gift recipient
You can check the status of an organisation at www.abn.business.gov.au or by contacting the organisation directly.
The Charity Dinner
Note that it is possible for a charity dinner to be deductible but strict conditions need to be met, otherwise the dinner or auction item will not be tax deductible.
For example, the value of what you received cannot be more than 15% of what you paid. Or to put it another way – you need to pay at least 6.67 times what your dinner would be worth to receive a deduction. If you are attending a dinner, you should speak to the organisers regarding tax deductibility and make sure you receive a receipt stating that the relevant amount paid was tax deductible.
Consider giving in June
If you give to charities in June then lodge your tax return in July or August, your tax refund could be received within a month or two of making a donation.
I’m hoping you agree with me that it is better to give than to receive (especially if the taxman is funding part of the gift!).