With Christmas just around the corner, thoughts turn to giving to good causes.
Did you know that in certain circumstances, not only can you make a gift to charity but you can get a tax deduction for doing so?
Also read: Top 4 tax deduction tips for teachers
Here's my guide to tax-deductible giving.
What is a gift for tax purposes?
You can only claim a tax deduction for gifts or donations to organisations that are deductible-gift recipients (DGRs).
You can check whether an organisation is a DGR. Most major charities are.
When you make a gift, you don’t receive a material benefit in return for your payment.
This is contrasted with a contribution. For example, when you purchase a ticket to attend a fundraising dinner, you receive a benefit in return - the dinner.
For you to claim a tax deduction for a gift, it must meet these conditions:
The gift must be made to a deductible-gift recipient
The gift must truly be a gift - a voluntary transfer of money or property where you receive nothing in return
The gift must be money or property, which includes financial assets such as shares
Which gifts are tax deductible?
For gifts of money, you can claim a deduction where the amount of the gift is $2 or more.
You can claim the deduction in the tax return for the income year in which the gift is made.
Your receipt – which you will need to substantiate the deduction – should tell you whether or not you can claim a deduction.
If you used the internet or phone to make a donation over $2, your web receipt or credit card statement can be used to substantiate the deduction.
If you donated through third parties, such as banks and retail outlets, the receipt they gave you is also sufficient.
If you contributed through 'workplace giving', your payment summary shows the amount you donated.
Bushfire and flood donations
If you make donations to bucket collections for bushfires and flood victims of $2 or more, you can claim a tax deduction for your contributions without a receipt provided the contribution does not exceed $10.
What you can't claim
You can’t claim as a gift or donation anything that provides you with a personal benefit, such as:
Items such as chocolates and pens
The cost of attending fundraising dinners, even if the cost exceeds the value of the dinner (but see below)
Payments to school building funds made, for example, as an alternative to an increase in school fees
If you attend a fundraising event, you may still be able to claim a tax deduction even though the payment you have made is not regarded as a gift for tax purposes.
You can claim a portion of your contribution to the event as a tax deduction if the contribution is for an eligible fundraising event, organised for a DGR and conducted in Australia, including fetes, balls, gala shows, dinners, performances and similar events.
If you make a contribution of money, such as buying a ticket, you can only claim a deduction if the amount spent is over $150.
If you make a contribution of property, the property must be valued at more than $150 (if purchased within 12 months of making the contribution) or $5,000 (if purchased more than 12 months before the contribution).
Fundraising events held by political parties are ineligible for this concession. If the contribution is made to a political party, see below.
Political parties are not DGRs. However, in some circumstances, gifts and contributions made by individuals to political parties, independent candidates and members can be claimed as an income tax deduction.
To claim a deduction, contributions must be more than $2. The most you can claim is:
$1,500 for contributions and gifts to political parties
$1,500 for contributions and gifts to independent candidates and members
Businesses cannot claim deductions for political contributions.
Receiving a gift
Assuming you aren’t a DGR, gifts that you receive (perhaps for a wedding, or a birthday) aren’t taxable and you don’t need to declare them for tax purposes.
Many people claim to have received a “gift” in order to avoid the tax consequences that arise on other forms of receipts.
An example might be receiving a “gift” from parents, and at the same time agreeing to give up certain rights in the family company.
The parents or the child might argue that the two are unconnected and that the payment is a genuine “gift” but the ATO may make a connection between the two events and argue that the “gift” is really compensation for giving up the rights, and therefore taxable as a capital gain.
Just bear in mind that if the ATO chose to investigate your “gift” and they find out that you’ve received an amount of income that is actually taxable, you’ll be taxed on the substance of the transaction (ie, what the “gift” really is) rather than the form (ie, the “gift” itself).
Mark Chapman is director of tax communications at H&R Block.