Donating to charity gives you that warm, fuzzy feeling, and it can also have the added bonus of boosting your tax return — in some circumstances.
With the end of financial year on June 30 right around the corner, now is the perfect time to squeeze in those last few donations.
But deciding who to donate to and knowing if you can claim that in your tax return isn’t always straightforward.
So ABC Life checked in with some experts to find out how to pick the right charitable organisation and help you navigate this part of the MyGov form.
How much do we give?
According to the 2019 Australian Communities Trends Report, Australians are pretty generous. Five out of six Australians give to charitable organisations.
In 2017-18 we were most likely to donate cash to a children’s charity or animal welfare and wildlife support cause, but we also like to give to things like medical research, disaster relief and mental health.
Tracking how much Australians donate per year is hard. No-one wants to count all the change in all the charity tins, but a report in 2018 found the average annual claim for tax deductible donations was $633.72.
That’s averaging out claims by the likes of Twiggy Forrest donating $400 millionwith someone claiming the $10 they stuck in a Guide Dogs plastic pup.
How to pick a ‘good’ charity
If you want to help your local homeless puppies, how can you be sure that your $5 will actually be used for frontline services?
While there’s no enforceable standard on what proportion of donations need to be spent on actual services as opposed to administration costs, the Australian Charities and Not-for-profits Commission (ACNC) does play an oversight role.
Catherine Willis is acting commissioner at the ACNC, which runs a voluntary register of charities in Australia.
“We’ve got almost 58,000 charities registered on our charity register,” she says.
“Our register is a free online database … that the public can search for information on the charity.”
Charities and not-for-profits don’t have to register with the ACNC, but those that do can be found on the website where you can easily find info like the full name of the charity, where they’re located and if their reporting is up to date.
You can also find their annual returns to see how they’re spending their money.
“We have a thing called a charity tick, and if they have a charity tick it means they’re up to date with all their reporting and compliance,” Ms Willis says.
If you want to donate to an organisation working overseas, it’s worth checking the Australian Council For International Development website before giving.
And you can also check the Scam Watch website for any fake charity reports, or to report a scam yourself.
Ms Willis says you should always do due diligence before giving money to anyone to make sure they’re legitimate.
Ask things like:
- What is the cause, exactly?
- What does this organisation do for the cause?
- Where is the charity or organisation based?
- What are donations used for?
- Are you affiliated with other charities or organisations?
If you want to verify the details of an organisation, ask for the full name of the business, their corporate registration number, such as an Australian Business Number (ABN), and their physical address so you can look them up for more info.
Reducing your income tax with donations
You’ve probably seen the old line of “donations of $2 or more are tax deductible”. But it’s important to note that not all donations to charities are tax deductible and not all tax deductible donations are to charities. Got it? Great. Not quite? OK, let’s break it down a bit.
A tax deduction is something you claim in your tax return form that reduces your assessible income, meaning you pay less income tax and therefore get a bigger tax return (or reduce your tax bill).
Deductions can include things like equipment you have to buy to do your job, the cost of paying an accountant to do your tax return for you, and certain donations you might have made to not-for-profit organisations.
John McLaren is a senior lecturer in taxation at the University of Tasmania. He says working out if you can legally claim a donation as a tax deduction “tends to be one of the big problems”.
For a donation to be tax deductible, the organisation has to be “endorsed” by the Australian Tax Office (ATO) as a Deductible Gift Recipient (DGR).
Organisations have to apply to the ATO to get DGR status, so not all charities are on that list and there’s lots of non-charities on the list, such as universities, schools and hospitals, for example.
Dr McLaren says you should always check if the organisation you’re about to give money to is a DGR before you make a claim.
You can look up details yourself on the ATO website.
Why you can’t claim raffle tickets or most crowdfunding donations
If your chosen charity is on the DGR list, that doesn’t necessarily mean you can claim your donation on your tax return.
A spokesperson for the ATO says you can only claim tax deduction on “gifts”.
If you get something in return for your donation, such as a raffle ticket, thank-you card or ribbon, it’s not considered a gift and you can’t claim it.
Donations to crowdfunding appeals often aren’t tax deductible because you often get some reward, the fundraising might be for a number of people or groups, or it’s for medical costs.
If the crowdfunding appeal was set up by an organisation that is a DGR, you might be able to make a claim, but you should check with the organisation and ATO first.
Claiming donated goods on tax
There are some circumstances where you can make a tax claim on stuff you’ve given to charity, but it can be complicated.
To make a claim, the donated goods need to have been bought within 12 months of when you donate them, they have to be donated to a DGR entity and you can’t make a tax claim on anything you haven’t personally paid for — so if you won a prize and donate it, you can’t claim that in your tax return.
If you’re a business owner wanting to donate stock, or you have something like a new car you want to donate, it’s best to get advice from a tax specialist before you claim it as a tax deduction, as it can be complicated.
Always keep receipts and get advice for the big bucks
The ATO says you should keep records of donations to DGRs for five years after lodging a claim in your tax return, as they can request proof from you in that time frame.
“When you make a donation, the DGR will usually issue you with a receipt — but they don’t have to. If this is the case, in some circumstances, you can still claim a tax deduction by using other records, such as bank statements,” the ATO spokesperson says.
“The only exception to this is if you made donations of $2 or more to bucket collections conducted by an approved organisation for natural disaster victims. You can claim a tax deduction equal to your contribution without a receipt, provided the contribution does not exceed $10.”
Of course, you should always ask for personalised advice from a professional if you need help.
You can get free tax advice at Tax Clinics which are run by some universities around Australia (check your nearest uni if they run one) and the ATO offers Tax Help for some eligible Australians.
This article contains general information only. You should obtain specific, independent professional advice in relation to your particular circumstances and issues.