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Tax deductible donations |
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Introduction
To be tax deductible, a gift must be made to a deductible gift recipient (DGR). Deductions for gifts are claimed by the person or organisation that makes the gift (the donor).
To find out… |
see… |
if an organisation is a DGR |
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whether a gift is tax deductible, how much can be claimed and what records donors need to be kept |
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how to obtain DGR status |
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the requirements for maintaining DGR status |
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about workplace giving programs |
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about making gifts through salary sacrifice arrangements |
How to check if an organisation is a DGR
Only certain organisations are entitled to receive income tax deductible gifts and tax deductible contributions. They are called deductible gift recipients (DGRs).
To check if an organisation is a DGR, refer to our web page Locating an organisation for tax deductible gifts.
Claiming deductions for gifts
Deductions for gifts are claimed by the person or organisation that makes the gift (the donor). A donor can be an individual, company, trust or other type of taxpayer.
To be tax deductible a gift must:
- be made to a deductible gift recipient (DGR)
- really be a gift
- be a gift or money or a certain type of property
- comply with any relevant gift conditions.
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Gifts to charities Charities can receive tax deductible gifts provided the organisation is a DGR. Some charities are not DGRs and therefore cannot receive tax deductible gifts. |
A deduction for a gift cannot add to or create a tax loss for the donor. However, donors can elect to spread deductions for certain gifts over a period of up to five years. See Donors and gifts - GiftPack in our publication GiftPack (NAT 3132).
The amount of the deduction depends on the type of gift. For gifts of money, it is the amount of the gift. For gifts of property and shares, there are various valuation rules. See Gift types in our publication GiftPack (NAT 3132).
Donors need to keep records of their deductible gifts. When property has been gifted, additional details may need to be recorded. This will help donors when they prepare tax returns and in case we check claims. See Tax deductible gifts - Fundraising in our publication Non-profit organisations and fundraising (NAT 13095).
Obtaining DGR status
We endorse DGRs or they are listed by name in the tax law.
We endorse the majority of DGRs. The only DGRs that do not need to be endorsed are those listed by name in the income tax law including prescribed private funds.
There are two types of DGR endorsement:
- where an organisation is endorsed as a whole, for example public hospitals and public universities
- where an organisation is endorsed for the operation of a fund, authority or institution that it owns or includes, for example school building funds and council libraries.
To be endorsed as a DGR, an organisation must:
- have an Australian business number (ABN)
- fall into a DGR general category or operate a fund, authority or institution that falls into a DGR general category
- have acceptable rules dealing with the transfer of surplus gifts and deductible contributions on winding up or revocation of endorsement
- satisfy the gift fund requirements (if applicable)
- be in Australia or its fund, authority or institution is in Australia, unless it is an ancillary fund.
Organisations that meet the requirements for endorsement can apply to us using an Endorsement application pack (NAT 2948).
Examples of the categories include:
- health promotion charities
- school building funds
- public benevolent institutions
- overseas aid funds
- registered cultural and environmental organisations
- public libraries, museums and art galleries.
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For more information on DGR endorsement, see The endorsement process for deductible gift recipients (NAT 3193). |
Deductible gift recipients (DGRs) listed by name in the tax law include organisations such as State Emergency Service South Australia and Playgroup Queensland Incorporated. They also include prescribed private funds.
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For more information on DGRs listed by name, see DGRs listed by name - GiftPack in our publication GiftPack (NAT 3132). |
Maintaining DGR status
Organisations that have been endorsed as deductible gift recipients (DGRs) must tell us if they cease to be entitled to endorsement. Things that can affect entitlement include:
- changes to purpose and operations
- failing to maintain a gift fund
- where applicable, not satisfying the ‘in Australia’ requirement
- incorrectly issuing receipts for tax deductible gifts or contributions.
This means that there is a requirement to carry out regular reviews of an organisation’s DGR status.
The law does not require any particular intervals between self-reviews, but we recommend a yearly review. There should also be a review when there is a major change in your organisation’s structure or operations.
To assist DGRs when undertaking a self-review two worksheets are available:
- where an organisation is endorsed as a DGR as a whole, use Worksheet 1 – Review of a DGR endorsed as a whole
- where an organisation is endorsed as a DGR for a fund, authority or institution that it operates, use Worksheet 2 – Review of a DGR endorsed for the operation of a fund, authority or institution it owns or includes.
Workplace giving
Workplace giving programs are arrangements where:
- part of an employee’s pay is paid, or is to be paid, as a gift to a deductible gift recipient (DGR)
- the gift is paid by the employer at the direction of the employee
- the gift is made under a regular planned giving arrangement.
A workplace giving program allows a DGR to receive donations as a lump sum from each employer. This reduces the DGR’s costs as it has to process only one donation from each employer.
If a portion of an employee’s pay is donated to a DGR through regular payroll deductions, the employer may reduce the pay as you go (PAYG) amount it withholds from the employee’s pay. For employees, this means they may get the benefit of the reduced tax immediately in their pay.
When the PAYG withholding amount is reduced because of a gift made through a workplace giving program, the total pay on the employee’s payment summary is not reduced by the amount of the gift. This means the employee must claim a deduction for the gift in their annual tax return so that the correct tax can be calculated.
DGRs are not required to issue receipts to donors, although an employer may request a receipt from the DGR.
All the employee needs for their tax records is a statement from their employer identifying:
- each DGR to which a gift was made. If space or printing constraints are such that each DGR cannot be identified in the statement to the donor, a statement that all of the gifts were made to DGRs is acceptable
- the total amount of gifts made to the DGRs.
The statement can be given to the employee on either of the following:
- their PAYG payment summary
- other written or electronic communication from the employer.
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For more information on workplace giving, refer to:
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Employees may also arrange for gifts to be made to DGRs through their employer under salary sacrifice arrangements.
In this situation:
- the employee agrees with their employer that a certain amount of their pre-tax pay will be paid to a DGR
- the employee pays income tax on the reduced salary or wages
- the employer claims the tax deduction for the payment to the DGR, not the employee
- from 1 April 2008, the payment to the DGR is not a fringe benefit.
For a salary sacrifice arrangement to be effective, the agreement between the employer and employee must be entered into before the employee becomes entitled to be paid the amount forgone as salary or wages.
The PAYG withholding amount should be based on gross salary and wages paid and should not include salary sacrificed amounts. The employee’s PAYG payment summary should show the gross amounts of all salary and wages (excluding salary sacrificed amounts) and the relevant total amount of PAYG withheld for the year.
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For information on the FBT implications of salary sacrifice arrangements for employers and employees, see Salary sacrifice arrangements for employees (NAT 7424). |
More information
For more information on tax deductible gifts see our web pages:
- Tax topics explained - Deductible gift recipient essentials
- Tax topics explained - Gifts and fundraising essentials.
Last Modified: Monday, 16 November 2009
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