Not for Profit rules around fundraising and gifts
Not for profits have various rules around gifts and fundraising that are important to follow as you are managing a NFP.
In order for donors to receive deductions, certain requirements must be met.
Firstly, you have to ensure that:
your organisation is a ‘Deductible Gift Recipients’ (DGR);
you understand the conditions for gift and contribution; and
provide receipts with specific information
Donors will follow different rules in claiming a tax deduction depending on whether the donation is a gift/contribution, thus it is important for you to understand what is a gift and contribution, and the difference between them.
A gift is a voluntary donation of money/property with no material benefit to the donor. This must fall within the ATO’s definition of a ‘gift type’. For individuals, companies, trusts and other type of taxpayers to claim a tax deduction on gifts, certain rules must be complied. This includes meeting the following requirements:
be made to a DGR
truly be a gift
fall within at least one of the ATO’s ‘gift types’
comply with any extra gift condition
For example, buying items at a charity auction, purchasing raffle tickets, membership fees, providing a service and gift vouchers donated to a DGR are examples of non-gifts.
Whereas, a contribution is when you receive a material benefit i.e. something with monetary value, from the DGR in return for your donation. For a contribution to be tax-deductible for individuals, it must:
be made to a DGR
be in respect of an eligible fundraising event
be an eligible contribution
comply with any extra conditions that apply to some DGRs
For example, supporting a DGR through advertising/sponsorship is generally not deemed as a gift. This can only be claimed as a business expense tax deduction.
The difference between a gift and contribution is the receiving of material benefit for their gift/contribution. A donor will not receive a material benefit in return for their gift, and conversely, a donor receives a material benefit in return for their contribution. For example, putting $10 in a collection box versus purchasing a fundraising dinner ticket.
If you have donated to a non-for-profit (NFP) organisation, you can claim a tax deduction. When you’ve made a gift/contribution to a DGR recipient, the amount that you can claim depends on the type of gift/contribution that you’ve made. However, there are other income tax consequences that you should consider when making a gift to a DGR.
Here is a checklist of tax consequences that you should consider:
ensure that you have the correct records
make sure you claim the tax deduction in the income year that you’ve made the donation
the deduction cannot add or create a tax loss for you, but you can make a written election to spread the tax deduction
be aware of the tax implications if you receive a reimbursement from someone else
determine if your property is jointly-owned as it may impact your claiming method
you may be able to claim a deduction for the cost of getting a valuation
decline in value for gifts of a depreciating asset will impact your claim
consider capital gains tax (CGT) consequences
Keeping track of your donations
Keeping records of all tax deductible gifts and contributions will aid in preparing your tax returns. When you make a donation to a DGR, a receipt will usually be issued to you. In some circumstances, you can still claim a tax deduction by using other records, such as bank statements.
Reimbursement and refund of a gift/contribution from the DGR or another person, must be included in your assessable income
If you donate a jointly-owned property, the deduction will be based on your share/interest in the property ownership. For example, John and Mary donates a property valued at $100,000 to a public museum. The ownership of the property is split with a 25:75 ratio. Thus, John can only claim a deduction of $25,000 whereas Mary can claim a deduction of $75,000
CGT applies to a gift of property valued at more than $5,000 by the ATO. This valuation can be used to work out the amount of capital gain/loss, but only if the valuation is made within 90 days of your donation. The cost of this valuation can be claimed as a deduction only if the valuation was made only to work out the market value of a deductible gift as a deduction. This claim must be made in the income year when the expense is incurred. You need not pay CGT on the following donations to DGRs:
gifts made under a will (testamentary gifts) – no tax deduction can be claimed
property donated under Cultural Gifts Program
exempt personal use assets
You can choose to spread a tax deduction over a period of 5 income years if the gift was:
money of $2 or more
property the ATO value at more than $5,000
property under the Cultural Gifts Program
a heritage gift
Claiming a tax-deduction as a DGR
As a DGR, you have a responsibility in calculating the market value of any minor benefit you give supporters in return for a contribution. A minor benefit is what a donor received for their contribution to your DGR. This will help them in claiming a tax-deduction. For example, if a donor contributes $200 to attend your charity dinner, and it costs you $30 to host them, the minor benefit is $30.
However, the following conditions apply:
they must be an individual
the amount paid must be more than $150
the benefit received must be no more than $150 and 20% of the contribution value
Donors may claim a deduction for the right to participate at a fundraising event and for the purchase of goods and services at the fundraising auction. Individuals attending a fundraising event can claim up to 2 contributions relating to the fundraising event attended. For example, the purchase of a ticket for the individual and the individual’s partner or associate. No limit is imposed on claiming the purchase of goods and services by way of successful bidding at fundraising auctions.
There are 2 ways to assess the market value of a minor benefit:
Price or market comparison
This method is used if the benefit is a standard good, service or event commercially available on the open market, i.e. base your valuation on prices commercially charged on the open market. If this information is not available, base your valuation on market observations, taking into account the prices charged in the commercial sector for similar/comparable good, service or event.
This method is used if you are unable to establish a reasonable estimate using price/market comparisons. Base your valuations on actual costs, notional costs and a profit element associated with providing the benefit.
Fundraising is a common method for NFPs to raise money. Whether you are running or supporting fundraising events, there are certain factors that will impact your tax returns.
Running fundraising events
To allow donors the capacity to claim tax deductions on their donations, you must comply with the following conditions:
ensure your organisation is a DGR
advise your donors if any part of their contribution is tax deductible, and the value of minor benefit
provide your donors with receipts
comply with state, territory and local government fundraising requirements
run fewer than a total of 15 events of the same type in 1 financial year
Supporting fundraising events
If you make a donation such as the cost of ticket to attend or successfully bid an item at a fundraising dinners or auctions, the donation will not be classified as a gift. If you support a fundraising event and do not gain a benefit from this donation, it is a tax-deductible gift.
If a gift other than money is provided, its value must be provided to the DGR.
The following list shows the approved donation types:
money over $150
property purchased during the 12 months before making the contribution and valued at more than $150
property valued by us at more than $5,000
shares valued between $150 - $5,000 that is acquired from a listed public company at least 12 months before making the contribution. The shares must be listed on the Australian securities exchange for quotation
For contributors to make a tax deduction claim for their contribution, the donation must be for an eligible fundraising event conducted in Australia. Examples are fetes, balls, gala shows, dinners, performances and similar events, or events involving the sale of goods (if it is not part of the supplier’s business).
However, fundraising events held by political parties are not allowed for this concession. Political gifts and contributions are subjected to their own rules to be deductible.
Mel pays $420 to attend a charity dinner and the value of the dinner provided was $80. She is allowed a deduction as the value of the benefit of $80 is less than $150 and not more than 20% of her contribution ($420 x 20% = $84).
Deductible value = $420 - $80 = $32
Bernie buys a ticket to a gala performance organised by a DGR for $400. This performance is usually open to public for $100 a ticket. He is not allowed a tax deduction as although the value of the benefit of $100 is less than the $150 limit, it is more than 20% of his contribution ($400 x 20% = $80).
Deductible value = $400 - $100 = $300
Not all NFP organisations have to pay tax on their income. Some NFPs have to pay income tax while others are exempt.
If your NFP organisation undertakes fundraising activities, goods and services tax (GST) has to be paid. However, there are a range of GST concessions that may be applied to your fundraising activities.
Fringe benefit tax (FBT) refers to a tax that employers pay on certain benefits that they provide to their employees, in addition to their salary. Benefits to volunteers and contractors usually do not attract FBT.
If you are raising funds to help disaster victims in Australia or overseas, this may be tax deductible. Refer to the ATO’s website for the list of disasters allowed for tax deduction.
Non-DGRs gifts and fundraising
If you wish to raise funds but are not a NFP, you may:
start your own DGR
collect for an established DGR
collect funds without supporters being eligible to claim tax deductions
The following DGRs operate to provide funding to other organisations:
Australian Sports Foundation
Australia Business Arts Foundation
Australian Schools Plus
Foundation for Rural and Regional Renewal
Donors can request for gifts to be directed to a particular organisation. These arrangements do not prevent the payment from being a gift if the DGR:
obtains in its own rights to the full value/benefit of the property donated
is empowered and has absolute discretion in whether to distribute the property to those organisation nominated by the supporter