Before making a donation this financial year, follow these four steps to help ensure your hard-earned money is applied the way you expect.
- Step 1: Match your passion
- Step 2: Determine whether a tax deduction is important
- Step 3: Do your research
- Step 4: Determine whether you are getting something in return for your donation
June 30 is rapidly approaching, meaning you may have noticed an increase in the amount and intensity of charitable fundraising activity. While this is an important and busy time for charities seeking last minute tax deductible donations, are you ready to give and what questions should you be asking before you donate?
Following the horrific bushfire season, COVID-19 and other world disasters, you would be forgiven if you were a little wary before giving at this time. However, if you are still thinking about making a donation to your favourite charity or compassionately giving because of a call to action, we have prepared some important tips to help ensure your donations go where you want them to.
The age-old issue of the application of donated funds received heightened media attention arising from the Celeste Barber fundraising campaign which raised an unexpected $51.3M for the NSW Rural Fire Service. You can read more about the associated Court case and the lessons learned from it in our article. This is not an isolated incident though:
- A fundraising campaign for Port Macquarie Koala Hospital with a goal of $25,000 for drinking stations for koalas instead raised over $7M and has expanded the application to a breeding program.
- During the bushfire crisis and its immediate aftermath, the Australian Red Cross came under scrutiny for saying it was fundraising for the Australian bushfires, but the fund into which the donations were deposited is not specific to this cause, meaning the Red Cross had discretion to send the funds elsewhere. While the Red Cross itself made this clear at the time, the vast majority of those raising funds on behalf of the Red Cross did not. We note that the Red Cross has since published a page on how the funds raised are now being used.
- A large number of Australian retailers pledged that profits or proceeds from the sale of specific goods or services would go towards the ‘Australian bushfires’, without identifying amounts or charities they would give to.
- Stories are starting to filter out of the United States and the Uniting Kingdom that funds raised in relation to the Black Lives Matters movement are not being directed towards supporting the movement.
Against this backdrop, donors are understandably more worried than usual about whether their donations are going where they expect.
Step 1: Match your passion
There are over 600,000 not-for-profit organisations in Australia. Of these about 60,000 are registered charities. About half of these (or 30,000) are classified as deductible gift recipients (DGRs).
With this many organisations to choose from, there is bound to be one that is furthering a purpose or serving a cause that resonates with you, that is striving to make a positive change that matters to you and matches your passion.
If you have never properly considered being more intentional with your donations and are not sure which organisation or organisations to support, ‘Step 3 – Do your research’ below is a good place to start.
So, while a charity’s end of financial year TV, radio, telephone, email or mailout call to action might entice you to give, don’t be reactive. First, assess whether this is something you feel passionate about supporting. Then, if so, think about how you would like to help.
There are many ways to support a charity. You could give a one-off payment, attend a fundraising event, spread the word about the charity’s achievements, become a regular giver, volunteer your time and skills or include the charity in your will, just to name a few.
Lastly, don’t feel compelled to give now, though of course you may do so.
Giving towards something you truly care about will give you more satisfaction and will lead to a deeper and longer term relationship with the organisation or organisations you have chosen to support.
Step 2 – Is DGR endorsement important?
We have put this at Step 2 because the answer will influence the research you do under Step 3.
While most people will give from the goodness of their heart and their commitment to the cause or the individuals behind it, whether a donation is tax deductible may influence a donor’s decision to give. If being tax deductible doesn’t go so far as to sway a fence-sitter to give, then it may well persuade an already committed donor to give more.
Remember though, you can only claim a tax deduction for gifts made to organisations or funds that are endorsed by the ATO as DGRs.
Note: Just because an organisation or fund is registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC), doesn’t mean you can claim a tax deduction for your donation. As mentioned above, less than half of registered charities are endorsed as a DGR.
To claim a tax deduction for a gift you must:
- make a voluntary gift to a DGR (of $2 or more);
- not expect anything in return; and
- not materially benefit from the gift.
Most organisations and funds which are endorsed as a DGR have an ABN. Their DGR status can therefore be confirmed by checking the ABR lookup.
We recommend that you keep records of all donations. Interestingly, organisations or funds with DGR status are not obliged to issue a donor with a tax deductible receipt so in the event you are not provided with a receipt a bank statement will suffice as a record of the payment.
If receiving a tax deduction is not important to you, then the sky is the limit. You are not restricted to giving to a DGR or even a registered charity. However, be sure to do your research before giving.
Note: There are different rules relating to the tax deductibility of donations and membership subscriptions made to political parties.
Step 3 - Do your research
Whether you are proactively deciding which organisation or organisations to support, or are giving reactively, such as to a TV, radio, print, telephone or email call to action, be sure to find out which organisation your money will be given to and how it is planning to use it. This is especially important if someone is fundraising on behalf of a charity.
Your research should cover at the very least:
- the stated purpose and activities of the organisation;
- the values of the organisation;
- if your donation is to support a specific initiative, how much the organisation has already raised for that initiative;
- if someone is raising funds on behalf of the organisation, whether that person has been properly authorised to do so and does that person, or the fundraising platform they are using, receive any financial or other benefit for conducting the fundraising; and
- if you would like a tax deduction, whether the organisation is a DGR.
Purpose, activities and values
You can often find out a lot about an organisation’s stated charitable purpose, activities and values by visiting its website and reading its annual report.
If the organisation is a registered charity, you can also learn more by visiting the Australian Charities and Not-for-profits Commission (ACNC) Register and searching for the organisation by name or ABN. You will be able to check the organisation’s registration status, governing documents, previous financial returns and lots of other publicly available information. This helps with purpose matching (described at Step 1).
Amount already received for an initiative
This is a little harder to discover, which is one of the criticisms of Australia’s charitable fundraising regime. However, sometimes these things are published in the press or, in rare circumstances, the organisation itself will make this disclosure on its website or through its social media channels.
And if your Internet searching reveals nothing, you can always contact the organisation directly and ask. The way they respond to your enquiry, even if you don’t find out the information you are after, will itself help inform your opinion of the organisation, which may in turn influence whether you give, and if so, how much.
If you are asked by someone else (including a celebrity) to donate to a cause, it is worth checking with the named organisation to see whether it has agreed and whether the representations made by the fundraiser are true. That is, can the organisation really apply and use the money you donate in the way the fundraiser is saying.
It is also worth checking with the individual and the organisation in question whether the fundraiser is receiving any commission or other benefit for their efforts. Remember, it is OK for professional fundraisers to be paid for what they do, but they need to disclose this.
If an organisation, or someone fundraising on behalf of an organisation, is using a web or app based platform to conduct a fundraising appeal, then we recommend you review the terms and conditions of the particular website to check how the funds are distributed, to which organisations they are distributed and whether it is charging a processing fee or otherwise taking a portion of the amount you give.
Remember, most of these platforms are not charities. They’re not even not-for-profits. So, while they might enable charities and not-for-profits to fundraise in ways they cannot achieve themselves, the platform is probably making money somewhere. Which is fine in and of itself, provided this is clear to you, the donor and you are ok with having fees deducted from your donation.
If you are concerned about giving to a charity through a third party fundraiser, you may wish to consider giving directly to the charity.
Tax deductible gifts
If you want to receive a tax deduction for your gift:
- make sure the recipient organisation is endorsed as a DGR (see Step 2); and
- ensure that what you are giving is actually a gift (see Step 4).
To check whether an organisation is endorsed as a DGR, visit the ATO’s Australian Business Register ABN Lookup and search by name or ABN. The record will clearly state whether the organisation is or is not endorsed to receive tax deductible gifts.
Step 4 – Will you receive something of value in return for your donation?
This is a complex area, and so this article is necessarily only a general overview. Feel free to get in touch with our charity law experts or visit the ATO website for more details and examples.
Typically, if you receive something of value in return for your donation or as an incentive to give, the donation will not be considered a tax deductible gift.
The three key ways of receiving value are:
- receiving goods or services of value;
- buying a ticket to attend a fundraising event or to purchase an auction item; and
- controlling or directing exactly how your donation is to be applied.
Receiving goods or services
Generally speaking, if you receive something in return for your money such as a raffle ticket, a t-shirt, membership of an organisation, a bottle of water or a chocolate bar, then your donation is not a deductible gift and you cannot claim a tax deduction for it. With respect to raffles, you are buying the chance to win, which means the cost of the ticket is not tax deductible regardless of whether or not you actually win a prize.
However, if what you receive in return for your donation has no utility or is of low value when contrasted against the amount of your donation, or if you are given something by way of genuine appreciation and thanks, then the donation may still be deductible. For example:
- a donation given in return for a sticker or badge is likely to be tax deductible as the sticker or badge is of little to no monetary value and of little to no utility to you;
- a donation given in return for having your name engraved in a brick as part of a building project is likely to be tax deductible on the basis that it is of little monetary value and has little to no utility to you;
- you receive a bottle of wine and a thank you card for a donation after the fact and you genuinely had no idea your donation would result in the thank you gift, then your donation will likely remain as a deductible gift on the basis you were not induced or otherwise incentivised to provide the donation.
Tickets and auction items
The cost of a ticket to a charitable fundraising event run by or on behalf of a DGR (such as a dinner, golf day, comedy event or trivia quiz) is not tax deductible unless very specific conditions are met. And even then, only a portion of the purchase price of the ticket will be deductible. This is what is referred to as a ‘tax deductible contribution’, as contrasted with a ‘tax deductible gift’. The same rules apply to the purchase of items at a charity fundraising auction. Generally, the cost of the item will not be tax deductible unless the very specific requirements of a ‘tax deductible contribution’ are satisfied.
For more information about what constitutes a tax deductible contribution feel free to reach out to our charity law experts, or visit the relevant ATO information.
The ATO has also prepared tax ruling TR 2005/13 to provide further information in this regard.
Note: These examples do not apply to political fundraising events which have separate rules.
Directing how funds must be applied
In brief, if you provide a directive to a DGR recipient organisation about how they must apply your donation, then the donation will not be tax deductible. This is because the nature of such an arrangement involves an element of give and take. In this situation, the donation is perhaps more accurately described as a grant.
However, a donation can still be deductible if:
- you express a preference about how you would like your donation to be used with the understanding that the recipient DGR charity could choose to apply the funds in a different way; or
- the DGR makes a representation about how it will use the funds and you give in response to that organisation’s call to action. In this situation, the DGR has made the representations and has effectively bound itself to use the funds in the way they have stated.
Remember, charities and not-for-profit organisations often depend on your generous donations to continue to do what they do and to make positive change for individuals, communities, society and the environment. Many organisations would close overnight if donations were to dry up all of a sudden.
So, yes, do give. Giving is such a human thing to do, but give wisely.