To be tax deductible, a gift must:
A deductible gift recipient (DGR) is an organisation that is entitled to receive income tax deductible gifts and tax deductible contributions.
The majority of DGRs are endorsed by the Australian Taxation Office (ATO). The only DGRs that do not need to be endorsed are those listed by name in the income tax law. DGRs listed by name in the tax law include organisations such as Amnesty International Australia and the Australian Sports Foundation. They also include prescribed private funds.
There are two types of DGR endorsement:
- where an organisation is endorsed as a DGR as a whole
- where an organisation is endorsed as a DGR only in relation to the operation of a fund, authority or institution it owns or includes. In this instance, only gifts to the fund, authority or institution are tax deductible.
Charities can receive tax deductible gifts provided the organisation is a deductible gift recipient (DGR). Some charities are not DGRs and, therefore, cannot receive tax deductible gifts.
See our webpage Locating an organisation for tax deductible gifts.
Gifts have the following characteristics:
- there is a transfer of money or property
- they are made voluntarily
- they do not provide a material benefit to the donor
- they essentially arise from benefaction, and proceed from detached and disinterested generosity.
When making a pledge, there must be a transfer of a beneficial interest in property to the deductible gift recipient (DGR) for a gift to have been made.
End of example
On a telethon Theodora calls a DGR to say she will give $500. She later forgets about it and never in fact gives anything to the DGR. Theodora has not made a gift as she has not transferred the $500 to the DGR.
If the deductible gift recipient fails to obtain immediate and unconditional right of custody and control of the property transferred, a gift will not have been made.
An exception is provided in relation to cultural and heritage gifts. For more information on procedures and valuation methods for these gifts see:
End of further information
In order to be a gift, the donor must not receive a material benefit or an advantage by way of return. It does not matter whether the material benefit or advantage comes from the deductible gift recipient (DGR) or another party.
The following payments are not gifts:
- purchases of raffle or art union tickets
- purchases of items such as chocolates and pens
- the cost of attending fundraising dinners, even if the cost exceeds the value of the dinner
- membership fees
- payments to school building funds as an alternative to an increase in school fees
- payments where the person has an understanding with the recipient that the payments will be used to provide a benefit for the 'donor'.
However, an acknowledgment that a recipient makes in appreciation of a payment can be consistent with the payment being a gift.
End of example
Clare receives a lapel badge for her donation to a DGR. This is not a material benefit and the donation is a gift.
Other acceptable forms of acknowledgment include stickers, mention in a newsletter or periodical, and plaques if they are of small cost and prominence.
In order for a transfer of property to be a gift, it must be made voluntarily – that is, it must be the act and will of the donor.
A transfer is not made voluntarily if it is made for consideration or because of a prior obligation imposed on the donor by law or by contract. This is the case where the donor is offered a choice of making a gift to the deductible gift recipient (DGR), as an alternative to discharging or reducing the donor's (or an associate's) contractual obligation to the DGR or an associate of the DGR. However, a transfer made under a sense of moral obligation is still made voluntarily.
End of example
Bob buys a ticket in a raffle run by a DGR to win a boat. The payment for the ticket is not a gift. The payment is not voluntary as the ticket has been purchased as part of a contractual arrangement under which he has acquired rights in the raffle.
The law specifies the types of gifts that can be donated. To be deductible, a gift must be of money or property that is covered by one of the gift types. These are:
- $2 or more: money
- property < 12 months: property purchased during the 12 months before the gift was made
- property > $5,000: property valued by the ATO at more than $5,000
- shares – listed shares valued at $5,000 or less, and acquired at least 12 months before the gift was made
- trading stock – trading stock disposed of outside the ordinary course of business
- cultural gifts – property under the cultural gifts program, and
- heritage gifts – places listed in the National Heritage List, the Commonwealth Heritage List or the Register of the National Estate.
A detailed discussion on the various gift types can be found in Making tax deductible gifts and contributions.
For some deductible gift recipients (DGRs), the law adds conditions relating to the deductible gifts they can receive. For example, a gift may only be tax deductible if it is made either:
- between certain dates
- for a specific purpose.
The gift conditions (if any) for each general DGR category are explained in the DGR table in GiftPack (NAT 3132).
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.
ATO Practice Statement Law Administration PS LA 2002/15External Link sets out what evidence is sufficient to confirm that a taxpayer has made a gift to a DGR through participation in a workplace giving program.
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, and
- from 1 April 2008, the payment to the DGR is not a fringe benefit.
||Salary sacrifice arrangements
The employer forwards the employee's donations to the DGR. The employee is still making the donation to the DGR.
The employer pays the employee a reduced salary and also makes a donation to the DGR.
The employee claims a deduction for their donation to the DGR in their own income tax return.
The employer claims a deduction for making the donation in their income tax return. The employee is not entitled to claim an income tax deduction because it is the employer who is making the donation to the DGR.
The amount of the employee's gross salary remains the same.
Generally, the donation amount is a fixed amount that the employer deducts from the employee's pay each pay day.
The employer may choose to reduce the amount of tax deducted from the employee's pay each pay period to account for the donation. (The employee still claims a tax deduction in their return.)
Alternatively, the employer may choose not to reduce the amount of tax withheld from the employee each pay period, and the employee will claim a tax deduction for the amount donated at the end of the financial year.
The employee's gross salary is reduced by the salary sacrificed amount and the employee pays income tax on the reduced salary.
The amount of tax that the employee pays is reduced, but only because they now have a reduced salary.