• Valuing the minor benefit

    DGRs are responsible for working out the market value of the goods, services and events they offer to donors. This is so that donors can work out the amount they can claim as a tax deduction.

    The tax deduction which donors can claim equals the contribution paid by the donor less the market value of the item or event as long as the market value is not more than:

    • $150
    • 20% of the contribution paid.

    On this page:

    Valuing dinners and similar events

    Price or market comparisons

    You can use price comparisons to provide a reliable estimate of the value of benefits if they are common or standard goods, services or events that are commercially available on the open market.

    Example 1 – Market value

    A DGR uses one evening's performance of a play as a fundraising event and charges $350 a ticket for the performance. The play is open to the public and ordinarily sells for $35 a ticket. The market value of that play is $35.

    End of example

     

    Example 2 – Market value

    A DGR hosts a two-course charity luncheon at a local restaurant. It charges $260 a head to attend the charity luncheon. The restaurant would ordinarily charge $50 a head for a two-course set lunch menu. The market value of the charity luncheon is $50.

    End of example

    You can make a reasonable estimate of the market value if the event is:

    • unusual
    • not generally available to the public, or
    • the market value of the event is not easily determined.

    This is done by taking into account the market price that would be charged for similar transactions in the commercial sector.

    If market data for the local market is limited or not available, sale comparisons from a wider market (for example, from other Australian capital cities) may be appropriate.

    Example – Reasonable estimate of market value of unusual event

    As a special fundraising event, a DGR wants to host the opening night performance of a play, to be followed by cocktails and an opportunity to meet the performers. While the performance alone sells for $45 a ticket, the event (as a package with cocktails and meeting the performers) is not readily available on the open market, so a price comparison may be difficult.

    The DGR works out a reasonable estimate of the ticket for the opening night's performance package by establishing what might be reasonably charged for cocktails in that local market. They asked the theatre to quote on a ticket price with catering included. As celebrity performers are involved, they asked for the estimate to include the amount the celebrities would ordinarily charge on the open market for a 'meet the performers' event.

    End of example

    Cost-based approach

    If you cannot establish a reasonable estimate of the market value of the benefit using price or market comparisons, you can use a cost-based approach.

    When using the cost-based approach, the market value of the benefit is based on the:

    • actual costs
    • notional costs, and
    • a profit element associated with providing the benefit.

    Actual costs are costs you pay to stage the event, for example, payments made to hire a venue.

    Notional costs are the true costs that you would have paid on the open market for goods and services you received for free. For example, if a guest speaker waives their fees, you still need to include the fees that they usually charge on the open market, even though you didn't pay them.

    Profit element is the amount of profit that would be expected to be made from staging the event on the open market. This may be based on, for example, commercial mark-ups.

    Using a cost-based approach, the market value of the ticket price to an event is the sum of all of these amounts divided by the estimated number of participants for the event.

    Example – Using the cost-based approach to work out the market value of the ticket price for a fundraising luncheon

    A DGR hosts a fundraising luncheon with a celebrity sports star as a guest speaker.

    The DGR is able to secure a donation of all the function costs to the event, including the sports celebrity's time. The estimate of the market value using the cost-based approach would include both actual and notional costs associated with staging the event, along with a profit element.

    As $29,000 worth of function costs was donated, the total costs of staging the event include these costs as notional costs.

    • Function costs:
      • Guest speaker fees – $5,000 (notional cost)
      • Venue hire – $2,000 (notional cost)
      • Food and beverage – $20,000 (notional cost)
      • Catering staff – $2,000 (notional cost)
       
    • Marketing costs
      • Invitation mail-out – $1,000
      • Printing invitations – $1,500
      • Menu and other promotional material – $1,000
       
    • Administration costs
      • Administration overheads – $700
      • Insurance – $2,000
      • Bump in/out (set up/pack up) costs – $500
       
    • Total costs – $35,700
    • Profit element – $1,900
    • Total costs (actual costs plus notional costs) plus profit – $37,600
      • Unit cost per head (at 800 capacity) – $47
      • Ticket price of the luncheon – $500
      • Market value of the luncheon – $47
       

    The DGR works out that an individual who purchases a ticket to the luncheon can claim a deduction of $453, that is, ticket price ($500) less the market value ($47).

    End of example

    Timing of the valuation

    The market value of a ticket to a fundraising event is the market value at the time the contribution is made (for example, when a ticket is purchased for the event), rather than when the event is held. Therefore, an estimate of the market value of the benefit associated with an event should include an estimate of the input costs at the time contributions are likely to be made.

    Example – Changing fees

    Tickets were sold for a dinner performance at which Celebrity A would perform, Celebrity A's fees were $5,000. Before the event takes place, but after all tickets to the event are sold, Celebrity A's demand as a performing artist skyrockets, and his fee substantially increases to $20,000.

    Unexpectedly on the day of the event, Celebrity A brings along a surprise guest – Celebrity B – to co-host the performance.

    In calculating the costs of staging the event, Celebrity A's services are valued at $5,000, that is his fee at the time the tickets were purchased.

    The DGR does not need to reflect Celebrity B's usual fees in the estimate of costs of staging that event, as when the tickets were purchased Celebrity B was not known to be part of the event.

    End of example

    Valuing auction items

    The market value of goods and services successfully bid at a fundraising auction is the market value at the time the contribution is made for those items.

    Example – Changing value after purchase

    At a charity auction organised by a DGR, Sonya successfully bids $2,000 for a golf cap owned by a celebrity. The DGR works out the market value of the golf cap as no more than $100 at the time Sonya purchased the item. However, a week after the purchase, the celebrity dies and the market value for similar items owned by the celebrity increases five-fold. Sonya can still claim a $1,900 deduction ($2,000 − $100). Since the value of the cap has increased after the charity auction purchase, there is no effect on Sonya's entitlement to a $1,900 deduction.

    End of example

    You may use price comparisons to provide a reasonable estimate of the value of common or standard goods and services that are commercially available and have a transferable value on the open market. For example, the market value of a dinner for two, or a teapot purchased at auction, is the price these items would normally fetch on the open market.

    Example – Market value

    Marty successfully bids $1,000 for a T-shirt that retails for $20. The market value of the item is its price on the open market, that is, $20.

    End of example

    If the value of an item has been enhanced, for example, a golf cap signed by a sports celebrity, or a T-shirt worn by a film star, a reasonable estimate of the market value of the item is not the original price of the item. A reasonable estimate is the amount it would reasonably achieve on the open market (for example, at a specialist, curiosity or antique shop or a collector's internet site).

    Example – Market value too high

    Nina successfully bids $1,000 for a football signed by a high-profile football team. The DGR values similar items at $550 on the sports memorabilia market. The market value of the football is $550, however Nina cannot claim a deduction as the value of the benefit she received ($550) in return for her contribution ($1,000) exceeds both $150 and 20% of the value of her contribution.

    End of example

    If goods or services have no transferable market value at the time of auction, you could reasonably assume that the market value would be nil. Examples of this would be the auction of a child's drawing at a fete or the right to participate in charitable activities that would result in no personal financial gain.

    Example – Nil market value

    Phil successfully bids $260 to shave the head of his friend Tim at a fundraising event. As the right has no transferable market value, the DGR establishes that its market value is nil. Phil can claim a deduction for the full amount of $260.

    End of example
      Last modified: 25 Jul 2017QC 46266