• Valuing the minor benefit

    DGRs are responsible for calculating the market value of any minor benefit they give supporters in return for a contribution. The minor benefit is valued at its market value, which means you make a reasonable estimate of what would be charged for the benefit on the open market, in an arm's length transaction.

    For a contributor to claim a tax-deductible contribution, the benefit they receive must be no more than 20% of the value of the contribution or $150, whichever is less.

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    Example 1 – Eligible market value

    Gess pays $260 to attend a charity golf game hosted by a DGR. The market value of an 18-hole golf game is $20. The DGR works out that Gess will be eligible to claim a tax deductible contribution of $240 ($260 - $20) as the market value of the golf game (the minor benefit received) does not exceed the lesser of $150 and 20% of the value of her contribution ($52).

    Example 2 – Market value too low

    Bernie buys a ticket for $400 to a gala performance organised by a DGR. The gala performance has a ticket price on the open market of $100. Bernie cannot claim any deduction as the market value of the performance - which is the benefit he receives in return for his contribution of $400 – is more than 20% of the value of his contribution ($80), even though it is not more than $150.

    End of example

    Table: Methods to assess the market value of a minor benefit

    Valuation method

    Use this method if …

    Base the valuation on …

    Price or market comparison

    the benefit is a standard good, service or event commercially available on the open market

    prices commercially charged for the good, service or event on the open market.

    the benefit is a non-standard good, service or event not generally available to the public

    market observations, taking into account prices charged in the commercial sector for a similar or comparable good, service or event.

    Cost-based approach

    you cannot establish a reasonable estimate using price or market comparisons

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

    Valuing dinners and similar events

    Price or market comparisons

    You can use price comparisons to provide a reliable estimate of the value of a benefit if the benefit is a standard good, service or event that is 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, being what a ticket to the performance would ordinarily fetch on the open market.

    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 DGR works out that the market value of the charity luncheon is therefore $50.

    End of example

    If the event is unusual, not generally available to the public, or the market value of the event is not easily determined, you can make a reasonable estimate of the market value. This is done by taking into account the market price that would be charged for similar transactions in the commercial sector.

    Example – Reasonable estimate 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

    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.

    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 as an alternative method.

    When using this method, 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 incur to stage the event, for example, payments made to hire a venue for an event.

    Notional costs involve factoring in the true costs that you would have incurred on the open market to stage the event. This includes adding in the notional costs of goods and services you received for free, for example, if a guest speaker waives their ordinary speaker fees.

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

    The market value of the ticket price to an event, when calculated using this approach, is the sum of all of these elements divided by the estimated number of participants for the event.

    Example 1 – Market value

    DGR A hosts a fundraising luncheon with a celebrity sports star as a guest speaker. The costs associated with staging the event are:

    Function costs

    Guest speaker fees $5,000

    Venue hire $2,000

    Food and beverage $20,000

    Catering staff $2,000

    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 costs $500

    Total costs $35,700

    Profit $1,900

    Total costs plus profit $37,600

    Unit cost per head (at 800 capacity) $47

    Price charged per ticket $500

    Market value of the minor benefit $47

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

    Example 2 – Cost-based approach

    DGR B hosts a fundraising luncheon with a sports celebrity as a guest speaker. The DGR is able to secure a donation of all the function inputs to the event, representing a market value of $29,000, including the sports celebrity's time. This estimate of the market value using the cost-based approach would include both actual and notional costs associated with staging the event:

    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 costs $500

    Total costs $35,700

    Profit $1,900

    Total costs plus profit $37,600

    Unit cost per head (at 800 capacity) $47

    Price charged per ticket $500

    Market value of the minor benefit $47

    Even though $29,000 worth of inputs was donated, the total costs (and unit cost per head) of staging the event would remain unchanged. The market value of the fundraising event remains $47. The DGR works out that an individual who purchases a ticket to the event can claim a deduction of $453, that is, ticket price ($500) less $47.

    End of example

    Timing of the valuation

    The market value of the right to attend or participate in a fundraising event is deemed to be the market value at the time that the contribution is made (for example, when a ticket is purchased for the event), rather than when the event is held. Any reasonable estimate of the market value of the minor benefit associated with an event should include an estimate of the input costs as 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. In calculating the costs of staging the event, Celebrity A's services are $5,000. Unexpectedly on the day of the event, Celebrity A brings along a surprise guest – Celebrity B – to co-host the performance. The DGR does not need to reflect Celebrity B's usual fees in the estimate of costs of staging that event.

    End of example

    Valuing auction items

    The market value of goods and services successfully bid at a fundraising auction is deemed to be the market value at the time the contribution is made for the supply of the goods and services.

    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 standard market 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 DGR works out that the value of the benefit of the T-shirt purchased at the auction is the market value of the item 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 low

    Monina 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 value of the football is $550, however Monina cannot claim a deduction as the value of the benefit she received in return for her contribution 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 under the gift provisions.

    End of example
    Last modified: 14 Oct 2015QC 46266