As an DGR you are responsible for calculating the market value of any minor benefit you give supporters in return for a contribution.
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What is a minor benefit?
A minor benefit is what a donor receives for their contribution to your DGR.
A donor will want to know what the minor benefit is worth, to help them to claim a tax-deduction.
For example, if a donor contributes $200 to attend your charity dinner, but it only costs you $30 to host them at the dinner, the minor benefit is the $30.
However, there are certain rules around whether this would be a tax-deductible donation for the donor.
For a contributor to claim a tax-deductible contribution, they must be an individual, the amount they paid must be more than $150 and the benefit they receive must be:
- no more than $150, and
- no more than 20% of the value of the contribution
Your donors may claim a deduction for both a right to participate at a fundraising event (for example, a fundraising dinner auction) and the purchase of goods and services at a fundraising auction.
An individual attending a fundraising event may claim a maximum of two contributions in relation to attending the same fundraising event – for example, the purchase of a ticket for the individual and one for the individual's partner or associate.
There is no limit to the number of deductions that may be claimed for the purchase of goods and services by way of successful bids at a fundraising auction.
There are other conditions you must meet when running fundraising events.
How do I work out the minor benefit?
There are two ways you can assess the market value of a minor benefit:
- price or market comparison
- cost-based approach.
Price or market comparison: Use this method if the benefit is a standard good, service or event commercially available on the open market. Base your valuation on prices commercially charged on the open market. If the good, service or event is not generally available to the public, base your valuation on market observations, taking into account prices charged in the commercial sector for a similar or comparable good, service or event.
Cost-based approach: Use this method if you cannot establish a reasonable estimate using price or market comparisons. Base your valuation on actual costs, notional costs and a profit element associated with providing the benefit.
Example 1 – Eligible market value
Jess 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 Jess will be eligible to claim a tax deductible contribution of $240 ($260 − $20) as the minor benefit received (market value of the game) is not more than $150 and not more than 20% of the value of her contribution ($52).
End of example
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 minor 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
Example 3 – Different types of deductible contributions
Rebecca pays $260 to attend a charity auction conducted by a DGR. The ticket to the auction has a market value of $20. At the auction, Rebecca successfully bids $2,000 for a chair with a market value of $90. She also bids $1,000 for a painting with a market value of $100. Rebecca can claim three separate deductions – one of $240 for her contribution for the right to attend the auction; one of $1,910 for the purchase of the chair at auction; and a further $900 for the purchase of the painting.
End of example
As an NFP you are responsible for calculating the market value of any minor benefit.