Concepts
Donation
A donation is a voluntary gift of money or property given without receiving anything of real value in return, and it is generally not subject to GST.
A donation is a voluntary transfer of money or property from a donor to a recipient, such as a charity, school or community group, where the donor does not receive anything of substantial value in return. In GST terms, GST is charged on supplies made for consideration. A true donation is a gift with no supply in return, so there is generally no GST in the payment, and the recipient does not include it in the sales reported on its BAS.
The difference between a donation and a payment for something is the key point. If the donor receives goods, services, advertising or other benefits in exchange, the payment is likely to be consideration for a supply rather than a gift. A business that pays $2,000 to a sports club and gets its logo on the uniforms is more likely to be paying for advertising than making a donation. That kind of arrangement is dealt with under sponsorship, which is generally a taxable supply when the club is registered for GST.
Some payments are mixed. At a charity dinner, for example, a ticket price may cover a meal and also include an amount above its value that is a gift. Generally the value of the meal is treated as consideration for a supply and the extra is a gift. The organiser should make clear on tickets and receipts how much is for the dinner and how much is a gift, because the GST and the tax deductibility of the gift depend on this split.
For income tax, gifts to deductible gift recipients can be tax deductible to the donor if the rules are met, including holding a proper receipt. Donations to organisations that are not deductible gift recipients are usually not deductible, even if the cause is worthy. Businesses should also consider whether donating goods from stock has GST and income tax effects, as giving away goods can have a different treatment from giving cash.
Charities and non-profit organisations can have special GST concessions, including a higher registration threshold of $150,000 and special treatment for some of their supplies. Donations they receive are generally not part of their GST turnover, but their sales of goods and services are. Charities that run fundraising events, op shops or training courses need to be careful about how each of these activities is treated.
Common misunderstandings include thinking that every payment to a charity is tax deductible, claiming GST credits on a donation because it was made by a business, and treating sponsorship as if it were a gift. Donors should also be cautious about receipts that do not make clear that nothing was received in return. Donations paid in cash should be backed by a record for five years.
Because the line between gift and payment can be fine, this is general information only, so please confirm your position with the ATO or a registered tax professional.
Worked example
A registered business gives $1,000 to a local school building fund and receives nothing in return. No GST is included in the payment, so no input tax credit arises. If the school is a deductible gift recipient and the business holds a receipt, the $1,000 may be deductible for income tax. If instead the business received $1,000 of advertising, it would be a sponsorship with $90.91 of GST in the total.
Practical tips
- A gift gets no GST credit because no GST is charged on it. Do not claim a credit on the amount donated.
- Check that the recipient is a deductible gift recipient before expecting an income tax deduction, and keep the receipt.
- If you receive something for your payment, such as advertising or tickets, treat the payment as a purchase or sponsorship rather than a donation.