Donations deductions: don’t get caught out by tax trap

A late-June donations drive is under way and generous Australians can boost their tax refund, but traps are lurking.

Most donations above $2 are tax-deductible.

Donating to worthy causes makes people feel good, and comes with an added financial bonus at this time of the year.

June donations can deliver a tax deduction during July’s tax time, potentially enabling donors to give more now because their tax refund may come quickly.

Chartered accountant and Mr Taxman founder Adrian Raftery has been involved in fundraising for more than 13 years and says “the rush in June is insane” compared with July, August and other months.

“And it’s easier these days because it’s all online,” he says.

However, there are some key rules to remember.

“Ensure it’s a pure donation so you are not getting something back like a raffle ticket, teddy bear or pen,” Raftery says. If you receive something for your donation, it’s almost certainly not a tax deduction.

Donations above $2 are generally tax-deductible, but it pays to check.

People should also check that the cause has Deductible Gift Recipient status, which most major charities have but many social media campaigns and crowd-funding sites do not. There are more than 11,000 DGRs in Australia and the ABN Lookup feature on the abn.business.gov.au website allows you to search for a charity by name.

Raftery says people should also check that their chosen charity is actually spending donors’ money on people who need it.

“It’s staggering the amount of big organisations that have so much money sitting in cash and are not using it,” he says.

People can check charities’ financial statements on acnc.org.au and discover that some major charities have accumulated tens of millions of dollars of cash on their books, Raftery says.

ASAP Financial Advising director Ralph Taylor says he often sees a spike in donations around natural disasters, and when people give to causes related to them – such as a family member with health issues.

“For example, my mother battled breast cancer last year and received wonderful support from the McGrath Breast Care Nurses, which compelled me to make a donation to the McGrath Foundation,” he says.

Taylor says donors should always keep receipts and check the charity is a Deductible Gift Recipient.

“Ensure the charity has a low administration cost percentage, so your donation goes where you want it to,” Taylor says.

He says website thelifeyoucansave.org.au has a list of charities that have been evaluated to have the biggest impact per dollar donated.

Originally published as Donations deductions: don’t get caught out by tax trap