What are the corporate benefits of charitable donations at tax time?

We hear it more often than not: any donation over $2 is tax deductible. It’s a great piece of information but just how beneficial could those donations be for your business at tax time?

For businesses themselves, tax-deductible donations allow you to reduce the amount of taxable income for a financial year. Depending on the amount donated, your assessable income could be reduced to nil. However, there are rules to follow to ensure you receive the maximum benefit, particularly if you have never claimed a corporate donation in the past. 

The impact on charities themselves is already clear. Donations rose by 8% to 12.7 billion in 2020, highlighting that Australia is a giving nation. At tax time, the importance of donations is arguably even higher for some as winter is the hardest time of year. 

“The benefit for people who are providing funding through donations is they’re helping people who are in desperate need at one of the toughest times of the year,” explained Kristine Robertson, Executive Manager of Fundraising & Communications at St Mary’s House of Welcome.

“No gift is too small; every little bit helps and we’re incredibly appreciative of every gift we have. But if people do have sizeable donations to make it allows us, and other charities, to do a little bit of forward planning. An organisation like ours can take a dollar and turn it into so much more in terms of impact.”

What you need to know

• Tax-deductible donations can only be made if you give to an approved deductible gift recipient (DGR)
• Donations can be money or property, including shares
• Gifts of money must be $2 or more while there are different rules for shares and property
• A gift or donation must be voluntary and there cannot be any material benefit to the business
• You must keep a receipt or record of the donation

Is recipient choice important?

Choosing the right recipient is essential as they must be an approved deductible gift recipient (DGR), otherwise, you cannot claim any deductions. Donations through third-party providers like GoFundMe are a common example of non-deductible donations. If you have a charity in mind, look for them through the Australian Business Register to determine DGR status.

In addition, you want to select a charity aligned with your own views, both personally and professionally. Ms Robertson said charitable donations are a great way for modern corporations to show they have a strong social responsibility ethos.

“Corporations should be seen as not just taking from the community but also giving back to the community in which they operate as businesses. There is a greater positive perception of businesses that are socially aware, do give back and interact with the greater community,” Ms Robertson said.

“More important than professional alignment is what values are important to you, either as a business or as an individual. What are your values, the things you hold dear, and what change do you want to see in the world?”

When considering where your donation(s) may go, think of:

• Organisations that don’t receive as much Government funding or public donations
• How much of the donation actually goes towards helping the cause, not into overhead costs
• What matters to you the most, e.g., helping a charity aligned with animals, the environment, disadvantaged people or people impacted by a disease

What donations can be claimed?

Businesses that give a gift to a not-for-profit organisation can typically claim the expense under ‘other operating expenses’ in a tax return. There are some caveats, however, so it’s important to remember what type of donation can be claimed. 

For example, a gift which is a transfer of money or property that results in no material benefit for the donor can be claimed as a charitable donation. But if you purchased an item at a charity auction, or even chocolates from a staff member’s raffle, you cannot claim it as a gift for tax purposes as you receive something in return.

Meanwhile, there are income tax laws for some DGRs impacting the gifts they can receive, so it’s best to approach them directly regarding any large gifts. 

The ATO explains what can be claimed in more detail on its website and you should always consider the implications prior to making a considerable gift or contribution to charity.

Should you consult an expert first?

If you have never claimed a donation in the name of a business before, it’s best to consult with your own internal accountant or an external tax agent to find out what will provide the best benefit. 

One outcome could involve spreading a tax deduction over a period of up to five years in case you cannot claim the entire tax deduction for the current financial year. You may do this if claiming it now would add to or create a tax loss.

The information in this article is general in nature and does not constitute financial advice. If you have any specific questions regarding tax deductions or filing a tax return, consult a licensed tax agent or similar.