Is My Fundraiser Event Tax – Deductible?
Donations to charities endorsed with Deductible Gift Recipient status (‘DGR’) are typically tax deductible. As a general rule, a donor can claim a tax deduction equal to the value of their donation. However, where a donor receives a benefit in return for their donation, the donation is not considered a gift. As such, the donor is not entitled to a full tax deduction in respect of the donation.
Notwithstanding, in certain circumstances, even where a donor receives a benefit in return for a donation, a portion of the funds may be considered a tax deductible contribution (‘Deductible Contribution’).
Eligibility for a Deductible Contribution is particularly relevant in the context of fundraising events such as fetes, balls, gala shows, dinners and performances (‘Fundraising Events’). Usually, supporters of Fundraising Events make contributions in return for a benefit. For example, a supporter who pays for a seat at a charity dinner receives the benefit of food, drink and entertainment in return for their contribution. In this context, a contribution will be tax deductible provided that:
- it is made by an individual to a DGR fund;
- it is an amount of money over $150; or
- it is property valued at more than $5,000; and
- the benefit received by the contributor (for example, the benefit of a place at a charity dinner) is a minor benefit, which is not more than 20% of the value of the contribution or $150, whichever is less (‘Minor Benefit’).
A Minor Benefit is valued at its market value. The market value is assessed by way of a reasonable calculation of what would be charged for the benefit on the open market, in an arm’s length transaction. In formulating this calculation, it is important to look at market comparisons in relation to the value of the benefit.
The tax deductible component of a contribution is the amount of the contribution less the value of the benefit received in return. For example, if a restaurant would ordinarily charge $50 for a two – course set lunch, the market value of the lunch is $50. If a DGR charges $250 for the lunch, the tax deductible component is valued at $200.
For further advice in relation to fundraising, DGR and Charity matters, please contact Warlows Charity Lawyers in Melbourne and Sydney.