Australians are well known for their generosity when it comes to supporting charities. Whether it’s a sudden natural disaster or supporting established charitable institutions, we give many millions each year to provide relief and comfort where it is needed most.
Modern media brings the plight of people in need into our living rooms more regularly than ever and deep down most of us have a philanthropic streak that motivates us to offer help as much as our means allow.
Fortunately, such generosity can also be recognized and rewarded through the tax system. There are incentives available to encourage those who want to give and it therefore makes a lot of sense to consider your charitable giving as part of your overall financial planning.
While most of us are aware of the general rule that donations we make to genuine charities are tax deductible, it may be worth giving closer consideration to how and what you give.
In our business we come across many people who are generous with their charitable giving, but have not fully considered how to integrate it into their financial planning. There is more than one way to make charitable gifts and different methods will suit different people and can result in different types of tax benefits.
The most common form of charitable giving is to simply make a direct financial donation. There is no limit on the number of donations that can be made in a financial year, but it’s important to get smart when planning how you make it. A couple who want to make a donation, for example, should consider making it in the name of the higher income earner in order to receive a greater deduction on the donation.
It is also important to ensure that the organisation or fund receiving the donation qualifies as a deductible gift recipient or DGR. This can be determined easily by looking up the ABN of the organisation or fund on the government website www.abn.business.gov.au.
Many people make donations through buying raffle tickets or an auction at a charitable function, so that they can derive some benefits for themselves while supporting their chosen charity. What they may not realise, however, is that this form of giving may result in being able to claim a partial tax deduction.
What about non-cash donations?
Charitable donations, of course, are not limited to financial contributions alone. Giving in the form of goods is also quite common. People are a lot more conscious about recycling these days and are keen to see unwanted items be put to good use rather than just be discarded. In some cases these items may be worth quite a substantial amount, so if we are talking to a client about their financial plans and we learn that they have made such a donation, we point out that there may be some tax benefits for them. If it is something that they have purchased within the past 12 months they may be eligible for a tax deduction. Even a donated item that was purchased more than 12 months ago can have a deductible value, as long as it is valued by the Australian Taxation Office at more than $5,000.
Donating shares instead of cash
Clients are often surprised to learn that they can donate shares rather than cash. One of the potential spin off benefits is that donated shares with a market value of $5,000 or less that were acquired more than 12 months ago may be an allowable tax deduction.
It’s important to get proper tax advice from your accountant for such donations, as it may be treated as a disposal for capital gains tax purposes, and a CGT liability may be triggered. Our role is to look at a client’s situation and advise on the possibilities for how they can structure charitable giving into their plans. If specific tax advice is needed, we point that out and can work in tandem with their accountant to make sure donations are made in the most efficient way.
Timing strategies can maximise deductions
There are also hidden possibilities relating to the timing of donations. Let’s say a client is discussing their financial plans and wants to make a significant donation. Naturally they would expect that they should claim a tax deduction in their next tax return. In such situations we will often point out that they should consult with their accountant about the timing, especially if their income over the next few years is going to fluctuate. It could well be the case that the deduction should be claimed further down the track in a financial year where income is higher, to gain a greater tax benefit. We look at the big picture and how the client’s charitable giving fits into their overall plans and then point out opportunities that they may want to explore further with their accountant.
Salary sacrificing doesn’t only apply to super
Most people associate salary sacrificing as a way of making super contributions in a tax efficient way, but there may also be possibilities to utilise that strategy for charitable giving. Rather than making donations out of your after tax income, you may be able to make an arrangement with your employer whereby you can donate from your gross income to an eligible charitable organisation or fund of your choice. By making donations in this way you may also gain tax benefits because it effectively reduces your taxable salary so that you pay less tax upfront on your income, rather than waiting to make a deduction at the end of the tax year.
We are happy to discuss your charitable giving questions as part of our comprehensive financial planning services. Go to our Contact Us page to arrange an obligation free consultation.
RI Advice Group Pty Limited ABN 23 001 774 125, AFSL 238429. This editorial does not consider your personal circumstances and is general advice only. The taxation information contained in this editorial is provided as a guide only and may not be relied upon. You should seek independent tax advice from a qualified tax adviser. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances.