‘Tis the season to be charitable, with Christmas just around the corner many people use this time of year to contribute to various charities and Christmas appeals. But with so many causes to choose from, how do you know that your donation will actually reach those in need? What are the different ways to donate to a charity? And how do you claim these tax deductible donations?
Claiming Tax Deductible Donations
In order to claim tax back on your charity donation, you must choose a charity that is registered as a Deductible Gift Recipient (DGR). If an organisation is a DGR you can confirm via the ABN lookup website as well as other information about deducting donations. This will ensure you are entitled to deduct the donation at tax time. Not all types of donations to DGRs are eligible (more below). Donations are also required to be over $2 and you need a receipt in order to claim the tax deduction.
When donating to Australian charities there are tax benefits. You will receive the income tax rate portion of your deduction. The entire donated amount can be claimed back as a tax deduction but only a portion of it will reduce your taxable income. If your tax bracket, for example, is 37% and you donate $2000 you will be paying $670 less than you otherwise would. The top rate of 45% equates to a $900 deduction on the same level of donation.
Choosing Your Charity
The first question to ask when making a substantial donation to a charity is what cause do you care most about? Once you have decided this you need to know which charity will use your money most effectively.
- If it is an Australian charity, that is is registered as a member of the Fundraising Institute of Australia (FIA)
- If it is an overseas charity, that is is registered as a member of the Australian Council for International Development (ACFID)
- Double check the charity is licensed by its state or territory regulator. Each state runs this a little differently.
- Check their website, annual reports, reviews online – make sure you know where your money is going.
Ways to Donate
One-off or ongoing
You can choose between making a one-off payment to your chosen charity or you can set up an on-going regular payment.
You can also contribute to a charity through workplace giving. Workplace giving involves automatic deductions from your salary. You will gain tax benefits at the time of donation and summary of your payments at the end of the year. Most of the time a workplace giving scheme is set up by your employer but to find out more visit the ATO website. If you are running your own business and would like to setup a similar arrangement, talk to us about your options.
You can leave a bequest in your will to the charity of your choice. Talk with us and the charity directly in order to plan this effectively.
You don’t need to make a cash donation to your charity in order to contribute. Volunteering your time and skills can provide a really significant contribution.
- Donating to telemarketers or people who talk to you about charities on the street. They are often hired by commercial companies and receive a hefty portion of the donations.
- Be aware that the cost of tickets to charity balls and events may not be tax deductible donation.
Where We Come In
If you are looking to make a significant contribution in some way or interested in setting up your own charity, come in and have a chat with us about how you can give back most effectively. We can help you plan your finances and ensure your contribution is most tax effective.