One of the main benefits of donating to charity (aside from giving back and making an impact) is that your donation can be tax deductible. When we give small amounts to charities, through online payment portals, for example, we get simplicity and convenience. You might donate $50 using Apple or Google Pay and get a tax receipt in your inbox immediately.
But what about if you’re giving larger amounts, or considering a philanthropy strategy to give purpose to your wealth? Larger donors want their generosity to translate into supporting charities without getting ensnared in complex tax matters.
What Makes a Donation Tax Deductible? DGR Endorsement by the ATO
A deductible gift recipient (DGR) is a fund or organisation that can receive tax deductible gifts. The deduction is claimed by the person or organisation that makes the gift. DGR endorsements are managed by the Australian Taxation Office (ATO) and there are two distinct categories of DGR endorsement. (It’s critical to understand this as PAFs are limited to funding only one of these types.)
DGR Item 1 – The 'Doing' DGR
Most organisations which are endorsed as DGRs will fall into this category, including public benevolent institutions, universities, health promotion charities, environmental organisations and cultural organisations.
DGR Item 2 – The 'Giving' DGR
This group comprises public and private ancillary funds , which are entities that only provide donations to 'doing' DGRs. It’s important to note that a DGR Item 2 may not distribute funds to another DGR Item 2, meaning a private ancillary fund (PAF) cannot fund another ancillary fund.
International Philanthropy Considerations
PAFs are allowed to grant funds internationally if they are made to a charitable organisation that is a registered DGR Item 1, income tax exempt, and based in Australia.
What Constitutes a Tax Deductible Donation?
To qualify as tax deductible, donations must:
- Be made voluntarily.
- Not provide material benefit to the donor.
Examples of receiving a benefit include bidding on an auction item (that's not tax deductible) and sponsoring an event with value added back to your business (this may or may not be tax deductible). If the sponsorship includes visible branding, it may fall into a marketing expense, and while it may still be tax deductible, it’s not going to qualify as a charitable donation.
Top Tips for Tax Efficient Donations
- Watch out for processing fees when donating via card online.
- If you're donating over $1000, it might be worth asking the charity for bank transfer details instead of card processing fees.
- Large online transactions on your bank card might be delayed if your bank flags potential fraud so give yourself a few days before 30 June. If your payment doesn’t clear before the EOFY you won’t get the deduction.
- You can check the DGR status of an organisation via the Australian Business Register .
Engage in Strategic & Tax Effective Philanthropy with BlueRock
For those interested in establishing a strategic philanthropic structure with immediate tax benefits, setting up a Named Giving Fund with Be BlueRock Foundation is a commendable option.
BlueRock's philanthropy consultants can assist in guiding your giving strategy. Start with a $50,000 tax deductible seed donation before 30 June and have the flexibility of 12 months to decide on charitable distributions. Connect with us via the form below to explore this opportunity further!
