- by Chan & Naylor
It’s the season of giving! Find out what you can claim and what charitable donations and gifts are tax deductible. Are you attending charity dinners? Or perhaps you’re giving away Christmas bonus, and staff and client gifts?
In this podcast, David Naylor and Lilian Fisher answered the most popular tax question this season: Are charitable donations and gifts tax deductible?
You can watch the video, listen to the audio or just read the transcript below.
Click play to watch the video with subtitles.
Click play to listen to the audio.
David Naylor: All right. I’d welcome Lilian Fisher, who is our partner from our Perth office in Australia. Lilian, welcome today. What I’d like to discuss, because it’s that festive time of year and employers are looking at their staff and wanting to reward them with gifts and maybe make some donations to charity.
Are Donations Tax Deductible?
Lilian Fisher: Okay, thanks, David. So typically a donation is tax-deductible. So we get a lot of clients who bring us receipts for donations, but we need to be aware of what the tax rules are regarding donations.
Firstly, it has to be over $2. You have to actually give other something of monetary value and you can’t really receive anything in return. In other words, you can’t get a, what they call a material benefit in relation to the gift or donation that you’re actually making.
So some examples might be if I go and attend a charity dinner, for example, obviously you’re getting some meal and entertainment in return for the amount that you’re paying. So in that event, you can’t claim that as a tax deduction, but if you were making a donation and the other thing it has to be a registered deductible gift recipient.
You can’t just give anyone a donation and get a tax deduction for it. It’d have to be a registered charity with the tax office and they have to be nominated as a deductible gift recipient.
David Naylor: Right. What about things like, I get a lot of clients this time of year asking, I want to pay my staff a $500 bonus for Christmas or a $300 bonus. Well how are they seen by the Australian tax office?
Can You Claim Deductions On Employees’ Christmas Bonuses?
Lilian Fisher: So, it’s a good idea to reward your staff because I’m sure they’ve all worked hard during the year and you want to be able to show your appreciation to them. So if you want to get the best tax outcome, generally if you’re checking your gift that you have a gift, the staff member needs to be under $300 for it to be actually qualified as a nominated gift, which is tax-deductible without any fringe benefits tax.
So the minute you pay anything over $300 or more, then we’re hitting into the realms of fringe benefit tax liabilities. So, you need to be aware of those rules because whilst it might be nice to buy a staff member a gift card of $500 you can do that. But what you will end up doing is ending up paying fringe benefits tax off almost the equivalent amount of the amount you’ve spent.
So it’s a good idea to be able to maybe to keep it under the $300 if you were able, and it can’t be any form of entertainment. So for example, if you’re buying movie tickets, theatre tickets, or paying their restaurant bill, that qualifies as entertainment. So, that is then subject to fringe benefits tax essentially.
Are Gifts Tax Deductible?
David Naylor: Okay. So, I’d imagine the time, if I’m buying a client a something as a gift for Christmas, how is that treated? I mean is it the same argument they use on that side?
Lilian Fisher: No, funny enough. So with the client, there’s no limit in terms of the amount that you can actually gift them. So if you, in turn, bought them a TV, for example, there are no rules, it says that that is actually, you know, subject to fringe benefits tax or even not tax-deductible. So that would definitely be tax-deductible.
David Naylor: Okay, say for example, a lot of people, a lot of businesses take their staff out for client functions at the end of the Christmas parties and restaurant the lunches and the like, what’s the ruling around, you know, the cost of those sorts of events at the end of the year.
Are Christmas Parties a Deductible Expense for Companies?
Lilian Fisher: So the tax office seems to have this magic $300 mark again. If your meal is under $300 then there is a rule which says that if it’s minor and infrequent, so you know, you only do this once or twice or even once a quarter.
If it’s under $300 you can’t claim it as a tax deduction. Firstly, you can’t claim any GST on that component of the meal, but you don’t have to pay fringe benefits tax. So again, you know if your meal was $350 let’s say, firstly you can claim it as a tax deduction in that case. But you would have to pay fringe benefits tax. And the fringe benefits tax because there’s this gross-up factor, you’ll end up paying almost the same amount as the value of the benefit itself.
David Naylor: Right. Okay. But generally speaking, I mean that covers off a lot of questions that we get asked by clients this time of year when they’re dealing with staff and gifts and clients and things.
So you mentioned before about the donation, so anything else that we should be aware of generally speaking for feeling charitable this time of the year and we want to donate something to a charity. Anything else we should be aware of?
Lilian Fisher: Yeah, so when you’re making donations, small items, so for example if you have, you have the children that are charity raising, for example, you bought some chocolates from them and so forth, that’s not going to be tax-deductible.
But if you do make a donation to a deductible gift recipient and you get a receipt, then that definitely would be tax-deductible. So probably if you have a favourite charity that you are interested in donating to, firstly check that they are deductible gift recipient.
If you are providing your time that’s not, it doesn’t have a monetary value from the tax office perspective so you can’t claim or get a deduction for them. But where you’re actually providing monetary value or even if you’re donating products, there are certain rules around donating property and so forth.
It’s all complicated. But eventually just maybe stick to the usual, you know, monetary donation and make sure that they actually are a registered charity.
David Naylor: Okay. And you said there are limits in how much you can donate if they tick all the boxes, as far as that’s concerned, there’s no limit in places.
Lilian Fisher: There is no limit David, but you can’t create a loss from a donation. So let’s say I had because I’ve got a lot of tax deductions and I had a taxable income of $50,000. If I made a donation of $60,000 I can only claim 50 so you can only claim a donation up to the value of your taxable income.
You can’t create the loss from that, but you can actually make a nomination, a written nomination, and you’re allowed to claim that tax deduction of the donation over a period of up to five years. So if I didn’t have enough taxable income this year, I can actually make a written election and claim the balance in the following year for up to five years essentially.
David Naylor: Okay, well that’s, that’s pretty good information. I’m hoping at this time of year there’s people out there that are charitable, taking this information on and now feel like they would like to give because it’s that time of the year.
So Lilian, thank you for giving us a brief rundown on what we can do with donations and obviously gifts around this time of year. Our clients out there, if they need any further information, of course, you may contact our offices, just go to www.chan-naylor.com.au, and look for the contact details of our offices, client managers, or the Partners
Lilian Fisher: Yeah, definitely. Okay. Thank you.
David Naylor: I’ll take this opportunity to wish all our clients a happy and festive new year, and we look forward to seeing you again in the new year.
Lilian Fisher: Thank you.
David Naylor: Thank you, Bye-bye.
Lilian Fisher: Bye.
About Chan & Naylor
Chan & Naylor is Australia’s leading national property, business tax accounting and wealth advisory group – with national offices in South West Sydney, Sydney, Pymble and Parramatta in New South Wales, Wheelers Hill, Melbourne, Moonee Ponds and Hawthorn in Victoria, Brisbane and Capalaba in Queensland, and East Perth in Western Australia that can assist property investors, small business owners, and entrepreneurs with their tax and accounting needs.
If you need help with your taxes or if you need property tax accountants, contact an Accounting Specialist to discuss your particular circumstances.
If you like this post, subscribe to our newsletter now at www.chan-naylor.com.au