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Help Sheet

Donations and the GST

With regard to donations, what is a material benefit? When is there a contractual agreement? How does the grants' ruling affect the treatment of donations by charitable trust foundations?

Material Benefits

The following are not considered to be a material benefit in relation to the making of a donation:

  • Listing of donors on a donor board
  • The provision of a gift which is directed towards a specific benefit to a person who is not an associate of the donor. For example, "this donation is to be used to provide braille books for children undertaking studies towards the NSW Higher School Certificate".
  • The provision of a gift in response to a specific or general appeal for a specified purpose An example of this is an appeal to help victims of a natural disaster.
  • The provision of a mere acknowledgment or items of insubstantial value (for example a cup of tea) as the result of a gift.
  • A thank you lunch or dinner to volunteers working for an organisation where there is no pre-existing agreement that such provision will be made.
  • Membership of a donor club where no rights are bestowed on the member. This will be a matter of degree but an example would be a club where the donor receives things like a certificate and an infrequent newsletter but no right to vote.

When is a gift a gift, a donation a donation? For example, how will the sale of small tokens such as pens, ribbons, pins and the like be treated under GST when run by charities registered for GST on allocated days such as Daffodil Day or Red Nose day?

There are a number of income tax rulings, determinations and fact sheets that should be referred to and will provide guidance to organisations seeking clarification in this matter. They are as follows:

  • Taxation Ruling No. IT 2071 on School Building Funds
  • Taxation Ruling No. IT 2443 on Gifts
  • Taxation Determination 92/110 on the question, "Is the cost of attending a fundraising function tax deductible as a gift
  • Fact Sheet No 53 on Tax Deductible Gifts
  • Gift Pack and Charity Pack.

Generally, where the item received by the person is equivalent in value to that of a receipt and the intention of the person was to donate money rather than purchase an item the activity would be considered to be a donation and will not give rise to a GST liability.

Can a receipt that is issued for another purpose (eg: tax invoice) also be a gift receipt for the purposes of section 30-228 of the Income Tax Assessment Act 1997?

Section 30-228 requires that receipts issued by deductible gift recipients state:

  • the name of the fund, authority or institution;
  • the ABN of the deductible gift recipient;
  • the fact that the receipt is for a gift.
    This is in addition to the usual information contained in a receipt - date, amount, payer's and payee's names, etc.
    For a receipt issued for dual purposes, one of which is for a gift, to be acceptable under section 30-228 it must be issued by a deductible gift recipient and contain the information set out above. This means that a deductible gift recipient endorsed only in respect of a fund, authority or institution that it owns or operates must state the name of the fund, authority or institution and that the gift is to that fund, authority or institution. A receipt issued by an organisation that is not a deductible gift recipient is not issued in accordance with section 30-228.

    Would the GST apply where a corporation makes a payment to a charity that offsets their costs on the basis the charity acknowledges the corporate sponsor some way? Would GST treatment be different if the "in kind" sponsorship was provided for a specific activity conducted by the charity?

    The payment to the charity (if registered for GST) would be consideration for a supply, for example, advertising and therefore subject to GST. The value of the "in kind" sponsorship would be the basis for the consideration for the supply.

    Are all donations to:

    • a GST registered organisation, and endorsed as a deductible gift recipient (DGR) liable for GST?
    • a GST registered organisation, and not endorsed as a DGR, liable for GST?
    • an organisation not registered for GST, and endorsed as a DGR, liable for GST?
    • an organisation not registered for GST, and not endorsed as a DGR, liable for GST?

    As stated above, gifts are not subject to GST.

    What is the effect of GST on tax-deductible donations?

    The donating of monies has no GST consequences provided the payment is truly a gift.

    When do tied donations cease to be GST-free?

    The elements of a gift are discussed above. A 'tied' gift will generally have no GST implications provided the payment meets the requirements of a gift discussed earlier. If the recipient of the donation has called for donations for a specific purpose, this will not affect the nature of the payment. Importantly, there is no material benefit flowing back to the donor.

    Are preference donations subject to GST?

    Where a donor makes a donation and communicates a wish for the monies to be used for a specific purpose, this will not affect the nature of the payment. Provided the donor does not receive a benefit in return, and the recipient is not contractually obliged to spend the monies toward a specific purpose, the payment will constitute a gift. Gifts are not subject to GST.

    What if a membership was granted prior to 1 July 2000 but extends beyond 1 July 2000?

    Membership of a club or organisation is generally provided on a periodic or progressive basis. Where the supply of membership is for a specified period of time that commences on or before 1 July 2000 and finishes after that date, it will be taken as having been supplied continuously and uniformly over that period.
    The following examples illustrate the treatment of memberships that span 1 July 2000

    Example 1
    Jan pays her annual membership of the Australian Bushwalkers Association on 1 April 2000. As the membership is a supply for a period that spans 1 July 2000, it is taken to have been made continuously and uniformly over the period 1 April 2000 to 31 March 2001. That portion of the membership that relates to the period on or after 1 July 2000 will be subject to GST.

    What if a life membership was sold prior to 1 July 2000? The following table explains the treatment of life memberships.

    IF

    Membership granted pre 2/12/98

    AND

    Payment in full made before 2/12/98

    THEN

    Membership is GST-free forever.

    IF

    Membership granted pre 2/12/98

    AND

    Member is not entitled to a full input tax credit

    THEN

    Payments are GST-free until earlier of first review opportunity or 1 July 2005.

    IF

    Membership granted pre 8 July 1999

    AND

    Member is entitled to a full input tax credit

    THEN

    Payments are GST-free until earlier of first review opportunity or 1 July 2005.

    IF

    Membership granted after 1/12/98

    AND

    Member is not entitled to a full input tax credit

    THEN

    Fully subject to GST.

    IF

    Membership granted after 7 July 1999

    AND

    Member is entitled to a full input tax credit

    THEN

    Fully subject to GST

    What are the tax invoice requirements that must be satisfied in regard to memberships?

    In some situations, you issue a document before it is certain that you will make a supply because the document is merely an offer. Examples are insurance renewal notices, motor vehicle registration and subscription notices. Supplies made by subscription include subscriptions to trade magazines, online legal research and subscriptions to professional associations. In these situations, there is no supply until the recipient accepts the offer. In many cases, the recipient accepts the offer by making a payment.

    An offer of membership or renewal notice is in the approved form for a tax invoice if it satisfies the requirements for a tax invoice and it indicates that it will be a tax invoice when the payment is made. In situations where the offer is accepted by payment, the following or similar statement on the document is sufficient for this purpose:
    'This document will be a tax invoice for GST when you make payment.'
    For membership renewals made prior to 1 July 2000, a normal renewal notice is acceptable as a tax invoice.

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