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Help Sheet

Fundraising, Gifts and Donations (Part 1)

How will revenue-raising activities such as sponsorships (including "in kind" sponsorships and "contra's"), gala events and membership fees be treated?

Written by the ATO

Principle

There is a need to differentiate between the different types of revenue raising activities.

Sponsorships usually require the recipient to do something, for example, provide advertising. The provision of these rights is a taxable supply. The sponsor will generally be entitled to input tax credits where it has been made as part of carrying on their enterprise.

Membership fees and gala events are generally payments in return for services or rights and therefore will be subject to GST.

Other revenue raising events by a charity which is registered for GST and where the supplies are non-commercial or a supply of second hand goods will be GST-free. Raffles and bingo conducted by charities are GST-free. Most other supplies made by charities will be taxable. Charities will be able to claim input tax credits for acquisitions used to make taxable or GST-free supplies.

Issue

How will gifts and donations be treated under GST?

Principle

Gifts to non-profit bodies are not consideration

For a payment to be considered a gift it must be unfettered, that is, there must be no obligations to do anything in recognition of the gift and no expectation on the part of the donor to receive anything in return for donation. The definition of a gift is contained in Division 30 ITAA 1997.

Paragraph 9-15(3)(b) specifically excludes a gift made to a non-profit body from being consideration for a supply. Gift' and non-profit body' are the essential terms in this paragraph. It follows that if there is a gift to a non-profit body there will not be a taxable supply, unless there is another supply made for the consideration (gift).

A payment will not be a gift where there is a contractual obligation on the part of the charity or non-profit organisation to use the funds in a specified way or the provision of a material benefit to the donor.

A payment made in return for a material benefit or an enforceable obligation to use the funds for a specified purpose is consideration for a supply. The organisation receiving the payment has supplied something in return for the payment.

Specific Questions and Answers

  1. How are "Care Bears" treated under GST?

    Fundraising activities by charities will not be subject to GST where the charity is receiving unconditional donations or gifts. Provided that the donor is not receiving a material benefit, that is, any item received by the donor is of insubstantial value, and the donation is unconditional, there are no GST consequences. Where the fundraising activities involve the supply of goods or services, for example a fundraising dinner, t-shirts and pens, the supply will generally be subject to GST.

    Specifically, whilst care bears are not GST free in their own right, an unconditional gift will generally not give rise to any GST liability. Provided that the care bears given to the donors are of insubstantial value, and the donors do not donate with the expectation that they will receive a material benefit, the supply of the bears will be in the nature of a receipt and will not be subject to GST.

  1. When is a payment considered sponsorship rather than a gift or donation?

    Where money is provided in return for a supply of advertising a registered organisation receiving the funds will be required to remit 1/11th of the amount received as GST. The organisation making the payment can claim an input tax credit for the GST paid provided they are also registered for GST. Where both parties are registered for GST the organisation making the payment can increase the amount to take the GST into account, thereby making the overall impact of the GST nil for both parties.

    Contra Sponsorship

    Where goods or services are provided in return for advertising this is a contra sponsorship arrangement. Assuming both organisations are registered for GST they are making taxable supplies to one another. Each party will have a GST liability for the supply they have made and an input tax credit entitlement for the acquisition they have made (assuming it is a creditable acquisition). Where the value of the supplies is equal the net amount of GST for the whole transaction is zero. This is because each party makes a taxable supply and a creditable acquisition of the same value - the GST collected and the input tax credit entitlement are the same. Each party would however need to record both the supply and the acquisition.

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