Australia
1. Introduction
Receiving gift is one of the most important methods of fundraising for non-for-profit organisations in Australia. However, only certain types of organisations are entitled to receive tax deductible gifts which called deductible gift recipients (DGRs). To encourage the donation to such organisations, the Australian Tax Office provide the donors that include individual, company, trust or other type of taxpayer can with deductions against their assessable income for the gifts they have given to the deductible gift recipients in the income year.
2. Deductible gift recipients (DGRs)
There are two categories of DGRs, namely, DGRs endorsed by the Tax Office and DGRs listed by name. The organisations are eligible to receiving deductible gifts only if they confine into either the category.
2.1 DGRs listed by name
This includes prescribed private fund which listed by name in the Income Tax Assessment Regulations 1997 and other DGRs listed by name in the Income Tax Assessment Act 1997. For an entity to becoming a DGR listed by name is a very complicated procedure, it requires the parliament to amend the Income Tax Assessment Act 1997 to include them individually by name as a DGR.
2.2 DGRs endorsed by the ATO
There are two types of ATO endorsed DGRs. The first is the organisation being endorsed as a whole. Examples include hospital and public university. The other is organisation endorsed for a fund, authority or institution that it owns or includes, for example school building funds and council libraries.
For an organisation to be endorsed as a whole, It must satisfy following requirement ( sated on the ATO's website )
| | -"have an Australian business number (ABN) |
| | -be in a general DGR category set out in the income tax law |
| | -be in Australia (with some exceptions), and - be required – by a law, its constituting documents or rules governing its activities - to transfer the following assets to another DGR if the organisation is wound up or its endorsement is revoked: surplus gifts and deductible contributions made for the principal purpose of the organisation, and the money received by the organisation because of such gifts or contributions." |
| | For an organisation to be entitled to be endorsed for a fund, authority or institution it owns or includes it must satisfy: -have an ABN -Satisfy the gift fund requirements -The fund, authority or institution your organisation owns or includes must be in a general DGR category set out in the income tax law -In Australia |
The majority of deductible gift recipients (DGRs) are endorsed by Australian Tax Offices. A complete list of endorsed DGRs can be downloaded from the Deductible gift recipients page on www.abn.business.gov.au
3. Deductible gifts
It's significant that not all the gifts make to the DGRs are deductible, the gifts have to be covered by the following types of deductible gifts as it stated by Australian Tax Offices on its website.
There are mainly eight types of deductible gifts:
(1) Money equals to $2 or more
This includes foreign currencies and can be paid by various ways such as cash, cheque and credit card, etc. The donation can be aggregated in an income year for the purpose of deduction. However, this type of gift does not include testamentary gifts, that is, gifts made under a will.
(2) Property valued by the Tax Office at more than $5,000
Property includes physical things and rights and interests that are capable of ownership and have a value but does not cover testamentary gifts, that is, gifts made under a will. The amount of gift deduction is determined by the ATO except for the property acquired less than 12 months before the donation.
(3) Property purchased by the donor during the 12 months before making the gift
The property has the same meaning and range as mentioned above. The amount of the gift deduction is the lesser of the market value of the property on the day the gift is made, and the amount paid by the donor for the property.
(4) Gift of shares that satisfy four conditions such as:
-acquired in a listed public company
-when the shares were gifted, they were listed for quotation on the official list of an Australian stock exchange
-the shares were acquired at least 12 months before they were gifted, and
-the market value of the shares was $5,000 or less on the day they were gifted.
(5) Trading stock
This covers the trading stock of a business, only if it satisfy that the gift is a disposal of the trading stock outside the ordinary course of the donor's business, and if the gift involves the forced disposal or death of livestock - no income tax election has been made to spread or defer the profit.
(6) Cultural gifts
This gift type covers gifts of culturally significant property (except property that is an estate or interest in land or in a building or part of a building) made under the Cultural Gifts Program
The Cultural Gifts Program is administered by the Department of the Environment, Water, Heritage and the Arts (DEWHA) with the advice of the Committee on Taxation Incentives for the Arts
(7) Cultural bequests
The Cultural Bequests Program was administered by the former Department of Communications and the Arts for three years to the end of the 1999–2000 income year. However, the program is currently suspended.
(8) Heritage gifts
This gift type covers gifts of places included in:
the National Heritage List, or the Commonwealth Heritage List, under the Environment Protection and Biodiversity Conservation Act 1999, or the Register of the National Estate under the Australian Heritage Council Act 2003.
Significantly, this gift type can only be donated as deductible gifts to DGRs that are National Trust bodies for the purpose of preserving it for the benefit of the public.
4. Documents required for claim deduction
The donor must keep a record of all their deductible gifts donated to DGRs in the income year when preparing the tax returns. The Australian Tax Office will check the evidence when granting the deduction to the donor.
Normally, DGRs are not required by tax law to issue receipt for deductible contribution. However, if the DGRs issue the receipt to the donor, they must include following information in the receipt:
-the name and ABN
-the fact that the contribution was made for
-the amount of donation
-the GST inclusive market value of the right or the goods or services (the benefit) received in return for the contribution
United Kingdom
1. Introduction
In the United Kingdom, the rule regarding the deductible gift status of NFP organizations is named Gift Aid scheme. Gift Aid was introduced in the UK in 1990, and is designed to enable the provision of tax-effective charitable donations to UK charities. The scheme originally applied to cash gifts of £600 or more. However, this limit was abolished in 2000. Under the scheme, individuals subject to UK income tax can make a declaration to a charity (either orally or in writing) to enable their donation to be treated as a Gift Aid donation. The declaration must identify both the donor and the charity. The charity is then able to reclaim the basic rate of income tax paid on the gift from the government. Charities must maintain clear and auditable records of declarations to demonstrate that each donor has made an appropriate declaration. The scheme enables higher-rate taxpayers to claim income tax relief above and beyond the amount claimed directly by the charities. Individuals who do not pay income tax are unable to use Gift Aid
2. Giving to charity through Gift Aid
Gift Aid increases the value of donations to charities and Community Amateur Sports Clubs (CASCs) by allowing them to reclaim basic rate tax on the gift. If you pay higher rate tax you can claim extra relief on your donations. If you claim age-related allowances or tax credits, Gift Aid donations can sometimes increase your entitlement.
3. How Gift Aid works
• Tax relief for charities
Gift Aid is an easy way to help the recognized charity or CASC maximize the value of its donations, as these organizations can reclaim tax from HM Revenue & Customs (HMRC) on its 'gross' equivalent - its value before tax was deducted at the basic rate. This is 20 per cent from 6 April 2008. The charity can work out the amount of tax it can reclaim by dividing the amount donated by four. This means that for every £1 donated, the charity can claim an extra 25 pence.
In addition, HMRC will automatically pay the charity or CASC a further three pence for every pound donated. This 'transitional relief' - to adjust to the fall in basic rate tax (from 22 per cent to 20 per cent) - is available on Gift Aid donations made from 6 April 2008 until 5 April 2011. This means that for every £1 donated, the charity or CASC can receive 28 pence, so the total value of the donation is £1.28.
• Tax relief for donors
If a donor is a higher rate taxpayer, they too can benefit from tax relief as they can claim back the difference between the higher rate of tax at 40 per cent and the basic rate of tax at 20 per cent on the total value of the donation - a total of 20 per cent. So if £1 was donated, the gross donation would be £1.25, so the donor could claim 25 pence back (20 per cent of £1.25).
The donor must pay at least as much UK tax (Income Tax and/or Capital Gains Tax) as the amount of Income Tax that the NFPs are reclaiming. If a donor makes a number of Gift Aid donations, they must pay a sufficient amount of UK tax on the total amount of those donations and they may be required to pay any shortfall in tax paid to HMRC. The NFPs must advise the donor of their tax requirement and keep a record of the NFP's notification along with the donor's confirmation - known as a Gift Aid declaration.
4. Donations that qualify for Gift Aid
Gift Aid can only be claimed on gifts of money from individuals, sole traders or partnerships, in any of the following forms:
-cash
-cheque
-Direct Debit
-credit or debit card
-postal order
-standing order or telegraphic transfer
Gifts made by cheque only count as received once the cheque has cleared.
The charity or CASC can accept gifts of money made in sterling or any foreign currency.
5. Payments that don't qualify for Gift Aid
These include:
-donations of money from a company
-donations in the form of a loan waiver or debt conversion - for example an individual may lend money to the charity or CASC and then, at a later date, agree that it does not have to be paid back - this is not a gift of money it is the waiver of a loan
-gifts made on behalf of other people for example a membership subscription paid on behalf of somebody else - this is a gift of membership from the payer to the member not a gift made to the charity or CASC
-gifts that come with a condition about repayment
-gifts with enforceable conditions about how the charity or CASC should use the money - for example on condition that it buys goods or services from the donor
-payments received in return for goods or services - these are not gifts - for example payment for admission to a concert, payment for a raffle ticket, an entrance fee for an adventure challenge event etc
-a 'minimum donation' where there is no choice about payment - this is simply a fee for goods or services, it is not a gift
-gifts made using 'charity vouchers' or 'charity cheques' provided by another charity
6. Providing benefits in return for donations
The charity or CASC can give donors modest tokens of appreciation - called 'benefits' - in order to acknowledge a gift but there are limits on their value. A benefit is any item or service given by the charity or a third party to the donor or to a person connected to them in return for a donation. Examples might include theatre tickets or discounts. The benefit does not have to be monetary or have a market value.
There are two limits that apply to the value of the benefits that a donor, or a person connected with the donor, may receive in return for making a donation.
These are worked out using the relevant value test and the aggregate value test. If the value of the benefits received exceeds either of these limits, the donation will not qualify for Gift Aid.
7. The relevant value test
The relevant value test sets the maximum value of a benefit for a particular amount of donation as follows:
8. The aggregate value test
As well as passing the relevant value test above, the benefits must also pass the aggregate value test. This says that the value of benefits received by the same donor in one tax year as a result of making more than one donation to the same charity in that tax year must not exceed:
-£250 for donations made up to and including 5 April 2007
-£500 for donations made on or after 6 April 2007
The key principle to remember is that if any donor - or person connected to the donor - benefits significantly from their donation, then their donation(s) will not qualify for Gift Aid.
The benefit limits listed above are for Gift Aid purposes only. If the charity gives a donor a benefit in return for a payment this may be considered a business supply for VAT purposes and VAT may be due on income.
9. Claiming tax back on Gift Aid donations
The charity or CASC can claim tax back on Gift Aid donations in the same way they claim other tax relief.
They don't have to register to claim Gift Aid but the charity must be recognised by HMRC for tax purposes. Recognition by HMRC as a charity is a separate process from registering with the Charity Commission for charitable status.
Before the charity can make a Gift Aid or other repayment claim it needs to nominate someone in the charity or CASC to be a signatory and/or a claimant. This means that they can claim/receive money on behalf of the charity or CASC.
10. Keeping records
The charity or CASC must keep an auditable record of:
-all Gift Aid declarations and confirmation that you have advised the donor that they must pay at least as much UK tax (for the tax year that they donate) as the amount your charity or CASC will reclaim on the donation
-any cancellations of Gift Aid declarations
-any benefits you provide to donors
Records must be kept in the same format as when the charity received them, but can be scanned and stored electronically. The charity or CASC must also be able to locate individual declarations on request for audit checks.
Significant differences
In this presentation, it compared the Rules for Deductible Gifts of NFP in Australia and United Kingdom through 3 criteria. Firstly, the donations that qualify for Gift deduction. It finds out the Australian Tax Office provide the donors that include individual, company, trust or other type of taxpayer can with deductions against their assessable income for the gifts they have given to the deductible gift recipients in the income year. But in UK, donations of money from a company is not qualify for gift aid
Secondly, how gift deduction work. In Australia the donors can deduct the total amount of money donated. However, in UK the donors cannot deduct all of the donations. For example, if a donor is a higher rate taxpayer, they can claim back the difference between the higher rate of tax at 40 per cent and the basic rate of tax at 20 per cent on the total value of the donation
Finally, the requirements for claiming deduction. Individuals subject to UK income tax need to make a declaration to a charity (either orally or in writing) to enable their donation to be treated as a Gift Aid donation. In contrast, in Australia, the donor must keep a record of all their deductible gifts donated to DGRs in the income year when preparing the tax returns. And Australian Tax Office will check the evidence when granting the deduction to the donor.
Conclusion
Comparing with the two countries' regulations related to gift deduction, it finds out the Australia regulations are easier to understand and use, when individual or company donate $2 or more to the charity then they can get all of the donated money deducted. But as mentioned above, the UK regulations are more complex. Although the regulation in Australia can encourage people to donate, it also has some short comings. For example, individuals may use the regulation for a bad purpose such as avoid the tax. Thus, the Australia Tax Office need to set some rules to avoid it may be they can set a highest amount of gift deduction.
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