Have you made a donation either through workplace giving or salary sacrifice arrangements with your employer? If so, and if you want to claim a deduction in your tax return, you’ll need to be careful, as the tax treatment differs depending on which method you used to make the donation. For donations made outside the workplace, for it to be deductible, it must be over $2, made to DGRs and truly be a gift or donation (i.e. made on a voluntary basis without the expectation of receiving something in return).
If you’ve donated money through workplace giving or through salary sacrifice arrangements with your employer, it’s critical that you have the right information.
Essentially, workplace giving is a streamlined way for employees to regularly donate to charities or deductible gift recipients (DGRs). Usually, a fixed portion of the employee’s salary is deducted from the employee’s pay each pay cycle and the employer forwards the donation onto the DGR. However, the amount of employee’s gross salary remains the same, and depending on the employer’s payroll systems, the amount of tax paid by the employee each pay period may or may not be reduced to take into account the donation.
Under the typical salary sacrificing donation arrangement, an employee agrees to have a portion of their salary donated to a DGR in return for the employer providing them with benefits of a similar value. The employee’s gross salary is reduced by the salary sacrificed amount and the amount of tax paid by the employee each pay period will be reduced. The employer then makes a donation to the DGR.
If you’ve made a donation under workplace giving, you are able to claim a deduction in your tax return. This is regardless of whether or not your employer reduced the amount of tax paid each pay cycle to account for the amount of the donation. Your employer will provide you with a letter or email stating the total amount donated to DGRs, and the financial year in which the donations were made.
Those who have made a donation to a DGR under a salary sacrifice arrangement, however, are not entitled to claim a deduction in their tax return, since it is the employer that is making the donation to the DGR and not the employee. Therefore, it is prudent to check whether you’ve donated under workplace giving or a salary sacrifice arrangement before claiming any deductions for donations to DGRs this year.
For taxpayers who have made donations outside the workplace, a donation must be made to DGRs and truly be a gift or donation of $2 or more in order for it to be deductible. If you receive a token item for your donation (i.e. lapel pins, wristbands or stickers), you are still able to claim a deduction.
Receipts must be kept for donations made outside of workplace giving programs, although if you made donations of $2 or more in “bucket collections” conducted by an approved organisation, you may be able to claim tax deductions for gifts up to $10 without a receipt. It should also be noted that many crowdfunding campaigns and sites are not run by DGRs and subsequently any donations made to those causes will not be deductible.
If you would like to maximise your deductions this year, Alexander Bright can take away all the hassle of going through your receipts and help you get it right. For a stress-free tax time this year, call our tax accountant in Melbourne today.