How do tax deductible donations work?

Have you ever wanted to build a better community through giving? Donating to charity is one way we can use what we have to help others.  Making a donation can be a very personal decision. There are several reasons why people decide to donate, these include personal passion, support of research/development, motivations orientated around their values and feeling the need to "give back to the community" amongst others. Being able to improve the lives of others is, to many people, a privilege. Donating to charity is a great way to feel like we’re living in a way that is true to our own ethical beliefs.

Beyond the happiness boost from giving to charities, donations may be tax deductible for the donor as well.

Let’s see how, in this example, by exploring the tax implications on donation made by Thomas, an amateur surfer:

Example: A few years into the workforce, Thomas has been learning about the term ‘tax deductible donation’, the concept of giving to others and being able to claim a tax deduction appeals. Thomas has been passionate about surfing since he was young. He wants to give back to support his local volunteer surf lifesavers and the Westpac Lifesaver Rescue Helicopter crew which help keep people safe at the beach, especially as his children grow up and start to surf near the beach. So, he decided to donate to the Surf Life Saving Foundation, Australia's peak coastal water safety, drowning prevention and rescue authority.

When it comes to donating, Thomas is not alone. According to a 2021 paper from the Government’s Australian Institute of Health and Welfare, in the 2018-19 tax year, 4.2 million individual tax payers claimed a total of $3.9billion as tax-deductible donations.   In this article from Westpac’s financial education specialists, the Davidson Institute, we will go through what you need to know before donating.

Let’s start by understanding what tax-deductible donation means.

A common benefit of giving is the opportunity to claim a tax deduction. A donation is only tax deductible if it is given to an organisation that has been endorsed by the Australian Taxation Office (ATO) as a deductible gift recipient organisation.


Gifting structures

There are various ways people and organisations can donate. Some of these are as follows:

Planned giving gives a formalised structure for your giving, so that it can take place independently of your continued action. Planned giving generally ensures that you can track the effects of your gifts, and in many cases, you can dictate how the gift is spent and obtain a report on the results.

The main disadvantage of planned giving is that there are generally many legal and formal requirements, and an ongoing need for time.

Options for planned giving are:

  • Donating annually to your preferred charity, for example one that helps change the lives of the world’s most vulnerable children.
  • Leaving money in your will to your preferred charity or charities.
  • Joining with others to develop a giving circle for a certain cause and donating the money you raise to charity.
  • Donating through a payroll giving scheme to your preferred charity or charities.


Unplanned giving: Unplanned giving is easy and flexible. It allows you to choose the causes and organisations that appeal to you, you can change your giving focus at any time, and you can control the amount that you are giving.

The main disadvantage of unplanned giving is that it can be difficult to see the results of your giving as it’s often hard to measure what the outcomes of your gift has been. Options for unplanned giving are:

  • Giving money directly to a charity via a street fundraising campaign at your local shops.
  • Donating goods or property to a charity
  • Donating directly to individuals


Setting up a charitable foundation: A charitable foundation (also known as a charitable trust) is a legal vehicle which allows the transfer of gifts from an individual, family, or corporation to a charity. Its purpose can be broad, or it can be directed to make grants to specific organisations, purposes and/or geographic locations which interest you. Income from the initial investment is given to charitable organisations in the form of grants.

Some of the different forms charitable foundations can take are as follows:

  • Private Ancillary Fund (PAF)
  • Private Charitable Trust
  • Public Ancillary Fund


How do I know if a charity is legitimate?

In Australia, charities must meet certain requirements to be endorsed as income tax exempt. The charity must also register with the Australian Charities and Not-For-Profits Commission (ACNC) website.

Any charity with “deductible gift recipient” status is entitled to receive gifts which are deductible from the donor’s income tax. The ACNC Registered Charity Tick helps charities to promote their registration and presence on the ACNC Charity Register. For example, the Surf Life Saving Foundation, as chosen by Thomas is an eligible charity whose details are published on the ACNC website.

In addition, you should also check the organisation’s official website. Scammers often use the names of familiar and trusted organisations. To further track if a charity is serving its mission, you can also check its annual report, checking how much of your donation goes to overheads and administration. Lastly, you should also regularly review your credit card account to make sure you are not charged more than what you agreed on.

How does it work?

When you made donations, your eligible donations are subtracted from your taxable income, decreasing the portion of your income that can be taxed in a given financial year. The donation must be a gift or contribution to the organisation endorsed as deductible gift recipient (DGR), with no benefits provided to you as part of the exchange.

The donation must be an amount greater than $2, and could take the form of a:

  • One-off donation
  • Regular monthly donation
  • Donation in support of a specific appeal, such as the Surf Life Saving Foundation’s 2022 Tax Appeal.
  • Corporate sponsorship
  • Donation in lieu of a gift

Once you have made a donation, you need to keep your receipt as proof of your gift. You should keep the receipts for any donations that you wish to deduct from your taxable income. The ATO says generally, you should keep records for five years after lodging a claim in your tax return.

For further information on gifts and donations visit the ATO.


How much can I claim?

The amount you can claim as a deduction depends on the type of gift. For gifts of money, you may claim the full amount of donation in your tax return as long as it is $2 or more, and you donated to a deductible gift recipient charity.  

As a donor you can claim a tax deduction on eligible donations in the income year you made the donation. However, the tax deduction claimed for donation cannot add to or create a tax loss. The deduction can reduce your assessable income to nil in the tax year in which the donation is made, but any excess cannot be claimed in that year. 

However, in advance of lodging your tax return, you may choose to spread the tax deduction over a period of up to five income years.

This article was written by the Davidson Institute, powered by Westpac. Westpac has been proudly partnering with Surf Life Saving Australia (SLSA) for more than four decades since the inception of the Westpac Lifesaver Rescue Helicopter Service (WLRHS) in 1973. It is one of the longest corporate community partnerships in Australia.

The Davidson Institute is the home of a suite of financial education resources to help build financial confidence. Curious to know more about finances? Have a look at the range of other Davidson Institute financial education resources on their website.

This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness for the information to your own circumstances and, if necessary, seek appropriate professional advice. © Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714.

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