Fundraising Activities
GST and Tax Deductibility
This paper analyses the GST consequences and the tax deductibility of various fundraising
activities (fundraising dinners, auctions, sale of pens, badges, etc and raffles) carried out by a
Charity which is registered for GST and registered to fundraise.
The references to tax deductibility for gifts only apply to the Charity if it is endorsed by the
ATO as a deductible gift recipient (DGR).
1
To GST or not to GST
(a)
(b)
2
1
For any fundraising event, the Charity can either:
(1)
GST - charge GST and claim input tax credits; or
(2)
Not GST - not charge GST and not claim input tax credits in connection
with supplies made for the event by either:
(A)
referring to the event as an “input taxed fundraising event” in
its books under Subdivision 40-F of the GST Act; or
(B)
if there is a separate part of the Charity that runs the fundraising
event, the Charity can choose to make that part a non-profit subentity and, if the ‘annual turnover’ of the non-profit sub-entity is
less than $100,000, all supplies made by the non-profit subentity in connection with the event will be input taxed.
The decision as to charging GST or not GST’ing ie treating the event as an
input taxed fundraising event, should be made in the initial stages of organising
the event.
What is GST?
(a)
GST is a tax on supply.1 If a Charity supplies something ie goods, services,
advertising, it should pay GST to the Australian Taxation Office (ATO).
(b)
If it purchases goods or services then it can claim an input tax credit2 from the
ATO for the amount of GST included in the price of those goods and services.
supply under the A New Tax System (Goods and Services) Act 1999 (GST Act) is any form of supply including:
(1) a supply of goods, eg at an auction;
(2) a supply of services, eg advertising and PR for a sponsor;
(3) a creation, grant or surrender of any right, eg agreeing to repay the grant if not properly applied;
(4) an entry into, or a release from, an obligation to do anything or to refrain from doing anything.
2
Input tax credit – the amount which can be claimed in the BAS statement for the GST included in the price of goods or
services purchased by the Charity, eg the GST element in the cost of venue hire for a fundraising event, or in the cost
of catering.
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3
(c)
If the Charity is not registered for GST and does not need to be registered, no
GST is payable by the Charity and no input tax credits can be claimed.
(d)
This paper assumes that the charity conducting the fundraising activities is
registered for GST (either because it is required to be registered for GST, as its
annual turnover exceeds $100,000, or because it has volunteered to be
registered). Annual Turnover for this purpose is the value of ‘supplies’ for GST
purposes, made by the Charity.
What is a fundraising event?
A fundraising event is defined3 as follows:
(1)
(2)
4
any of these is a fundraising event if it is conducted for the purpose of
fundraising and it does not form any part of a series or regular run of
like or similar events (ie 15 times or less in any one year):
(A)
a fete, ball, gala show, dinner, performance or similar event;
(B)
an event comprising sales of goods (other than alcohol or
tobacco) if:
(i)
each sale is for a consideration that does not exceed $20;
and
(ii)
selling such goods is not a normal part of the supplier’s
business;
an event that the Commissioner decides, on an application by the
supplier in writing, to be a fundraising event, the supplier is not in the
business of conducting such event and the proceeds from the event are
for the direct benefit of the supplier’s charitable or non-profit purposes.
Does the Charity have to be registered to fundraise?
In order for a Charity to conduct fundraising activities, it must be registered or have
approval to fundraise in the relevant state or territory. Each state and territory (other
than NT) has its own legislation and requirements relating to fundraising.
5
Fundraising dinners or other events
5.1
GST on the tickets?
(a)
3
If the Charity decides to be subject to GST, the sale of the tickets must include
GST. The price on the invitation and ticket must be the GST inclusive price and
state this or it can state the price and GST separately.
Section 40-165 of the GST Act
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5.2
5.3
(b)
If GST is included, either the tickets must be valid tax invoices for attendees
who are eligible to claim input tax credits, or the Charity will need to be
prepared to supply tax invoices on request.
(c)
If the Charity has decided not to GST ie to treat the fundraising event as an
input taxed event, GST does not need to be included or shown on the invitation
or ticket.
Can input tax credits on catering, entertainment, venue hire, be claimed?
(a)
If GST is payable on the tickets the Charity can claim input tax credits for the
GST in the prices for the supplies for the event such as decorations, flowers,
entertainment, etc.
(b)
If the dinner or event is being treated as an input taxed event (ie no GST is
included in the ticket price), then no input tax credits can be claimed in respect
of any GST included in the prices paid by the Charity for supplies for the event.
Can any part of the ticket price be tax deductible?
(a)
Payment for a dinner or to attend an event is not a gift (and therefore not tax
deductible as a gift) as the person paying is receiving a benefit or something
material in return for the payment.4 This is so even if the value of the dinner or
event is only a fraction of the amount paid, unless it comes within the ‘minor
benefits’ scheme in item 7 of section 30-15 of ITAA 97.5
(b)
It is possible to have invitations to fundraising dinners or events for Charities
which are DGRs which have the price of the ticket and a request for a tax
deductible donation, eg:
“the cost of the ticket is $50 and a tax deductible donation of $100 is
requested”.
(c)
The tax deductible donation must be truly optional to make it a gift. This means
if a person buys a ticket without making the donation they must still be allowed
to attend the dinner or the event. The amounts cannot be joined to make it
appear obligatory eg by stating:
“please enclose a cheque for $150 to receive your ticket”.
4
See draft tax ruling on ‘Tax deductible gifts – what is a gift?’ – TR2004/D19
5
Income Tax Assessment Act 1997. Item 7 was inserted in 2004 and applies where the amount paid for a fundraising
dinner or event is more than $250 a ticket and the GST inclusive market value of the dinner or event is less than the
lower of:
(1) $100; or
(2) 10% of the price of the ticket (ie $25 if the ticket is $250),
then the amount in excess of the GST inclusive market value can be claimed as a tax deductible gift.
Market value must be determined by the DGR and shown on the receipt. It is not cost but a reasonable estimate, based
on comparisons where available, of the amount that might be paid in the open market.
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Charity auctions
6.1
Avoid GST for simplicity!
(a)
(b)
6.2
If the auction is an input taxed event, it will be simpler to administer as:
(1)
no GST needs to be charged on the goods and services auctioned;
(2)
the Charity won’t have to pay GST on any advertising or PR it provides
for businesses donating goods and services for the auction; and
(3)
no input tax credits can be claimed for any GST included in the price of
goods or services purchased by the Charity for the auction.
The Charity can treat the auction as a separate fundraising event to the dinner
(which may be subject to GST) and should refer to the auction in its books as a
separate input taxed event.
If it is subject to GST…
(a)
If GST is to apply to an auction then:
(1)
the Charity will be making a supply in respect of the goods or services
auctioned and therefore it is liable to pay GST for those goods and
services;
(2)
where the Charity supplies advertising benefits to the entity donating
goods or services, there is a supply by the Charity and it must pay GST;
and
(3)
the Charity will be able to claim input tax credits for any GST included
in the price of goods or services provided to the Charity for auctioning.
(b)
The ATO advises people conducting auctions to make it clear whether they are
registered for GST and whether items being sold at auction are on a GST
inclusive or a GST exclusive basis.
(c)
The Charity may also state the arrangements for obtaining a tax invoice in
respect of an item bought at auction if the purchaser is registered for GST. In
any event, the Charity needs to provide a tax invoice within 28 days, if the
purchaser asks for one, unless the price received was less than $50.
(d)
If goods or services are provided for an auction in return for PR or advertising,
the Charity will be required to pay GST equal to 1/11th of the GST inclusive
value of the advertising benefit.
Provided the parties are dealing on an arm’s length basis, you may be able to
assume that the value of the advertising benefit is the same as the value of the
goods or services provided and both values are GST inclusive.
(e)
If this is a reasonable assumption, then the two transactions will cancel each
other out for GST purposes (ie the GST payable for the supply of advertising
benefits would be equal to the input tax credit able to be claimed on the cost of
the goods or services provided for the auction) and no amount of GST will be
required to be paid. Each party will still need to account for GST payable and
the input tax credit on each transaction, in their BAS statements.
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6.3
(f)
If the Charity also pays an amount for the goods or services, we suggest the
Charity agrees the value attributable to the advertising benefits at the time the
agreement is reached with the donating entity so the GST payable can be
calculated. The Charity will be able to claim an input tax credit for the GST
paid by the donating entity in supplying the goods or services. It is likely that
the amounts will be able to be offset, as above.
(g)
If the donation can be characterised as a gift, there will be no GST payable by
the Charity. There will also be no input tax credit as the donating entity will
not pay any GST on the supply of the goods or services, as it is receiving
nothing in return.
Tax deductibility of goods donated
(a)
6.4
If the goods are donated to a Charity which is a DGR with nothing given in
return (no agreed PR or advertising more than mere acknowledgment, or no
free tickets to the event) and the goods can truly be considered an altruistic,
unconditional gift, a deduction can be claimed if the goods were:
(1)
purchased during the 12 months prior to the donation; or
(2)
valued at greater than $5,000; or
(3)
an item of trading stock of the business making the donation.
(b)
If a individual donates goods to an auction and a ticket to the event or other
benefit is given in return, the individual donating the goods is not able to claim
a deduction as he or she has received something in return, unless it comes
within the ‘minor benefits’ scheme in item 7 of section 30-15 (see footnote 5).
(c)
If a business donates goods in return for PR or advertising it may be deductible
as a normal business deduction.
Tax deductibility of goods bought
The amount paid for goods or services bought at the auction by an individual is not
deductible as it is not a gift but a purchase of the goods or services, unless the ‘minor
benefits’ scheme under item 7 of section 30-15 can apply (see footnote 5).
7
Sale of badges or pens
7.1
No GST and tax deductible if the payment is a gift – is it a gift?
(a)
If a payment for a badge, pen or other goods can be characterised as a gift, the
payment will be tax deductible (where the Charity is a DGR) and no GST will
be payable in respect of the supply of the item.
(b)
To be considered a gift, the payment must be made voluntarily and the donor
must not receive a material benefit in return for the gift. This generally means
the item received must be of insignificant value and of no utility.
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(c)
It is a question of fact in each case whether any benefit or advantage received
by the donor is sufficiently significant to be “material”.6
(d)
The general rules relating to items given in return for a “gift” are:
(e)
7.2
(2)
items of utility or value will be considered material (unless there is a
considerable disproportion between the amount donated and the value of
the benefit received) and the amount paid therefore will not be a gift and
not be tax deductible. GST will also be payable with respect to the
supply of the items. For example, pens, fridge magnets, key rings,
chocolates, caps, T-shirts, mugs, calendars (irrespective of whether the
item is also promotional of the Charity by bearing its name or logo).
There are factors which may change the general rules such as the value of the
item, the means by which it is provided ie sold as an item or given subsequent
to a donation, in thanks for the gift but not offered as an incentive. For this
reason the facts in each case must be carefully reviewed.
Where the payment for the goods is not a gift, the sale of the items would be
subject to GST and Charity needs to consider whether:
(1)
the sales are within the definition of a ‘fundraisng event’; and if so,
(2)
if the Charity wants ‘to GST or not to GST’.
(b)
If the items are being sold for less than $20 and are not available for sale all
year round ie they are used for a particular fundraiser or in connection with
another fundraising event, then the Charity will be able to treat the sales as a
‘fundraising event’ and elect ‘not to GST’ ie to treat the sales as input taxed.
(c)
No GST will then be payable on the supply of the items but the Charity will not
be able to claim any input tax credits in respect of the expenses incurred in
relation to the selling of the items.
(d)
If it is not a gift, it is not tax deductible.
GST on boxes of merchandise
(a)
6
an item which merely promotes or advertises the Charity will not be
considered a material benefit to the donor. The amount will therefore be
treated as a gift and will be tax deductible and no GST will be payable
in respect of the supply of the item. Examples include lapel badges
(unless of material value), bumper stickers, red noses, legacy pins,
daffodils on Daffodil Day;
If it is not a gift, does GST have to be paid?
(a)
7.3
(1)
Rather than the Charity selling the items of merchandise individually or
providing them as acknowledgment of donations, sometimes boxes of
merchandise are sold to retailers who then sell or provide the items to
customers.
See paragraphs 156-177 of TR 2004/D19 “Tax deductible gifts - what is a gift?”.
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(b)
8
Where boxes of merchandise are sold and paid for by the retailer, even where
the items when sold individually are not providing a material benefit, it will be
considered a supply of goods and subject to GST.
Raffles
8.1
8.2
Is GST payable on raffle tickets?
(a)
Section 38-270 of the GST Act provides that the supply of a ticket in a raffle is
a GST-free supply. This means the Charity can claim an input tax credit for the
amount of GST included in the price of the books of raffle tickets it purchases
for resale but it does not need to pay any GST for the sale of the raffle tickets.
(b)
If the Charity pays commissions to sellers of raffle tickets and the sellers pay
GST on the supply of that service, the Charity will also be able to claim input
tax credits in respect of the GST amounts.
(c)
There is no GST payable by the Charity in supplying the prizes won under the
raffle.
(d)
Separate state and territory legislation applies to conducting raffles or art unions
and the Charity should check whether a permit is required in the relevant state
or territory.
GST on the donation of the prizes for raffles
(a)
If the donation can be characterised as a gift, there will be no GST payable by
the Charity.
(b)
If the donation is in return for PR or advertising, the Charity will be required to
pay GST to the ATO equal to 1/11th of the GST inclusive value of the
advertising benefit.
Provided the parties are dealing on an arm’s length basis, it can be assumed that
the value of the advertising benefit is the same as the value of the prize as
advised by the donating entity and both values are GST inclusive.
(c)
The donating entity is also making a taxable supply of the items donated. As a
result of the supplies by each party being of equal value, then the two
transactions will cancel each other out for GST purposes (ie the GST payable
would be equal to the input tax credit able to be claimed) and no amount of
GST will be required to be paid to the ATO, though each party will still need to
account for GST payable and the input tax credit on each transaction.
Alice Macdougall
Freehills
February 2005
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EVENT
INPUT TAXED
FUNDRAISING EVENT
GST APPLIES
1. Raffles
1.1
Sale of raffle tickets
GST-free
GST-free
1.2
Supply of advertising
benefits to entity
providing prize for
raffle
(a)
Is the supply a gift?
1.3
Supply of raffle prize
No GST payable
(b)
Not entitled to input tax
credits
(a)
If yes, no GST payable and
no input tax credit (as no
GST paid by donating
entity)
(b)
If no, GST payable and can
claim input tax credits
No GST payable
No GST payable
2. Dinner or similar event
2.1
Sale of tickets to
fundraising event
No GST payable
GST payable
2.2
Purchase of supplies
for fundraising event
(eg hire of venue)
Not entitled to input tax credits
Can claim input tax credits
3. Auctions
3.1
Supply of advertising
benefits to entities
providing goods or
services for auctions
No GST payable
GST payable and can claim input
tax credits
3.2
Purchase of goods and
services for auction
Not entitled to input tax credits
Can claim input tax credits
3.3
Supply of goods and
services by sale at
auction
No GST payable
GST payable - must state at outset
of auction whether prices inclusive
or exclusive of GST
- must provide tax
invoices
No GST as a gift
4. Merchandise
4.1
Promotional items of
little value given in
thanks for a gift
N/A as a gift
4.2
Items of value or utility
sold by the Charity
No GST and not entitled to GST payable and can claim input
claim input tax credits on costs tax credits
of the items
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