The invitation announces:
“You are invited to attend the XYZ Charity’s Annual Gala Sports Evening and be entertained by tales from such sporting greats as … ”
You then look down towards the bottom of the invitation and observe:
“Entry available for each contribution of $600”.
You heave a sigh of relief when, immediately below the admission charge, there appears:
“The function is in aid of XYZ Charity’s latest charitable project, … . Your support may be tax deductible.”
You then frown, as you think – “Gift?” … “Deduction of how much?”
The initial perplexed reaction is not unreasonable. Gifts are supposed to be voluntary and not made in exchange for a material benefit. A three course meal and beverages at even a modest venue is hardly a non-material benefit that is akin to purchasing an ANZAC Day badge.
However, a monetary contribution (as distinct from ‘a gift’) that is made to a Deductible Gift Recipient (DGR) and conferring a right to attend or participate in a fundraising event (defined concept) can give rise to deduction under Item 7 in s 30-15 ITAA 1997. The ATO’s general comments imply that the (statutory) reference to “contribution” includes a payment of an attendance charge, such as purchase of a function admission ticket.
Basically, a deduction arises in respect of a contribution to a DGR where:
- the contribution is made by an individual – a company, or semble a trustee, cannot claim a tax deduction under Item 7;
- the individual would have been entitled to a tax deduction, if the individual had (instead of making the contribution to the DGR) made a monetary gift which the DGR was to use for the same purposes as the contribution;
- the contribution exceeds $150; and
- the GST inclusive value of the right to participate in the fund-raising event does not exceed the lesser of:
a) $150, and
b) 20% of the amount of the contribution.
Valuation of the right is central to deductibility. It is a matter of concern to DGRs – ATO guidance refers to DGRs being responsible for calculating the market value “of any minor benefit they give supporters in return for a contribution”. The ATO’s remarks are understandable because the relevant information will usually only be within the means of knowledge of the DGR.
The ATO’s guidance on valuation refers to valuations being made, using prices commercially charged for the relevant benefit in the open market or, where the benefit is a non-standard benefit, consideration can be given to market cost of comparable goods and services. If a market price or a market price comparison is not available, consideration can be given to actual costs, notional costs and allowance of a profit element. The overarching idea is embodied in the ATO’s comment:
“The minor benefit is valued at its market value, which means you make a reasonable estimate of what would be charged for the benefit on the open market, in an arm’s length transaction.”
In the case of the XYZ Charity’s function, provided the relevant valuation does not exceed $120, the valuation condition will be met. (If valuation is one matter that a DGR needs to consider, identifying appropriate action where the valuation condition is not met can be a more significant commercial issue that requires thought.)
As to the amount of the deduction – the whole of the $600 contribution will not be deductible. The contribution has to be reduced by the GST inclusive market value of the right to attend. Assuming this is $115, a deduction of $485 would be expected.
In case you are feeling in an expansive mood and propose to “shout” the whole family to a night out, you should note that a deduction is not available for more than two contributions in relation to the same fund-raising event.
I hope you enjoy the Gala Evening!