The end of the year is a time of reflection, gratitude, and giving back. Whether you’re donating to a cause you’re passionate about or supporting local charities in your community, charitable giving not only benefits those in need but can also provide financial advantages for you.
One of the key benefits of donating to charity is that it can have a positive impact on your tax plan. By making thoughtful contributions to eligible organisations, you can reduce your taxable income while supporting causes that align with your values. Here’s how charitable donations can benefit your tax plan and how to maximise the advantages of giving back.
Tax deductions for charitable contributions
When you donate to an eligible charity, you may be able to claim a tax deduction, reducing your overall taxable income. In Australia, charitable donations to organisations classified as Deductible Gift Recipients (DGRs) are eligible for tax deductions. This means that if you donate $100 to a DGR-listed charity, you can claim that amount as a deduction when you file your tax return.
To ensure your donation qualifies for a deduction:
- Check the charity’s DGR status: Before donating, confirm that the organisation is registered as a Deductible Gift Recipient. You can do this through the Australian Taxation Office (ATO) or directly with the charity.
- Keep records of your donation: It’s essential to keep a record of your donation, such as a receipt, to claim your deduction. For gifts over $2, you’re generally eligible for a tax deduction, but you must be able to provide documentation when filing your return.
Reducing your taxable income
One of the most significant benefits of charitable donations is that they can reduce your taxable income, lowering your overall tax liability. By making donations, especially before the end of the financial year, you can potentially decrease the amount of income tax you owe.
For example, if you’re in a higher income bracket, charitable donations can push you into a lower bracket, resulting in a lower tax rate on your earnings. The larger your donation, the more you can reduce your taxable income, all while supporting meaningful causes.
Non-cash donations: donating assets and goods
While cash donations are the most straightforward, you can also donate non-cash items such as shares, property, or other assets. In some cases, donating assets can have additional tax benefits, such as avoiding capital gains tax (CGT) on appreciated assets.
For instance, if you donate shares or property that have increased in value, you won’t have to pay CGT on the sale of those assets, and you can still claim the full market value of the asset as a tax deduction. This strategy is particularly useful for individuals looking to reduce their tax liability while divesting themselves of valuable assets.
If you’re considering donating assets, it’s essential to consult with a tax professional to ensure you’re making the most tax-efficient decision.
Bundling donations for greater tax impact
Another tax planning strategy is bundling donations, which involves making several years’ worth of charitable contributions in a single financial year to maximise your tax deduction. This strategy is especially helpful if you don’t have enough deductible expenses to itemise each year. By bundling your donations into one year, you can significantly reduce your taxable income for that period, potentially saving on taxes. For example, if you plan to donate $1,000 each year over five years, bundling all $5,000 into a single year can make a bigger impact on your tax return, particularly if it helps you qualify for a larger deduction.
Gifting through wills and estate planning
Incorporating charitable donations into your estate planning is another way to give back while potentially reducing the tax burden on your estate. By leaving a portion of your estate to a charity through your will, you can reduce the taxable value of your estate, which could lower the inheritance tax burden for your beneficiaries.
Including charitable giving in your estate planning allows you to support the causes you care about after you’re gone, leaving a lasting legacy of generosity. At APS, we can help you incorporate charitable bequests into your will, ensuring your final wishes are fulfilled while optimising the financial impact on your estate.
The power of workplace-giving programs
If you’re employed, another option for charitable donations is through workplace giving programs. Many employers offer programs where a portion of your salary is automatically donated to charity, and in some cases, your employer may match your contributions.
Workplace giving is a convenient way to support charities throughout the year, and since the donation comes directly from your pre-tax income, it can reduce your taxable salary right away, providing immediate tax benefits without waiting until tax time.
Support CPEC through the APS Benevolent Foundation
At APS, we are committed to giving back to the community through our APS Benevolent Fund, which provides essential support to deserving causes. One of the key initiatives we support is the Cerebral Palsy Education Centre (CPEC). CPEC provides vital resources, therapy, and support to children living with cerebral palsy, helping them improve mobility, communication, and quality of life.
By donating to the APS Benevolent Fund, you are directly contributing to CPEC’s impactful work and helping children with cerebral palsy receive the life-changing services they need. Every dollar donated through the foundation goes towards making a real difference in the lives of these children and their families.
Additionally, donations to the APS Benevolent Fund are tax-deductible, meaning you can support an incredible cause and benefit from the same tax advantages discussed above.
Learn more about supporting CPEC through the APS Benevolent Fund.
Give back and benefit
Charitable donations are a win-win: you can support the causes you believe in while receiving valuable tax benefits. As the year comes to a close, now is the perfect time to review your giving strategy and ensure your donations have the maximum impact on both your chosen charities and your tax plan.
If you’d like to learn more about how charitable donations can benefit your tax plan or want to support CPEC through the APS Benevolent Foundation, contact our friendly team today. Our tax team is ready to assist you in making the most of your charitable contributions, so you can give back with confidence while supporting a worthy cause.
Chat with the team at APS Tax & Accounting
This article was written by Richard Ferraro, a friendly and approachable expert in the world of finance. Richard brings three decades of experience in Financial Accounting, Tax Compliance, and Advisory to the APS team. Before spending the past 12 years at APS, Richard was a partner in a top 100 accounting firm and served as a Taxation Manager for major corporations like Nissan Australia, Bendigo and Adelaide Bank, NEC Australia, and Australia Post.
Richard is dedicated to supporting his clients with a wide range of services, including tax compliance and advisory for Companies, Trusts, Partnerships, and Self-Managed Super Funds. His friendly demeanour and vast expertise make navigating financial complexities a breeze. When he’s not helping clients, Richard loves spending quality time with his family and friends. He’s an avid supporter of the mighty Magpies and enjoys anything related to cars, from F1 racing to Supercars and collectables.