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How can I give tax effectively?

Tony Fittler, HLB Mann Judd

With Christmas just behind us, there’s a noticeable increase in clients’ families requesting that charitable giving considerations be incorporated into their overall financial strategy. But how can you do it effectively?

There are many ways to undertake philanthropy, some better than others. Although many succumb to donating on an ad hoc basis in response to persuasive advertising by charities, engaging in a structured, regular giving program to well-considered causes is a better approach. This provides control and order to your philanthropic actions, and it can also have a greater social impact.

It’s important to be aware that while the ATO provides a tax deduction to those who donate to worthwhile causes, not all gifts will be tax deductible.

The tax system allows for deductions when made to deductible gift recipients (DGRs). Fortunately, most established Australian causes are registered but some local community, religious or purely international causes will not be registered. If you are unsure, it is easy enough to ask. If in doubt, the ABN Lookup website is a good guide as is the Australian Charities and Not-for-profits Commission (ACNC) website.

The second tax issue is to make sure the person making the donation is a taxpayer. For example, if your spouse is paying tax and you are not, the donation should be made by your spouse. If you are making a large one-off donation or making a donation in a year and your taxable income is not very high, you should be aware that it is possible to spread your donation over five years in varying annual amounts. This concession will enable you to ensure that your gift is deductible at your highest marginal tax rate.

The easiest way to obtain a tax deduction is to make a cash donation, so long as it is made to a DGR and is over $2. The exception to this is cash gifts under a will which are not deductible.

Donating property other than listed shares worth less than $5,000 has to satisfy certain alternative requirements such as acquired within 12 months or valued at over $5,000. We suggest you check with the charity involved or with your tax adviser now if you are looking to make such a gift before the end of the tax year. It is also important to remember that the sale of shares or other donated property is a CGT event and you may trigger a capital gain and have to pay tax, even though the funds have been donated.

For those with larger philanthropic intentions, of $500,000 or more, it is worth considering establishing a private ancillary fund or foundation. This provides an immediate tax deduction and has the benefit of establishing a giving program that can last for many years.

Anyone can establish a foundation by following the registration process with the ACNC and the ATO. A trigger to establish a private ancillary fund can be incurring a large capital gain. For example, if an investor had a capital gain of $1 million, taking into account the capital gains tax discount of 50 per cent and a tax-deductible donation of $500,000, it would mean no tax would be payable on the capital gain.

Tony Fittler, managing partner, HLB Mann Judd Sydney

How can I give tax effectively?
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