New Tax Changes for Fundraising Branded Useless

The Federal Government has introduced its much vaunted tax amendments to Parliament to allow donors to obtain a deduction for part of the ticket price of fund-raising events or purchasing charity auction items. But already the legislation has been branded as ‘useless’ by the Not for Profit sector!

Concerns were raised with the Government through the Prime Minister¡¦s Community Business Partnership (CBP) about fund-raising difficulties under the current tax law. In response the Government decided to allow deductions for contributions of certain cash and property to Deductible Gift Recipients from July 2004 where a ‘minor benefit’ only is received in return.

The Government says the amendment is designed to encourage philanthropy by ameliorating some existing impediments to fund-raising by DGRs, identified by the Myer Report and the CBP.

The amendments allow an individual to receive a deduction where the value of the contribution is more than $250, and the minor benefit received in return is no more than $100 or 10% of the value of the contribution, whichever is the less.

The same applies to charity auctions where the successful bidder who pays a minimum of $250 for an item that is valued at no more than $100 is eligible to obtain a tax deduction .

But according to those NFP experts involved in discussions with the government about the implementation of the amendments, the legislation is useless and will confuse many organisations.

The Executive Director of the Gandell Charitable Trust, Laurence Joseph believes most charities will find it almost impossible to use the tax concessions.

The Manager of Community Relations and Fundraising at Peter Mac Cancer Centre Michelle Trevorrow says the legislation certainly isn’t going to help the small and medium sized charities.

She says it will only cause confusion and add to an existing problem where some charities already flout the law with clever wording on their ticket receipts suggesting that part of the ticket price is a voluntary donation and implying it is then entitled to a tax deduction.

Laurence Joseph says the only positive of the legislation is that it provides a basis for the future in that the government recognises the need for change regarding Not for Profits.

Michelle Trevorrow says she and a number of other representatives from the Not for Profit Sector were involved in discussions about implementing the amendments when the government’s mind was already made up.

She says most charities are loath to charge $250 for any of their events in the first place because their donors do not come from the high end of town.

As well the deductions are limited to individuals and cannot be claimed by companies using the fund-raising events to entertain clients.

The legislation says the DGR organising the fund-raising event will be responsible for both determining the market value of the minor benefit and issuing a detailed receipt.

Trevorrow says determining the market value will only add to the confusion for some organisations.

Trevorrow says as part of her own fundraising activities she will try to come up with an event where this new tax deduction formula may be useful.

The legislation says an assessment of the market value involves making a reasonable estimate of what might be paid for the benefit in the open market ¡¥in an arm¡¦s length transaction¡¦. The process of determining a reasonable estimate of value may require the application of different valuation approaches such as :

– comparisons of prices commercially charged for a good, service or event in the open market;
– market comparisons derived from market observations by reference to similar or comparable goods, services or events offered in the market; or
– an analysis of the market estimates of the costs associated with supplying the service or function using a cost based approach.

The legislation suggests that where the event is non-standard, not generally open to the public, or the market value of the event is not readily determined, a reasonable estimate of the market value can be made taking into account the market price that would be charged for similar transactions in the commercial sector.

Here are some examples government examples of the deduction scheme at work.

Karen pays $260 for a ticket to a charity film screening organised by a DGR. The film is open to the public and ordinarily retails for $13 a ticket. As part of the charity screening, Karen is offered a glass of champagne and some finger food. The market value of the event is $25. Karen can claim a deduction for $235 ($260 less $25).

Roberto buys a ticket to a gala performance organised by a DGR, for $400. The gala performance has a ticket price on the open market of $100. Roberto cannot claim any deduction as the market value of the performance – which is the benefit ($100) he receives in return for his contribution of $400 – is greater than 10% of the value of his contribution ($40), even though it is not greater than $100.

Franca pays $1,300 to attend a gala dinner to mark the opening of a new art gallery. The market value of the event is $120. Franca cannot claim a deduction as the market value of the dinner – in this case, $120 which she receives in return for her contribution of $1,300 – is greater than $100, even though it is less than 10% of the value of her contribution.

Ruth Richardson from the secretariat to the Prime Minister’s Community Business Partnership says that the Government’s intention is that the measure provide another option to assist the fundraising efforts of NFP organisations, however the market benefit in return for making a contribution must be both nominally and relatively minor.

As well, the imposition of a relatively high minimum contribution is also to reinforce the minor nature of the benefit that may be received by the contributor, and to limit the possibility that normal gifts may be replaced by this type of contribution with NFP organisations being encouraged to provide benefits.

She says that while the new provision may not be used for many established events, she believes many organisations will come up with new strategies to take advantage of the ability to offer tax deductibility.

If you would like a copy of the legislation and a copy of the explanatory notes just send us an e-mail with ‘Fundraising Tax Deduction Info’ in the subject line to probono@probonoaustralia.com.au.

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