Fundraising events: Tax & GST treatment

We receive many queries about the income tax and GST implications of fundraising events, both from those hosting and those attending the events. We’ve prepared an example to help illustrate the tax consequences for organisations planning on hosting these events. It is important to also keep in mind the income tax consequences of any attendees, so that the hosting organisation doesn’t erroneously represent the tax deductibility of any tickets and donations to their events.

Example: Fundraising dinner and performance

Bernie, the local plumber, buys a ticket for $400 to a fundraising dinner that includes a performance organised by a non-for-profit organisation (NFP). The NFP manages to secure sponsorship for wine. The GST-inclusive market value price for the food plus the performance is $100.

Can the NFP give Bernie a receipt to claim a tax deduction for the cost of the ticket? If so, what is the tax-deductible amount?

Is GST payable on the ticket price?

Can the NFP give Bernie a receipt to claim a tax deduction for the cost of the ticket?

Bernie is receiving something in return for the money that he has spent. So, the money he has spent on the ticket is not a gift but a contribution. Contributions are generally not tax deductible where the donor receives more than a minor benefit in return.

For Bernie to be entitled to a tax deduction for the cost of the ticket, all of the following conditions must be met:

• The contribution must be made to a deductible gift recipient (DGR);
• The contribution must be made in return for a right permitting the donor* or an individual (other than the donor) to attend, or participate in, an eligible fundraising event in Australia; and
• The GST-inclusive market value of the benefit received must not exceed the lesser of:
  • 20% of the amount contributed; and
  • $150.

*Note: The donor must be an individual.

The term fundraising event takes its meaning from the GST Act and is defined as follows:

Fund-raising event is defined in section 995-1 as having the meaning given by s.40-165 of the GST Act being:

1. 1. Any of these is a fund-raising event if it is conducted for the purpose of fund-raising and it does not form any part of a series or regular run of like or similar events:
      1. a fete, ball, gala show, dinner, performance or similar events;
      2. an event comprising sales of goods if:
         1. each sale is for a * consideration that does not exceed $20 or such other amount as the regulations specify; and
         2. selling such goods is not a normal part of the supplier’s * business;
      3. an event that the Commissioner decides, on an application by the supplier in writing, to be a fund-raising event.

In FUND 2016/31, the Commissioner has determined that the frequency with which a particular type of fundraising event may be held without forming part of a series or regular run of like events is 15 fund-raising events in any financial year.

Accordingly, in order for the NFP to give Bernie a receipt to claim a tax deduction for attending the fundraising event organised by the NFP, the NFP must be:

• endorsed as a DGR; and
• that endorsed DGR must run fewer than a total of 15 similar or like events in a financial year.

What is the tax-deductible amount of the ticket?

For the purposes of this question, we will assume that the NFP is endorsed as a DGR.

A benefit is worth its GST-inclusive market value, even if part or all of the benefit is subsidised. The ATO’s guidance on valuation (Fundraising Valuing Minor Benefit QC 46266) 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 the 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.

While the GST-inclusive market value price for the food plus the performance is less than $150, the NFP must also take into account the market value of the wine provided (plus GST). If we assume that the GST-inclusive market value of the wine is $10 per person, then the GST-inclusive market value of the overall benefit (i.e. food, wine, performance) would be $110. However, even though this amount is less than $150, Bernie is not entitled to claim a tax deduction because it is not less than 20% of Bernie’s contribution (i.e. 20% of $400 contribution = $80).

In contrast, if the NFP had charged $750 for the ticket, Bernie would be entitled to claim a tax deduction equal to $640 (i.e. $750 cost of ticket less $110 GST-inclusive value of the overall benefit being the food, wine and performance). In this case, the NFP must give Bernie a receipt that outlines that the tax-deductible amount is $640.

This example shows that to be able to claim a tax deduction:

• the GST-inclusive market value of the right to attend a fundraising event cannot be more than $150; and
• the contribution must be at least five times the GST-inclusive market value of the benefit.

Is GST payable on the ticket price?

If the NFP is GST registered, then GST is payable on all sales made in connection with the fundraising event; in the case of the example, GST is payable on the ticket price.  The ticket price is also counted towards the NFP’s GST turnover and if it exceeds the GST registration turnover for NFPs ($150,000) it will need to register for GST.

It is worth noting that an endorsed charity, or a DGR, can treat certain fundraising events as an input taxed fundraising event. In this case, all sales made in connection with that event are input taxed. Input taxed supplies are excluded from an entity’s GST turnover and are not subject to GST. However, the endorsed charity/DGR will also not be entitled to claim GST credits for any purchases for that event.

In order to treat a fundraising event as an input taxed fundraising event, all the requirements of s. 40-160 of the GST Act must be satisfied and the event must meet the definition of a fund-raising event under s. 40-165(1) of the GST Act (as outlined above).

S. 40-160 of the GST Act provides that all the supplies made by an eligible entity (e.g. an endorsed charity/DGR) in connection with a fundraising event are input taxed, provided the charity makes the choice and documents the election with its records. The choice to treat an event as an input taxed fundraising event must be made before any sales take place (refer to ATO ID 2005/243). As noted in the above GST determination (FUND 2016/31), if more than 15 similar or like events are held in a financial year, none of the events can be treated as input taxed fundraising event.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.