Running effective and compliant fundraising appeals is a crucial part of any charity or not-for-profit relying on donations from the public for revenue. Where a charity is endorsed as a deductible gift recipient (DGR) under the Income Assessment Act 1997 Act (ITAA), there is a temptation to ramp up fundraising appeals at certain times of the year to attract increased donations. However, care should always be taken to ensure all fundraising activity is legally compliant. This may include ensuring:
marketing accurately describes the amount a donor can legally deduct from their donation or gift;
the appropriate charitable fundraising licences and authorisations are held, are up to date and all those fundraising on your behalf are aware of the regulatory requirements;
all representations regarding where donations will go are true and can be substantiated; and
donations received are used to further the organisation’s charitable purpose(s) and comply with any applicable DGR endorsement conditions.
In this article, we explore some of the common mistakes charities can make when running appeals.
Not accurately describing tax deductibility
Charities run a broad range of fundraising appeals - everything from galas and concerts to virtual fundraising drives and social media campaigns. As part of these appeals, the tax deductibility of donations can often be highlighted to add incentive to donate or attend a function. It is crucial you provide precise and accurate information regarding deductibility when describing the tax deductibility of donations.
Gifts or donations
For tax deductible gifts of money, the donor can claim the amount of the gift from their taxable income when they lodge their income tax return, provided it amounts to $2 or more.
A gift or donation can only be claimed as a tax deductible gift where it is given to a DGR endorsed organisation and meets the following requirements:
the donor must transfer the money or property outright without condition;
the transfer must be made voluntarily;
the donor must not expect anything in return for the gift;
the donor must not materially benefit from the giving of the gift; and
it complies with any relevant gift conditions attached to the DGR endorsement.
Tax deductible gifts are commonly received by charities when an individual donates in direct response to a giving campaign, in person, online or over the phone, and the charity does not provide anything in return. This would not include items at a charity auction, raffle tickets, and fundraising event tickets.
Fundraising events or functions
In some circumstances donors may deduct money spent on tickets for and at eligible fundraising events conducted by or on behalf of DGRs, such as a fete, ball, gala show, dinner or performance, or where an auction item is purchased at such an event. It is essential the amount a donor can deduct is accurately communicated at such events.
Where a donor receives a material benefit in return for their donation to a DGR endorsed entity, it may be recognised as a tax deductible contribution (which is different to a tax deductible gift) where it is made:
by an individual, not an incorporated body;
for a charitable fundraising event or an auction item purchased at such an event;
for an amount above $150; and
it complies with any relevant gift conditions attached to your DGR endorsement.
It is important to remember donors can only claim the deductible portion of the amount of the donation and cannot claim for any ‘minor benefit’ they have received. The ‘minor benefit’ must be no more than $150 and no more than 20 per cent of the value of the contribution.
Charities can run no more than fifteen eligible fundraising events of the same type in one financial year and should communicate to donors the value of any minor benefit where representing the eligible fundraising event to be tax deductible.
Overall, the laws relating to tax deductible gifts and tax deductible contributions can be complex and the application of the relevant requirements will vary depending on the nature of the fundraising and your organisation’s particular circumstances. For greatest comfort when organising a fundraising appeal, we recommend obtaining advice to ensure compliance.
Fundraising without proper authority or licencing
If your charity is undertaking a fundraising appeal, soliciting donations from the public or partnering with a company or individual to conduct fundraising activity, you should make sure any licencing requirements are dealt with before engaging.
Generally, fundraising activities include:
requesting donations to help a person, cause or organisation (whether in person or online);
selling merchandise where some or all the profits will go towards helping a person, cause or organisation; and
holding events to raise money for a person, cause or organisation.
Fundraising laws are regulated at the state and territory level, and apply to anyone engaging in fundraising activity, whether they be an individual, company, not-for-profit or registered charity. Compliance obligations and authority requirements therefore shift depending on the jurisdiction in which a person is actively fundraising. As such it is important to remember registration as a charity does not always give an organisation an automatic licence to fundraise.
Marketing in a misleading manner
If your fundraising activity is carried out in a business-like way which could be in trade or commerce, you may be subject to the Australian Consumer Law (ACL). The Australian Competition and Consumer Commission: Guide to ACL for charities, not-for-profits and fundraisers , lists the following as potential factors which may indicate a fundraising activity is being undertaken in a business-like way:
it involves a regular supply of goods or services in return for payment;
it is part of an organised, continuous and repetitive activity;
it is organised and managed, as evidenced through the use of business plans or fundraising strategies, measurement of fundraising goals and outputs, processes, policies and procedures etc.;
it involves the use of resources, including but not limited to assets and personnel (employees or volunteers);
it is promoted or marketed; and
financial or other records of the fundraising activities are maintained.
Assessment is not dependent on the organisation as a whole but the individual characteristics of the activity and specific circumstances, as you may be acting in trade or commerce for some activities but not others. Collecting a one off donation for a single cause is unlikely to be in trade or commerce.
If your fundraising activity is being undertaken in a business-like way, you should familiarise yourself with your obligations under the ACL. Broadly, these obligations mean you must not engage in misleading and deceptive conduct or unconscionable conduct. You must not make false representations in relation to the supply of any goods or services, the payment of people collecting money on behalf of the charity, how the donation will be applied and whether it will be used for a particular purpose (whether proportionately or entirely). Where false representations are made, there can be a variety of enforcement options available to ACL regulators, including issuing an infringement notice or taking court action against an entity.
From a reputational perspective, it is vital charities ensure all marketing is truthful and substantiated. Charities risk non-compliance with ACL, their charity registration and even their charity tax concessions and endorsement if they are seen to be untruthful about any claims relating to the application of donations. Further if received funds are not applied in furtherance of your charity’s purpose(s), your charity registration may become at risk.
How can we help?
If your organisation is currently undertaking charitable fundraising or looking to fundraise and needs assistance with compliance, or if your organisation is interested in learning more about how fundraising may assist it in furthering its purpose(s), please get in touch with our specialist Charities + Social Sector lawyers.