I. Deductibility from Income of Gifts to Charities
25.3. Gifts to the funds, authorities and institutions listed in section 78 (1) (a) of the Income Tax Assessment Act are deductible from the donor's income before income tax is assessed. The gift must not be testamentary and it must be to the value of two dollars or more; if in the form of property, the property must have been purchased by the taxpayer within twelve months of the gift being made.
25.4. The list of funds, authorities and institutions, set out in full in Appendix A to this chapter, covers a variety of categories, including public or non-profit hospitals, public benevolent institutions, public authorities engaged in research for certain purposes, public universities, and certain individual funds such as the Australian Elizabethan Theatre Trust, the Australian Academy of Science, the National Trust of Australia, and the Productivity Promotion Council of Australia. Many are of long standing, dating back in some cases to the earliest years of Federal income tax. Since 1962, when a general review was made, no new categories have been added, though individual causes have been approved. Before launching an appeal involving a new fund, sponsors usually seek the opinion of the Commissioner on whether gifts to it will be an allowable deduction, and it is inevitable that some organisations which have failed to gain approval believe they have been harshly treated.
25.5. Institutions of a purely religious nature are not included in the list. Donations to a church as such are not deductible, though donations to organisations founded and supported by a church body, such as a home for the aged, may qualify.
25.6. In all the countries mentioned below, it appears to be generally accepted that gifts to charities, and the private philanthropy behind such giving, should be encouraged. The method of encouragement has been reviewed recently in several countries, leading in some instances to amendment of the law.
25.7. The general provisions in New Zealand are broadly similar to those in Australia, gifts to religious bodies not being deductible. But there are two significant differences: deductions are available only to individuals, and the maximum amount any individual may claim in a year is $100. The Ross Committee (1967) recommended no changes.
25.8. The system in Canada is similar in many respects to the Australian, the chief differences
being that a taxpayer's total claim is limited to 20 per cent of his income,
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except in the case of a
corporation where the limit is 10 per cent. The Carter Commission (1966) considered the possibility of substituting tax
credits. The maximum credit suggested was 20 per cent for gifts totalling $1,000, the percentage to decline as the total
gifts declined and no allowance to be made for gifts in excess of $1,000. The suggestion was rejected by the Commission,
on the ground that a change would tend to stifle donations by high-income groups. It ended up recommending no fundamental
changes to the system of deductions though it did propose that the limit of allowable claims be increased.
25.9. The origin of the treatment of gifts to charity in the United Kingdom, where the term is used in its legal sense, lies in annual payments made under covenant being treated for tax purposes as income of the recipient and in the general exemption of charities from income tax. The relief applies only if the subscriber covenants to pay a certain annual net sum for not less than seven years. The subscriber executes under seal a document committing him to pay a notional gross sum before tax which, when tax is deducted at the standard rate, leaves a net sum. Each year he gives the net sum to the charity which then claims from the Revenue the tax paid on the notional gross sum. The charity thus in effect receives the total gross sum: if, for example, the donor gives a net sum of £300 and the standard rate of tax on individuals is 40 per cent, the charity receives £300 directly from the donor plus £200 from the Revenue.
25.10. The United Kingdom Royal Commission (1955) had certain misgivings about the covenant system. It saw some merit in allowing a deduction from taxable income for gifts to charity, subject to a maximum limit. However, it did not feel able to recommend to this effect. It feared that the immediate result would be a sharp falling off in gifts to charities. Moreover, the administrative burden in checking claims for deductions would be much heavier than the work of returning tax on covenants to the charities themselves.
25.11. In the United States individuals may deduct up to 50 per cent of taxable income in the case of gifts to religious, educational and other non-profit organisations, and up to 20 per cent in the case of gifts to foundations and other organisations not regarded as ‘public’ institutions. A corporation's deductible gifts are limited to 5 per cent of net income. Before 1969 gifts could be claimed up to the total of taxable income.