Trading Stock Gift Deductions

For a donation of trading stock to a DGR to be tax deductible, the following conditions must be met:

• the donation is a disposal of the trading stock outside the ordinary course of their business.
• they have not made an income tax election if the donation involves the forced disposal or death of livestock.

In regards to the donation of obsolete trading stock, as the disposal of such stock would fall within the ordinary course of their business, it would not meet the first condition and therefore would be written off and there is no need to treat it as a deductible gift.

If both conditions are met then the deduction the donor can claim is the market value of the stock on the day it is donated, less GST if the donor is registered for GST. The effect being that the actual tax deduction is the COGS related to the transaction.

For donations where the market value of the stock is over $5000, the donor will have to request a valuation from the ATO within 90 days of the donation. This valuation request will have to be repeated with every future donation with a market value over $5000, even when future donations are the same or similar to past donations.

For donations deemed to have a market value under $5000, it is the donor's responsibility to reasonably determine the market value of the donated stock at the time of donation.

Process in Xero

1. Create invoice to DGR for market value of goods donated.
2. Mark the invoice as paid to a relevant expense account i.e. Donations
3. Ensure that a receipt is obtained from the DGR for the clients records and attach to invoice in Xero.