Private sector support 101
Information and definitions surrounding donations, types of financial support, and foundations and trustees.
A donation is an unconditional and voluntary transfer of money, property, assets or services to an organisation or individual.
In order to constitute a gift under taxation law, a donation must be offered voluntarily and not as a result of a contractual obligation. The donor cannot receive any material benefit nor can there be any expectation of benefit in return. To receive a tax deduction for the gift, the recipient organisation must be endorsed as a deductible gift recipient (DGR).
Sponsorships and partnerships
When the individual or business providing the support receives something tangible or of commercial value in return, then the contribution is not a gift for taxation purposes. In these cases, contributions may be classified as sponsorship or a partnership.
Sponsorship is a commercial agreement between an organisation and a sponsoring business with the aim of mutual benefit; both material and organisational.
Sponsors can provide cash
Private sector support accounts for approximately 10% of all arts funding in Australia.
Although sometimes the terms are used interchangeably, sponsorships are often one-off arrangements between organisations and businesses.
When the sponsorship relationship is very involved or extends over a number of years it is often referred to as a ‘Partnership’.
Partnerships often begin as a sponsorship arrangement but then as trust is built and mutual benefits are demonstrated, the relationship deepens over time.
While partnerships can deliver branding and marketing benefits, they can also provide benefits to business in a range of other areas such as community engagement, staff development and access to government, business and community networks.
For example, a business may choose to partner with an arts or cultural organisation to achieve such benefits as brand alignment and recognition, employee engagement and being seen to be contributing to the community.
In identifying businesses to approach for support, it’s important that the applicant does their research in order to determine businesses that are a good fit for them/their organisation and those that are likely to respond to the particular benefits on offer.
Types of support
Whether it is in the form of a donation or a sponsorship/partnership, support can be provided to an individual or organisation in the following ways.
Direct financial support whether in the form of a one-off contribution or a series of contributions distributed over an agreed period of time.
In-kind refers to support in the form of goods or services, time or expertise, rather than cash or property. In the case of sponsorship where the support provided is ‘in-kind’ this is also referred to as a “contra” sponsorship.
Donations to an individual or organisation can occur through a variety of methods, including the following.
This is the practice of providing donations or gifts to an organisation on a regular basis, such as on a monthly or annual basis. Many organisations consider regular giving to be vitally important as a successful regular giving program allows the organisation to budget, plan ahead and commit to future projects or works with confidence.
An annual giving campaign is an appeal held once a year, often in May, prior to the end of financial year.
Annual giving campaigns seek donations from existing donors, but the appeal is also sent to those engaged with the organisation but not yet donors, such as audience members.
Annual giving encourages new donors as well as repeat donations, and aims to increase the value of donations from existing donors. Campaigns can be for general funding or can be for an identified project or program.
The benefits of annual giving are that it creates the habit of giving on a regular basis, and that donors who have consistently contributed annually over a period of time often become more significant donors and/or bequestors. Methods for annual giving campaigns include direct mail solicitations, e-solicitations and sometimes major donation requests.
Arts partnerships connect businesses with the community, with 19/20 Australians engaging with the arts.
A bequest is a donation of money or an asset upon the owner’s death as specified in the owner’s will. A bequestor may choose to leave a particular asset or a specified sum of money to their chosen organisation. Alternatively, they can leave a percentage of their total estate, or a percentage or the total of the residue of their estate after ensuring family and friends are provided for.
The bequest may be given “freely” which means the donee can choose to deal with it as it sees fit within the aims of the organisation or it may be given with conditions which must be honoured.
Volunteering is the donation of time and expertise by individuals to another individual or organisation. As part of their contributions to the community, businesses can encourage and support the volunteering of their employees. They may do this by giving an employee leave to volunteer their time and expertise during regular work hours or by acknowledging the time volunteered out of hours.
This is a mechanism for salaried employees to make regular pre-tax donations to DGR organisations. It is also referred to as pre-tax payroll deductions or giving. Employees’ donations are deducted before tax is calculated which allows them to receive a tax benefit each time they donate.
Some businesses have established matched giving programs whereby they contribute the equal amount to the employee’s preferred recipient up to a certain dollar value.
Types of supporters
Individual giving refers to the many gifts made by members of the general public to artists and arts organisations.
Individuals can give in many ways – through cash, cheque, direct debit, credit or debit card, shares, property and other assets.
Individuals can give through many routes – including by post, telephone, banks and online. Fundraisers are skilled in knowing which methods will be most effective in which circumstances.
Business contributes to the community, including the arts and cultural sector, in a number of ways including sponsorships/partnerships, volunteering, workplace giving and giving through Corporate Foundations.
Relationships between not-for-profit organisations and business are most often negotiated as sponsorships or partnerships. It’s important to be clear about the difference between support from business in this manner which involves an exchange of benefits and support from business in the form of a donation or gift where no material benefit is received by the donor.
Trusts and foundations
Much of the philanthropy that happens in Australia involves gifts of money granted to not-for-profit entities by philanthropic trusts and foundations, referred to hereafter collectively as ‘Foundations’.
Cultural and creative activity contributes $86b (6.9%) to Australia’s GDP per annum.
Most Foundations require grant recipients to be charitable organisations with Deductible Gift Recipient (DGR) and Tax Concession Charity (TCC) status.
- Generally do not provide core funding or longterm funding.
- Usually provide project grants.
- Often favour innovative programs or projects.
- Often choose to support projects which are sustainable beyond the duration of their support.
- Usually have clear objectives about where and how their grant money will be used.
In Australia there are a number of different types of Foundations.
According to Philanthropy Australia (1) the majority of Foundations in Australia fall into one of the following classifications.
Established by an individual, usually through a bequest, and administered by trustees who distribute grants based on the donor’s priorities. For example, a number of private foundations were established to support the arts, and therefore funding is given as a preference to arts and cultural programs.
Examples of private foundations include: The Ian Potter Foundation; the William Buckland Foundation; and the Helen Macpherson Smith Trust.
Private foundations established by a family and usually run by family members or descendants serving as trustees or directors. Examples include: The Myer Foundation; The Besen Family Foundation; and the Tim Fairfax Family Foundation.
In 2009/10, philanthropic income accounted for $123m of Australia’s arts and cultural sectors’ income.
Examples include: The Queensland Community Foundation; and the Fremantle Foundation.
A corporate foundation receives its income from the profit-making company whose name it may bear, but is established as a separate legal entity, usually with a permanent endowment. They often receive staff contributions and/or contributions from company profits on a regular basis.
Examples include: The Macquarie Group Foundation; and The Origin Foundation.
Government initiated foundations
These Foundations gain income from government-directed funds from the general public or sections of it such as funds from gambling or levies on cigarettes.
Examples include: The Victorian Women’s Trust; The Law and Justice Foundation of NSW; and Lotterywest.
Full profit businesses that, among other activities, provide management services to foundations, trusts and bequests. A trustee company will sometimes manage the foundation completely, looking after both the investment portfolio and the grant-making.
Examples include: Perpetual; and ANZ Trustees.
Note that the type of foundation an individual or organisation is applying to for funding will have an impact on the following (2):
- How easy it is to find and to communicate with them.
- The types of project they will and will not fund.
- The amount of funding they will have available.
- What the requirements and expectations of the grant recipient will be.
- Philanthropy Australia’s Types of Foundations Factsheet 2010
- Australian National Accounts: Cultural and Creative Activity Satellite Accounts, Experimental, 2008-09