New Zealanders are considered generous people with approximately 1.3 million kiwis regularly donating their time, money, goods and services to charities and other non-profit organisations. In an effort to further encourage and reward charitable giving, the 2007 Budget created a basis for a stronger culture of charitable generosity, which has been affirmed and incorporated into our Income Tax Act 2007. Changes in recent years increased thresholds for tax deductions and protocols have been implemented that make philanthropic endeavours easier and more convenient. Deduction Incentives Individuals – All individuals that donate to charities will be able to claim a 33.33% tax rebate on the amount of cash donations. Previously, deductions for charitable donations could not exceed $630 regardless of the amount. For example, Jack donates $3000 to charities and non-profit organisations in a year. His taxable income for the year is $35,000. Previously, Jack would only be entitled to a deduction of $630. The recent change now means that Jack is entitled to a rebate claim of $1000 being 33.33% of the $3000 in donations. Individuals are also able to donate direct from their pay to their chosen charitable organisation(s). In doing so, individuals receive immediate tax credits that decrease their PAYE. Payroll giving is only possible when it is offered by the employer, and is limited to employers who electronically file their monthly PAYE schedule. The only other condition is that the chosen charity/organisation must also be one that is approved by the Inland Revenue Department. Companies – All companies, even those with five shareholders or less, are eligible for tax deductions when they donate to charitable organisations (as described in the Income Tax Act 2007). Previously, companies could only claim a rebate for a sum up to 5% of their revenue. The 5% limit on deductions has now been removed and companies All information in this newsletter is to the best of the authors’ knowledge true and accurate. No liability is assumed by the authors, or publishers, for any losses suffered by any person relying directly or indirectly upon this newsletter. It is recommended that clients should consult a senior representative of the firm before acting upon this information. February 2011 – April 2011 Page 2 of 4 © 2011 are entitled to deductions limited only by the company’s net income. For example, in the 2008/2009 year ABC Ltd made charitable donations amounting to $10,000. Its income before taking into account the donations was $100,000. Previously, the deduction entitlement for the company would have been $5000. As of 2009, the company is entitled to a $10,000 tax deduction, which also reduces its taxable income to $90,000. Maori Authorities – Incentives for Maori Authorities are much the same as that of companies. These authorities will be able to claim deductions for cash donations made to charitable organisations limited only by the amount of their net income. Conclusion Charitable and non-profit organisations play a crucial role in our communities and it is hoped that the recent changes will encourage and reinforce our culture of giving by providing tax incentives for individuals and organisations alike. It also puts New Zealand on par with other OECD countries such as Australia and the United Kingdom in terms of tax relief provisions for charitable donations. The Government estimates that donations will increase by $300 million a year from 2009, which will make up for the $16.2 million of lost revenue due to the law change. Deductions currently apply only to financial donations and do not extend to donations of goods or services.