Donations – the often-forgotten tax benefit

By Andrea Scatchard & Ryan Beamish

By and large, we New Zealanders are a giving bunch. Whether we give our time, money, or items we no longer need, we often do so without expecting anything in return. And when times are tough it seems that this brings out the best of us. Inland Revenue data shows that in the 2022 tax year, there was a total of $926 million in donations with a donation tax credit claimed. This amount is likely to only scratch the surface of total donations, as this number doesn’t capture donations by businesses and those who neglect to make a donation tax credit claim. The Department of Internal Affairs reports that the total income of New Zealand’s 28,000 registered charities is $21 billion.

The Government recognises the good work that these charities do in our communities, so to encourage cash donations it allows a tax break for the individuals, companies and Māori authorities that make them.

Companies and Māori Authorities

As genuine donations are made without the expectation of anything in return, and thus may not otherwise be tax deductible, the Income Tax Act 2007 has specific provisions that allow Companies and Māori Authorities a tax deduction against their income for cash donations to registered charities. Deductions are available up to the level of taxable income. Because the donations will be recorded in their accounting systems, the claiming of this deduction will not usually be overlooked. Companies and Māori Authorities are required to disclose total donations to donee organisations in the annual tax return.

It is worth noting that there are specific rules for companies and Māori Authorities, but such a rule does not exist for trustees. If trust funds are intended to be used to fund charitable donations on behalf of beneficiaries, we recommend seeking advice before making these donations.

Individuals

Individuals however are a different story. We can claim a donation tax credit of 33.33% of the qualifying donation amount but need to file a donation tax credit claim separate from our income tax return to claim the tax credit. Many people are either unaware of this, think it is too hard to make a claim or don’t know how to do so.

As noted above, in the 2022 tax year, Inland Revenue paid out a total of $308m of donation tax credits to individuals, equating to donations of $926m. While there are no readily available statistics on the total amount of qualifying cash donations made by individuals, it is commonly understood individuals do not make all the donation tax credit claims that they could.

The general criteria for claiming a donation tax credit are:

• The recipient must be an approved donee organisation – Inland Revenue has a searchable database of these on its website, but generally these will be New Zealand registered charities or schools, plus some specifically named overseas charitable organisations;
• The cash donation must be $5 or more; 
• A signed and dated receipt from the charity must be held and include certain information; and
• The total amount of donation tax credits claimed cannot exceed your taxable income for the relevant year. 

Inland Revenue reviews donation tax credit claims quite closely. Areas of concern for Inland Revenue are where the donor receives a benefit back from the charity in return for making the payment (as this is not a donation), or where amounts are paid to schools for goods and services (such as compulsory school fees, camp fees, stationery etc) rather than making a donation (i.e. school fees paid voluntarily).

Donation tax credits are only available for cash donations. Any donations of time, goods or services do not qualify for a tax credit.

So, as we get closer to the end of the tax year on 31 March, now is the time to think about the donations that you have made during the year and to make sure you take advantage of the tax credits available to you. If you
 use an accountant to prepare your tax returns, make sure you send them copies of the donation receipts so these can be claimed. If you file your own tax return or receive an automatic income tax assessment, it is very easy to complete a donation tax credit claim yourself via the Inland Revenue’s MyIR website – it is possible to upload donation receipts to the portal as you received them to reduce the likelihood of forgetting.

Once your income tax return has been filed, or your income confirmed if you don’t need to file a return, Inland Revenue will process the donation tax credit claim and refund the credit to you.

While you are digging out this year’s receipts, keep in mind that you can file a donation tax credit claim up to 4 years after donating, so you can still file a claim for donations made in the tax year ended 31 March 2020.

If you would like to discuss donations further, please contact your usual Deloitte advisor.