New tax limits and concessions for charities

By Angus Isherwood, Amy Sexton & Robyn Walker

The Taxation (Annual Rates for 2026–27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill (the Bill) is set to bring a raft of changes to the tax treatment of charities, mutual associations and not-for-profits (NFPs). The measures are positive; intended to simplify compliance; clarify existing law; and in some instances offer additional tax concessions. In this article, we will explain the changes that are coming, and provide a reminder on the already enacted donation tax credit cap.

Donation tax credit in-year refunds and transfers

A significant proposed change relating to Donation Tax Credits (DTCs) is, from 1 April 2028, individuals will have the option to receive their DTCs refunded throughout the year, rather than having to wait to the year end. The outcome of this will mean refunds in hand quicker for those eligible. However, those earning non-reportable income (such as self-employed income) will still only be able to claim DTCs at the end of the year. The in-year refunds will be limited to the amount of reportable income that the individual has earned in the year at the time the donation is made.

Donors will also have the option to have Inland Revenue transfer their DTC refund directly to the charity they donated to – this should be achieved by a simple yes/no option in myIR. This is an administrative change that Inland Revenue hopes will nudge donors to give a little more to their chosen organisations. Charities should consider taking steps to educate donors that they can transfer the DTC refund to the charity.

Volunteers and remedials

Honoraria payments made to volunteers (that are not made to reimburse their expenses) are currently treated as schedular payments for tax purposes. The Bill proposes to allow NFPs to instead treat these payments as “salary or wages” so that they are subject to PAYE. The intention behind this change is to simplify compliance for volunteers by removing the requirement to file a separate income tax return by permitting their organisations to opt into the PAYE regime. This change simplifies the ACC position of volunteers. Importantly, it’s worth noting that while payments can be treated as salary and wages, there is a specific exclusion to ensure that no KiwiSaver obligations fall on NFPs which choose this option. 

The Bill includes several other changes to the tax treatment of certain not-for-profits, including:

• Support for smaller NFPs in the form of an increase in the effective tax-free threshold from $1,000 to $10,000. The technical detail for this change is covered in more detail in our related article on mutual associations and not-for-profits.
• Aligning the definition of “not-for-profit” in the Act with the definition contained in the Incorporated Societies Act 2022, effectively allowing Incorporated Societies greater access to existing tax concessions.
• Removing the income tax exemption for unregistered, non-resident charities with limited connection to New Zealand from 1 April 2028.
• Private trusts allocating income to tax-exempt beneficiaries, including charities, will generally be required to pay those amounts to the beneficiary within prescribed timeframes for the income to remain tax-exempt.

Donation tax credit cap

• The introduction of a maximum entitlement threshold for donation tax credits (DTCs) was enacted in legislation as part of Budget 2026. This cap will apply to donations made by individuals on or after 1 April 2027. From that date, individuals will be able to claim a maximum DTC of $33,333.33, calculated on the lower of total donations of $100,000 or the donor’s total taxable income. The cap will not apply to donations made by companies, trusts and Māori authorities as these entities retain their current tax deduction treatment for qualifying donations.
• Inland Revenue has estimated that around 350 donors will be affected by this change. This represents 0.1% of the total number of taxpayers claiming DTCs. However, these donors account for roughly 10% of the total donations that are eligible for DTCs.

Final thoughts

Overall, the Bill delivers a positive package for charities and not-for-profits. While the DTC cap has not been without controversy, the remaining changes are aimed at enhancing the DTC regime, reducing compliance burdens and improving certainty for the sector.

If you have any questions about how the rules will apply to your organisation, please contact your usual Deloitte adviser.