IRD gave New Zealanders back $215 million in donation rebates for the 2012 financial year.*
This means us kiwis donated well over $645 million that year – these are just the donations that we remembered to keep our receipts for!
In fact the most recent World giving Index Survey had New Zealand tied for second place with Canada and Burma as the most giving country in the world.
Changes to the Income Tax Act in 2008 in this area were aimed at ‘facilitating greater giving to charities and other non-profit organisations and encouraging a culture of generosity in New Zealand.’
IRD extended the company deduction to apply to close companies (companies with a small number of shareholders) and removed the cap on donations made by individuals. Individuals can now claim a third of all charitable donations exceeding $5.
While there is no limit on the amount of donations eligible for tax credits, you can’t claim more than 33.3% of your taxable income. That ain’t so bad – IRD can’t refund tax you haven’t actually paid!
And IRD allows these tax credits to be transferred between spouses (or de facto partners) if you can’t use them yourself.
So if, for example, you’re a stay-at-home mum wondering why your accountant has your husband ‘getting all the credit’ for the donations you’ve made throughout the year that’s why. The tax ‘credits’ can only be used by someone who is earning income and therefore paying tax.
Donations made by companies are also tax deductible up to the amount of the company’s net income. Just don’t put them in your GST return or we’ll have to tell you you’ve got a little bit extra to pay in your next GST return.
Of course there has to be some restrictions and not all ‘donations’ are eligible for a tax credit. Donations to political parties for example, are not tax deductible. IRD has an approved list of what are termed ‘Donee organisations’, which includes religious organisations.
State schools and their boards automatically have donee organisation status and payments of state school ‘fees’ are also eligible for this donations tax credit if the payments go towards the school's general fund. As are donations to medical research schools, kindergarten associations and approved overseas aid funds.
If your donations receipt says its tax deductible or it is from a registered charity with a charities commission number on it (for example The Christchurch Earthquake Appeal Trust is CC 46329) you’re probably ok.
Keeping your receipts is important because IRD may require that you produce them. Unfortunately, false donations claims have proved to be an easy avenue for some ‘less charitable’ individuals to defraud IRD.
So you’ve got your receipts, now how do you get a tax refund?!
Typically we would prepare an IR526 Tax Credit Claim Form in conjunction with your personal tax return. The tax credit claim form usually accompanies your end of year tax return because these forms are not accepted by IRD until April of the following tax year (ie the earliest you can claim your donations rebate for the year ended 31 March 2014 is in April 2014). The reason for this is that IRD need confirmation that you have paid tax before they can refund any tax to you.
(If you are an individual who is not required to file a tax return - for example a teacher or an accountant on a PAYE salary - you can still complete an IR526 and get a donations rebate after the financial year is over).
So how can you get this tax refunded earlier?
Payroll giving schemes allow you to donate to an approved donee organisation of your choice directly from your wages – so it never hits your bank account. This is great for people like me with a penchant for online shopping, who may not otherwise have made particularly philanthropic choices come pay day.
But couldn't you just set up an Automatic Payment for pay day you scoff (assuming someone has read this far!)? The advantage of payroll giving is that you get your tax credit as you make the donation – as opposed to getting your refund of 33 cents in the dollar after you compile all your receipts at the end of the financial year. Payroll donations effectively give you an immediate reduction in your PAYE (pay as you earn) tax.
In simple terms, a $10 donation is only a $6.66 cash outlflow to you because the tax you pay on your wages in that pay packet is reduced by $3.33.
Payroll giving was introduced in July 2012 and New Zealanders have already donated over $17 million this way!
If this sounds like you, talk to your employer. Payroll giving won’t be compatible with everyone’s payroll system just yet, and it might not be practicable for businesses with a small number of employees, but an increasing number of progressive employers like Deloitte are offering this as an option.
The take home message from this first-time blogger is that what is effectively a $66 donation to you is $100 in the hands of your chosen charity! And who’s paying the difference? IRD!
If that has got you feeling all charitable and you could use some inspiration check out the webpage for our last entry in the Oxfam TrailWalker.
The ‘Deloitte Smooth Walkers’ walked 100km in just over 24 hours raising $3,900 - and several nauseating blisters! A big thanks to all those generous clients who have contributed to these fundraising efforts over the years.
We’ll have another team of four taking up the challenge again soon. Each team must commit to raising at least $2000 to support Oxfam New Zealand's work so watch this space!
Find out more here.