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Donations – the often forgotten tax benefit

TAXATION

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By and large, we New Zealanders are a giving bunch. Whether we are giving our time, money or things we no longer need, we do so without expecting anything in return. And when times are tough it seems that this brings out the best of us, with Givealittle reporting an 18% increase in donations in the 2023 year compared to 2022, with a total $43.5m of donations.

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

Companies and Māori authorities are allowed a tax deduction against their income for cash donations to registered charities, up to the level of their taxable income. Because the donations will be recorded in their books, the claiming of this deduction will not usually be overlooked.

Individuals however are a different story. We are able to claim a donation credit of 1/3 of the qualifying donation amount, but need to file an IR526 donation credit form separate from our income tax return to claim the credit and it seems a lot of people are either unaware of this, think it is too hard to make a claim or don’t know how to do so.

In the 2022 tax year, Inland Revenue paid out a total of $308m of donation credits to individuals, representing a total donation amount of $925m. While there are no readily available statistics on the total amount of qualifying cash donations made by individuals, it is commonly understood that there is a large amount of Government money left on the table by individuals that do not make the claims that they could.

The general criteria for claiming a donation credit are:

The recipient must be an approved donee organisation – Inland Revenue has a searchable database of these, but generally these will be New Zealand registered charities or schools, plus some specifically named overseas charitable organisations;

The cash donation must be more than $5;

A signed and dated receipt from the charity must be held and include certain information; and The total amount of donations claimed cannot exceed your taxable income for the relevant year.

Inland Revenue reviews donation claims quite closely, and some of the areas of concern for them are where the donor receives some benefit back from the charity in return for making the payment (as this would not be a true donation), or where amounts are paid to schools for goods and services (such as tuition, camp fees, stationery etc) rather than as a true donation.

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 credit 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 do your tax return yourself, or are not required to file one, it is very easy to file your donation claim yourself. Just log into MyIR, enter the details of the donation and upload a copy of the receipt (a screenshot or photo of it from your phone is fine). You will need to do this for each donation made.

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 claim and refund the credit to you.

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

As always, you should seek professional tax advice if you need assistance.

Related: Some give and a lot more take: the tax twists emerging from the coalition government

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Andrea Scatchard
Andrea Scatchard
Andrea Scatchard is a Tax Partner at Deloitte, based in the Bay of Plenty. She can be contacted on ascatchard@deloitte.co.nz

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