IRD reviews tax rebates for school donations

Mt Albert Grammar headmaster Patrick Drumm (centre), pictured last year with teachers Jenny Bates and Steve Sharp, is asking parents for a second annual donation to fund new buildings. File photo

Tax rebates for donations to schools may be tightened because of concerns that some "donations" may actually be fees for services.

The Inland Revenue Department has confirmed that it is preparing new guidelines for schools after changes last year which stopped private schools describing some of their fees as "donations".

"Inland Revenue is aiming to provide more clarity in this area and is currently considering in what circumstances payments made to state and state-integrated schools will attract a donation tax credit," a spokesman said.

"However, we are not currently in a position to put out a draft consultation document."

All genuine donations to schools and state kindergartens qualify for a 33.33 per cent rebate "as long as they go to the general fund and you have a receipt with the word 'donation' written on it".

The rebate is not allowed for fees for schools, tuition, tertiary education or private early childhood education because they are purchases of services rather than "donations".

Charity lawyer Sue Barker said last week that some private schools were running a "rort" by describing fees as "donations" until the rules were tightened last year. The new rules say, for example, that "a payment that places the recipient under an obligation to do or provide something in return for the payment is not a gift".

The department said a number of submissions on last year's guidelines "requested specific guidance on how the principles set out applied in the context of schools".

Rebates claimed for donations to schools have declined steadily in the past five years from 88,000 rebates in the year to March 2012 to 74,000 in the year to March last year, probably because most parents pay tax out of their wages and don't have to file annual tax returns.

There were 787,960 students in NZ schools last year, so the vast majority of parents are not claiming the tax rebate for donations even though they are entitled to it.

However, the amount of the rebate has been stable over the past five years at about $22 million a year, so parents are claiming rebates on donations totalling $66m.

The Ministry of Education has said that donations to schools totalled $124.9m in 2015.

Mt Albert Grammar School launched an appeal to its parents last week to make a second donation each year, on top of the existing donation to top up operating costs. The second "annual giving" donation will go towards new buildings and extra specialist teachers.

The new Labour-led Government has promised to abolish "donations" for all schools which accept a state grant of $150 per student per year.

The estimated cost of $70m a year is based on schools with 60 per cent of all 787,960 students taking up the offer. Other schools raise more than $150 per student per year from parental "donations" and are expected to keep collecting them.

Rebates for donations to schools

Years ended March

2012: 88,000 rebates worth $22.9m

2013: 80,000 rebates worth $20.7m

2014: 80,000 rebates worth $21.9m

2015: 78,000 rebates worth $22.2m

2016: 74,000 rebates worth $22.1m

Total rebates for all donations to schools & charities

2012: 420,000 rebates worth $234.2m

2013: 381,000 rebates worth $223.2m

2014: 382,000 rebates worth $232.9m

2015: 376,000 rebates worth $240.7m

2016: 362,000 rebates worth $243.2m

Source: Inland Revenue Department