KEY POINTS:
Paul Brown, national director, of ChildFund New Zealand, talks about changes to tax rules around charitable donations.
What changes have there been to tax laws around donations from individuals?
Previously, as an individual, you could claim a tax rebate of 33.3 per cent on cash donations to approved
charities up to $1890 in one tax year. For donations made from April 1, individuals can claim a tax rebate of 33.3 per cent up to their total income. Under the new rules, a $3000 donation will give a donor a tax rebate of $1000.
What changes have there been to tax laws around donations from companies?
Companies have had the upper limit of 5 per cent of their income removed as the threshold for donations. From the 2009 tax year, businesses can claim a tax deduction on donations up to their net income. Small businesses with five or fewer shareholders are also included in the company deduction for the first time.
What impact have these changes had on donations?
They should increase the size and frequency of donations, and encourage high-income earners to donate more. Since removing the limit on eligible donations, Australia has seen charitable giving by individuals increase 58 per cent. Business-giving has followed a similar trend.
Do you think tax rebates are important when it comes to making donations?
Yes - you are deciding how to spend part of your taxes and the Government is rewarding you for doing good. It also makes more money available for donations.
Is there a maximum rebate? Can rebates be obtained for all charities?
For individuals, the maximum rebate is 33.3 per cent of your donation up to a maximum claim equal to your annual taxable income. For companies, the tax deduction is only limited by net income. Charities have to be approved as a donee organisation by the IRD before donors can claim rebates on donations. The IRD grants donee status to organisations that are non-profit and when the money donated is not used for personal benefit. ChildFund New Zealand is also registered with the Charities Commission, which monitors charities on its register.
Can rebates be obtained for charities when the money goes overseas?
Charities that spend donated funds overseas must be approved by Parliament to attain donee status. Approval is limited to organisations whose funds are mainly used for: the relief of poverty, hunger, sickness or the results of war or natural disaster; the economy of developing countries (as recognised by the United Nations); and raising the educational standards of a developing country.
Are Kiwis big donors to charity compared with other parts of the world?
According to Philanthropy New Zealand, Kiwis donated more than $400 million to charitable causes in 2006. As a proportion of gross domestic product, this compares favourably with Australia, Canada and the UK.
What more can be done to improve New Zealand's charitable donations?
Most Organisation for Economic Co-operation and Development (OECD) countries offer a broader range of tax incentives and schemes to encourage charitable giving than we do. Australia has payroll giving and a prescribed private funds regime, which has been successful in increasing large-scale donations from wealthy individuals. The New Zealand Government is considering payroll giving where you set up a regular donation that your employer deducts.