Bold charity tax policy announced
John Key MP
National Party Leader
27 February 2007
Bold charity tax policy announced
National’s bold new tax policy on charities shows a National government will support private giving and is serious about backing groups doing important work in our communities, says National Party Leader John Key.
“This policy will give a big boost to the giving tradition in New Zealand. We want to encourage that culture of giving.”
The policy will:
- Remove the $1,890 cap on charitable donations. Donations of any amount, up to an individual’s total net income, will be eligible for the 33.3% rebate.
- Remove the 5% cap on the level of donations that can be deducted by companies and Maori Authorities, meaning they will be allowed to claim a deduction for any level of charitable donation. In addition, all businesses, not just publicly listed or widely held companies, will be able to claim deductions.
- Remove gift duty from donations to charitable organisations.
“The tax treatment of charitable giving is miserly compared to other countries,” says Mr Key. “For example, Australia has no cap on charitable donations.
“Our changes will mostly benefit New Zealand-focused charities, but the rebate will also apply, as it does now, to many overseas aid organisations.
“National estimates the policy will result in foregoing revenue of around $60 million to $90 million a year.
“However, the benefits for the sector are huge given that for every dollar rebated, the charitable sector gains $3.
“The existing level of donations is about $350 million a year. If National’s policy sees donations increase as much as we estimate, then donations will increase by a further $300 million – nearly doubling the amount that goes to the sector.
“Understandably, New Zealand charities are likely to feel excited by the tremendous potential boost that this policy offers.
“In my Burnside speech I said I wanted to turbo-charge the efforts of private and community groups making a difference. This policy shows I mean it.
“Following that speech, Labour’s Steve Maharey attacked National using the sneering term ‘Tory charity’.
“This is the view that the State is always best placed to improve society by taxing people and spending the money on government programmes. This is the view that private charity is simply patronising.
“National thinks these views are appalling. It’s a fundamental part of a civilised society that people do things for one another, and do them selflessly, without being compelled, and without the Government organising it.
“Unlike Labour, I don’t think that more government is the solution to every social ill.”
Background fact sheet
This policy concerns the tax treatment of charitable donations; that is, monetary gifts to organisations considered by the Inland Revenue Department to be “donee organisations”.
What are donee organisations?
Donee organisations include groups traditionally classed as “charities” but also encompass groups whose funds are applied to benevolent, philanthropic, or cultural purposes within New Zealand. They cannot exist for the private benefit of any individual.
The Commissioner of Inland Revenue needs to approve an organisation’s donee status.
In addition, some international organisations like Red Cross, Save the Children and Amnesty International have been given donee status in legislation.
IRD have a record of 20,000 approved donee organisations, although a number of these will have gone out of operation subsequent to being approved.
What is the current tax treatment of donations ?
People who give monetary gifts to donee organisations are entitled to a 33.3% rebate at the end of the tax year. If someone gives $1000 to charity, for example, they can claim back $333 at the end of the year. This is paid to them by IRD as a tax rebate.
However, the maximum amount people can claim a rebate on is capped at $1,890. Therefore, they can claim back from the government only $630 at most.
Publicly listed or widely held companies, as well as Maori authorities, which give monetary gifts to donee organisations are entitled to treat these gifts as expenses (ie as a deduction). If a company gives $10,000 to charity, for example, it reduces their accounting profit by $10,000, and therefore reduces their tax bill by $3,300 (as the company tax rate is 33%).
However, the maximum amount a company can deduct is capped at 5% of its net income.
What is National proposing?
- Remove the cap on rebates for charitable donations. Donations of any amount, up to an individual’s total net income, will be eligible for the 33.3% rebate. If someone wants to give $30,000 away, for example, they will be able to get $10,000 back at the end of the year.
- Allow companies and Maori authorities to claim a deduction for any level of charitable donations. Companies will be able to give as much as they want, as long as this doesn’t exceed their total net income for the year.
- Allow all businesses to claim the deduction, not just publicly listed or widely held companies. This policy will enable businesses which have alternative forms of ownership, such as sole traders and partnerships, to claim a deduction for charitable donations.
- Remove gift duty from all
How much will this cost?
In the latest year for which information is available, the total rebate claimed by individuals was $94 million, an amount based on reported donations of $356 million. There is no information available on the cost to the Government of company and Maori authority deductions.
While it is not possible to cost these policies precisely, they are estimated to involve between $60 million and $90 million each year in foregone revenue.
How do these policies compare to tax regimes overseas?
The current tax treatment of charitable giving in New Zealand is miserly compared to that in many other developed countries.
A recent paper comparing the tax treatment of giving in OECD countries shows that New Zealand has the lowest cap of all countries offering tax breaks for charitable donations.
The paper concludes that : “Of the 18 countries with some type of income tax incentive, New Zealand’s appears weakest” (Roodman and Standley, “Tax policies to promote private charitable giving in DAC countries”. http://www.cgdev.org/content/publications/detail/6303).
Under National’s policy, New Zealand would have one of the highest caps in the OECD (100% of income). It would be exceeded only by Australia, Ireland and the United Kingdom, which have no cap on giving.
Philanthropy New Zealand has compiled a comparison of taxation and other policies towards giving in selected countries. It concludes that “New Zealand trails other comparative Commonwealth countries in a multitude of ways”. (http://giving.org.nz/files/Tax%20and%20Generosity%20Oct%2006.pdf)