Are you missing out on your donation tax credit or deduction? Over the past couple of years there have been significant changes to the treatment of donations for individuals and companies: the cap on the donation tax credit claims have been increased, access to donation tax credit claims have been accelerated through the payroll giving system and close companies can claim deductions for donations made.
For the most part it appears that many people are still unaware of the lifting of the cap on donations and may be missing out on receiving a 33.3% donation tax credit.
Donations by individuals
If an individual makes a donation to a registered charity or a donee organisation they are entitled to a donation tax credit (previously called a rebate) of 1/3 of the donation made.
There is no longer a maximum limit on the tax credit; rather the tax credit is limited to the individual’s taxable income. The total donations claimed cannot be more than the individual’s taxable income for that year.
A donation is a voluntary payment where the payer receives no identifiable direct benefit to them or their family.
To be eligible to claim the donation tax credit the following criteria must be met:
- Payment is to a registered charity or a donee organisation
- The payer is an individual New Zealand tax resident
- The payer earned taxable income during the year they are claiming the tax credit for
- The payer must hold a valid receipt
- The payment must be for at least $5.
How to claim a donation tax credit
The individual claims the donation tax credit by completing and filing a Tax Credit Claim Form (IR526). If the individual has made the donation through their employer via the “payroll giving donations” system, they do not need to file an IR526 as the individual receives the tax credit at the time the donation is deducted from their salary.
Donations by companies
The 5% deduction limit on donations made by companies has been removed and all companies are now eligible for a donation deduction. The amount of the deduction is only limited by the level of the company’s net income.
How to claim deductions for donations
To receive a deduction, the donation must be made to a registered charity or a donee organisation. In addition, the payment must be a donation in which the payer company receives nothing in return.
A company claims the deduction in the company’s income tax return.
For more information on the treatment of donations please contact your Hayes Knight adviser. Alternatively please contact:
Senior Tax Manager
T +64 9 414 5444