Tuesday 22 May 2007 address to the Not-for-Profit Special Interest Group (Wellington Branch), New Zealand Institute of Chartered Accountants
Budget 2007 announced a number of positive developments for the charities sector, all aimed at laying a stronger foundation for charitable giving in New Zealand.
The changes recognise the importance of charitable giving to our social, cultural, environmental and economic wellbeing in New Zealand, and the important role charitable organisations play in delivering the services we need to make a positive difference in our communities.
As you know, the changes are the result of the Confidence and Supply agreement between United Future and Labour, which called for the development of a new rebate scheme for charities. I am delighted we have this opportunity to make a significant contribution to the charitable, community and voluntary sectors in New Zealand.
To recap briefly, the main points announced in the Budget and which are included in the May tax bill now before Parliament are:
- Removal of the current caps on the dollar amount of charitable donations that are eligible for tax relief. This means that individuals, companies and Māori authorities will be able to claim rebates and a deduction for charitable donations up to the level of their annual net income.
- Individuals will no longer be restricted by the $1,890 limit for tax rebates, which will encourage those who are already donating substantial amounts to donate even more generously. For the same reason, the 5 percent limit for tax deductions for companies and Māori authorities is also being removed; and
- The company deduction is also being extended to unlisted companies with five or fewer shareholders.
Once enacted, the changes will come into effect from 1 April next year.
As a package, they represent a significant and radical departure from the previous policy approach for developing tax incentives for promoting charitable giving in New Zealand.
That approach was based on incremental changes to existing tax incentives for donations, while at the same time, maintaining limits on eligibility.
However, we recognise that charitable giving is not just about removing the rebate limits. It's about making it easier for people to give both their time and their money – and there are several ways we can approach this.
A number of different approaches were advanced in submissions following the release last October of the government discussion document, Tax incentives for giving to charities and other non-profit organisations.
As you may recall, the discussion document was supported by a series of consultation workshops held around the country and attended by 300 participants.
- A total of 229 written submissions, from a wide range of people and organisations, were received on that discussion document.
- Those submissions, and the views expressed during the consultation workshops have been summarised in a 70-page document which will be available on Inland Revenue's Tax Policy Division's website from today.
- Feedback from this round of consultation strongly supported substantially increasing the current tax relief available for charitable donations and introducing other mechanisms for delivering tax relief.
One possible approach put forward is the concept of payroll giving.
- Payroll giving is well accepted in other countries – such as Australia – for its simplicity, convenience and effectiveness in promoting charitable giving; and
- It has the potential to increase donation levels and establish partnerships between government, employers and charitable organisations.
However, before introducing payroll giving in New Zealand, detailed consultation is required to ensure that this approach does not raise excessive costs for employers and is easy to administer.
For this reason, a discussion document is planned for release in November this year, which will look at the implications of introducing payroll giving, and seek the views of all those concerned.
Feedback from the discussion document released last year also indicated that while tax incentives may not be the complete answer to encouraging people to donate generously, a tax system that is generally supportive of philanthropy is viewed as beneficial.
For that reason – and in recognition of the substantial contribution that charities and other non-profit organisations make to the community – further work will be done to streamline the tax treatment of volunteers' reimbursement payments and honoraria.
Feedback from consultation highlighted this issue as a longstanding problem that should be addressed as a matter of priority.
I hope to be able to include any resulting changes in a taxation bill to be introduced in November.
Further work will also be carried out on a range of other mechanisms for delivering tax relief on charitable donations, including:
- the deductibility of non-monetary donations; and
- the possibility of a gift aid-type scheme where the tax benefit goes directly to the charitable organisation rather than to the donor.
I am aware that the issue of refunding imputation credits to charities is of particular interest to this group.
As noted in the 2006 discussion document, this issue is being examined separately as part of a wider review of imputation credits, and who should be entitled to use those credits.
With the immediate Budget work now behind us, the government will be putting together its tax policy work programme for the coming year, and it is anticipated that this issue will be up for further consideration.