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Inland Revenue

Tax Policy

PUBLISHED 26 October 2007

Govt explores further tax incentives for charitable donations

The government is to explore further ways to make it easier for people to donate to charity. In a speech today to the Association of Development and Alumni Professionals in Education, Revenue Minister Peter Dunne said two discussion documents would be released over the coming months. One would look at the possibility of people donating to charities by having voluntary deductions made from their salary, similar to the payroll giving schemes in the UK and Australia. The second paper would explore several options for reforming the tax treatment of reimbursements and honoraria paid to volunteers. For further information, see the Minister of Revenue's speech to ADAPE.

Speech to the Association of Development and Alumni Professionals in Education Conference

Samuel Marsden School, Karori, Wellington

Hon Peter Dunne, Minister of Revenue

Thank you for inviting me here today to update you on the government's programme to foster a stronger culture of charitable giving in New Zealand.

This programme arises because of the Confidence and Supply agreement between UnitedFuture and Labour.

It recognises the significant contribution made by the charitable and non-profit sectors to the social, cultural and economic well-being of our communities.

My party is strongly committed to the voluntary and community sector and hugely supportive of the work sector does and the contribution to our national wellbeing, and we want to encourage and promote it at every turn.

Before I tell you about the latest developments on the charitable giving front, let me recap briefly what we have achieved to date.

As you know, Budget 2007 kick-started a number of positive developments for the non-profit sector.

These developments included a number of tax incentives to encourage greater generosity in donating to non-profit causes.

Under the new incentives, the current caps on the dollar amount of charitable donations that are eligible for tax relief have been removed.

This means that individuals will no longer be restricted by the current $1,890 donation limit for tax rebates.

The clear intention of this change is to encourage those who are already donating substantial amounts to non-profit causes to donate even more generously.

For the same reason, the 5 percent limit for tax deductions on donations made by companies and Mâori authorities is being removed, and also extended to unlisted companies with five or fewer shareholders.

These changes are included in the tax bill currently before Parliament, which once enacted, will bring the new incentives into effect from 1 April next year.

Together, they represent a significant first step towards recognising the importance of charitable giving in helping to deliver the services we need to make a positive difference in our communities.

Our next step is to look at how we can make it easier for people to donate their time and money for the benefit of others.

There are several ways we could approach this.

In the coming weeks, the government will be releasing two papers for public consultation, which describe how we might remove some of the current obstacles for people who want to donate their time or money for charitable purposes.

The first paper, which is due for release at the end of this month, looks at a number of possible solutions to the long-standing problem of taxing honoraria and volunteer reimbursements.

Following the release of last year's discussion document, Tax incentives for giving to charities and other non-profit organisations, significant concerns were raised about the tax treatment of reimbursements and honoraria paid to volunteers.

As the law now stands, volunteers and charitable organisations are often unclear about their tax obligations relating to reimbursement payments for volunteers.

Ultimately, this adds to the compliance costs faced by non-profit organisations and can act as a deterrent to people offering their time to these organisations.

Specifically, the paper seeks feedback on a number of suggestions for clarifying the law and new options for the tax treatment of volunteer reimbursements and honoraria.

The over-arching consideration for the government is to make it easier for the estimated 437,000 volunteers and more than 90,000 organisations that make up the charitable sector to comply with their tax obligations so they can get on with their primary functions.

The second set of proposals for further developing a more generous culture of giving are contained in a discussion document due for release in mid-November.

This second paper looks at how we might introduce a payroll-giving scheme to New Zealand.

Payroll-giving schemes have been well-received in a number of other countries, including Australia and the United Kingdom, for their simplicity, convenience and effectiveness in facilitating charitable giving.

Payroll-giving schemes also have the potential to increase donation levels and establish genuine partnerships between businesses and the community, while supporting employees' community activities.

The discussion document puts forward a number of suggestions for implementing an appropriate payroll scheme that would balance the needs of New Zealand employers with the expectations of employees wishing to participate in this type of scheme.

However, before any changes can be made, detailed consultation is required to ensure that any new approach is easy to administer and does not raise excessive costs for employers.

On that subject, I want to emphasise the important role that consultation plays in this process.

Feedback to the first discussion document, Tax incentives for giving to charities and other non-profit organisations, continues to be instrumental in helping to shape the government's response to the whole question of charitable giving.

For example, feedback on the government's initial proposal for increasing tax relief on donations suggested the measure did not go far enough in its intention to give greater incentives for people to make charitable donations.

The government agreed, and adjusted the proposed policy accordingly.

Given the quality of feedback on our programme of reforms for strengthening charitable giving so far, I am confident of a similarly constructive response to the second round of proposals on payroll giving and the treatment of reimbursements for volunteers and honoraria.

We will also be looking at other mechanisms for delivering tax relief for charitable donations. Among the measures under consideration are gift aid schemes, similar to that in the United Kingdom, which makes it possible to claim tax deductions for non-monetary donations.

Finally, I want to make a brief comment on some recent ill-founded political speculation that charities stand to lose their tax-exempt status if they are not formally registered under the new Charities Act by July 1 next year.

This claim is simply untrue, and I hope it was based on ignorance rather than mischief making.

The position is simply this – charities who have submitted a valid application for registration by July 1 next year will retain their tax exempt status, even though their application my not have been approved by that time.

I hope you have a successful conference, and look forward to your continued contribution to our work in reforming the tax rules on charitable giving for the benefit of everyone involved.

Thank you.