Hon Dr Michael Cullen
Minister of Finance
Hon Peter Dunne
Minister of Revenue
Payroll giving - making it easier to donate to a good cause
The government is looking at ways to make it easier for people to donate to their favourite charities and other non-profit causes.
A discussion document released today by Finance Minister Dr Michael Cullen and Revenue Minister Peter Dunne explores the possibility of introducing a voluntary payroll-giving scheme that would make it easier for people to donate money to their chosen charity.
"Payroll giving allows people to have donations deducted automatically from their pay and forwarded to their chosen charity by their employer. In return, people who make donations in this way receive immediate, real-time, tax relief reflected in their normal pay, based on the amount they donate," the Ministers said.
"Based on overseas experience, payroll giving has the potential to increase donation levels and establish genuine partnerships between businesses and the community.
"For payroll giving to be a truly winning formula, however, we recognise that it must also be easy for employers to administer.
"In particular, we want to ensure that such a scheme does not raise undue costs and is easy to administer for employers who choose to offer payroll giving. This was a key concern raised during our earlier consultation with representatives of charities and donor and employer groups.
"For employees, a payroll-giving scheme offers a convenient and simple way to donate without their having to retain receipts and request and file a rebate claim form at the end of the year. All they need to do is choose their charity, set the amount of their donation and ask their employer to deduct their donation each payday.
"For charities, it is an efficient, low-cost way to raise funds and delivers the regular income support they need, while for employers, payroll-giving schemes can provide a low-cost and administratively simple way to build employee morale by supporting their efforts for charity, and raising the business's profile in the community.
"The foundation for building a culture of charitable giving in New Zealand was laid in Budget 2007, which announced the removal of limits on the current tax relief on charitable donations made by individuals, companies and Māori authorities.
"Our next step is to make it easier for people to donate to their chosen charities," the ministers said. "This discussion document looks at one of the ways we might achieve this.
"The type of payroll giving described in the discussion document has been introduced successfully in a number of other countries, including Australia and the United Kingdom, and looks at two options for this type of charitable giving. We are now seeking the views of employees, employers and charities on what type of scheme might work best for New Zealand.
"We already know that New Zealanders are generous people. In fact, according to a 2005 study by BERL, New Zealanders gave some $1.27 billion to philanthropic and charitable causes that year.
"This proposal recognises the importance of charitable giving to New Zealanders. It also acknowledges the significant role charitable organisations play in delivering many services that make a positive difference in our communities," the ministers said.
"The initiative is part of the government's commitment to fostering a culture of charitable giving in New Zealand and is a direct result of the confidence and supply agreement between United Future and the Labour-led government."
The discussion document, Payroll giving: providing a real-time benefit for charitable giving, is available at www.taxpolicy.ird.govt.nz. Submissions close on 25 January 2008.
Bryan McDaniel, press secretary to Dr Cullen, 04 471 9412 or 021 270 9013
Ted Sheehan, press secretary to Peter Dunne, 04 470 6985 or 021 638 920
Questions and Answers
Q: What is payroll giving?
Payroll giving enables employees to make regular charitable donations from their pay. The employer forwards their donations either directly to a charitable organisation or to an intermediary.
Q: What does payroll giving mean for charities, employers and employees?
- For charities, payroll giving is an efficient, low-cost way to raise funds and delivers the regular income they need.
- For employers, payroll giving provides a low-cost and administratively simple way to support employees' involvement in the community. Employers can also raise their business profile and promote themselves to their employees and customers through payroll giving.
- For employees, payroll giving provides a convenient and simple way to give to their favourite charity. All employees need to do is choose their charity, set the amount of their donation and ask their employer to deduct their donation each payday. In return, employees receive an immediate tax benefit on their charitable donations on each payday, without the need to collect receipts or wait until the end of the year to claim a rebate.
Q: How does payroll giving work?
The payroll-giving scheme envisaged for New Zealand would be a voluntary scheme for employers and employees. It would provide an alternative way for people to give to charitable organisations while receiving an immediate (real time) tax benefit on their donations on each payday. People would not have to wait until the end of the tax year to claim their tax relief.
Two options for delivering tax relief through a before-tax payroll-giving scheme are proposed in the discussion document.
Option 1 – tax deduction mechanism
Under this option, donations would be deducted from an employee's before-tax pay, and PAYE would be levied on the remaining pay. The employee receives immediate tax relief by way of a reduction in the amount of PAYE required to be paid. The tax benefit would be at the employee's marginal tax rate – 19.5%, 33% or 39%. However, under this option calculations of child support liabilities, student loan repayments, and Working for Families tax credits would be affected because those calculations are based on the employee's before-tax pay.
Option 2 – PAYE credit mechanism
Under this option, employers would calculate a "PAYE credit" of 33 1/3% on the amount of the donation made each payday. The credit would be offset against the PAYE calculated on the employee's before-tax pay. All employees who make payroll donations would receive the same tax benefit regardless of their marginal tax rate. Under this option, child support liabilities, student loan repayments, and Working for Families tax credits would not be affected.
Q: How does payroll giving work in other countries?
Other countries, such as Australia and the United Kingdom, have introduced before-tax payroll-giving schemes. Their experiences suggest that payroll giving is a simple, convenient and effective way of supporting charitable giving. These countries have also found that payroll giving enables businesses to connect with their communities in a way that benefits everyone involved.
In the United Kingdom, charitable donations are deducted from an employee's pay by employers and forwarded to an intermediary (who then passes the donations on to charitable causes). In Australia, however, payroll donations go directly to the chosen charities. Australia also has the Australian Charities Fund, which helps employers with the initial set-up of payroll-giving schemes and provides on-going support.
Q: How would employers set up a payroll-giving scheme?
Generally, employers would invite their staff to participate in a payroll-giving scheme. Employers and employees would need to decide on the charities and other non-profit organisations they wish to support. Employees would then specify the amount they wish to donate. The donation amount is deducted each payday by their employer and paid directly to the chosen charity or to an intermediary.
Q: What support is available to employers?
The discussion document suggests possible measures to help employers ease the costs associated with a payroll-giving scheme, and make it easier for them to offer the scheme to their employees.
In particular, the discussion document explores the use of intermediaries and information resources to help employers who wish to offer a payroll-giving scheme to their employees.
Q: Who would be responsible for ensuring donations are given to legitimate donee organisations?
Employers would need to ensure that the donations are made to a legitimate charity or non-profit organisation by making sure the organisation is included in the "donee organisations" list on Inland Revenue's website.