Charitable giving made easier for donors and volunteers
The Government has given the go-ahead to tax changes designed to make charitable giving of money and volunteers' time easier for all concerned.
"The Government will proceed with the introduction next year of a voluntary payroll giving system that will enable people to donate to charitable and philanthropic causes through work-based payroll deductions," Finance Minister Michael Cullen and Revenue Minister Peter Dunne announced today.
"Complementary changes will clarify and simplify the law on how reimbursements and honoraria paid to volunteers in the non-profit sector are to be treated for tax purposes, thus removing long-standing problems and associated compliance costs for volunteers.
"Both sets of changes, which have been the subject of extensive consultation and have received strong public support, will be included in the next taxation bill, which is scheduled for introduction in late June this year.
"The changes announced today build upon the foundation laid by last year's Budget for a progressive strengthening of the culture of charitable giving in New Zealand," said Community and Voluntary Sector Minister, Ruth Dyson.
"New Zealanders are generous in giving money and time for charitable and philanthropic purposes. An estimated one million people take part in voluntary activities of one kind or another, and donations to charities and other non-profit organisations amount to over $350 million a year – a figure that includes just those people who claim tax rebates for their donations," she said.
Mr Dunne said "Budget 2007 removed the caps on the dollar amounts of charitable donations that are eligible for tax relief. As of this month, individuals can claim tax rebates up to the level of their taxable income, while companies and Maori authorities can claim deductions for donations up to the level of their annual net income.
"The changes announced today constitute the second step in the process.
"Payroll giving will make it easier for people to make regular, voluntary contributions to their chosen charities and provide charitable organisations with a low-cost source of funding.
"Payroll giving will be voluntary for employers as well. It will operate through the tax PAYE system and will be available to employers who file their employer monthly schedules electronically, which will make the scheme easier to administer.
"Clarifying the law relating to the taxation of honoraria for voluntary work and reimbursements of volunteers' expenses will make life easier for both volunteers and charitable organisations, who often incur unnecessary compliance costs in trying to understand what their tax obligations are.
"One of the long-standing problems for volunteers and the charitable organisations that use their services is that the law is unclear about how reimbursement payments made to volunteers should be taxed.
"A similar problem has arisen over payments of honoraria to volunteers – particularly if a portion of an honorarium is intended to reimburse the recipient for costs incurred.
"It is now time to remove these uncertainties, to remove tax barriers to people giving generously of their time.
"The Government is also looking at a range of further ideas to foster New Zealand's culture of charitable giving. For example, we are looking at the idea of making it possible for people to claim tax deductions for non-monetary donations, such as artworks and other property.
"Similarly, we are reviewing the question of whether imputation credits should be refundable to charitable organisations, which are not able to use them under current law.
"Charitable giving, whether of time or money, makes an invaluable contribution to the wellbeing of our country, and the Government is committed to supporting and fostering it," Dr Cullen and Mr Dunne said.
Ted Sheehan, Press secretary to Mr Dunne, 04 470 6985
More about the forthcoming legislative changes
It will be voluntary for employers to introduce payroll giving into their workplace and voluntary for employees to participate. That will enable employers to weigh the costs and benefits of making payroll giving available to their employees.
The system will be available only to those employers who file their employer monthly schedules with Inland Revenue electronically. The schedules provide pay-period information on employee salaries and wages, PAYE deductions and other social policy-related deductions.
The system will deliver payday tax relief on charitable donations by way of a PAYE credit. Each payday employees will receive a PAYE credit on the amount of their donation. Employers will offset the credit against the PAYE calculated on the employee's gross pay. The PAYE credit will be calculated on a set rate of 33⅓%. Employees who make payroll donations will not have to keep receipts or wait until the end of the year to claim the tax benefit of their donations.
The current end-of-year rebate claim process will continue – employees who do not or are not able to donate through payroll giving can still claim tax relief on their donations through the rebate process.
Reimbursements and honoraria
Reimbursements that are based on actual costs incurred by volunteers will be tax-exempt, with no limits.
If a paying organisation puts in place a process for making a reasonable estimate of the costs likely to be incurred by volunteers, payments made to volunteers on the basis of that estimate will also be treated as tax-exempt income.
Honoraria will continue to be subject to withholding tax.
Organisations will have to pay reimbursements separately from honoraria if recipients are to have the advantage of having their reimbursements treated as tax-free.