New tax rules that came into affect on the 1st April 2008 provide a tax incentive for individuals, companies and Maori Authorities that donate to charity. Changes to the Income Tax Act 2007 aim to encourage a culture of generosity in New Zealand by making it more attractive to give to charities and other non-government organisations, particularly by high-income earners.
The new rules affect the tax treatment of charitable donations and present tremendous opportunities for individuals and companies alike to increase the size and frequency of their giving. To take advantage of these changes, however, donors need to be sure the organisation they are donating to have been registered with the Charities Commission and have approved donee status from the Inland Revenue.
What does this mean for those donating to charity?
For individuals, the maximum rebate is 331/3% of all donations up to the amount of their taxable income. The previous rebate limit of $1890 on cash donations made in any one year has been removed. Under the new rules, a donation of $10,000 made by an individual whose taxable income is greater than $10,000 is eligible for a rebate of $3,333. Under the previous rules, this same donation would only be eligible for a rebate of $630.
For companies and Maori Authorities, the tax deduction is only limited by the amount of net income, rather than the previous limit of 5% of their net income. In the 2009 tax year (1 April 2008 to 31 March 2009), businesses can claim a tax deduction on the full value of donations made to charity, up to the amount of their net income. Therefore, if a company donates $20,000 and its net income is $200,000, then the full $20,000 can be deducted, rather than be limited to $10,000 under the old rules.
These new rules are a positive step in improving the ability of charities to raise money from within the community as it effectively means more money is available for donations. Many organisations working in the community are reliant on multiple sources of funding and the new tax changes make it easier for individuals and companies to support their good work.
