What if we told you there was a simple way to give up to 50% more to the charitable causes you care about and that it wouldn’t cost you a cent more? Most charitable Kiwis already have the opportunity to do this by claiming their donation tax credit from the IRD, but are sadly missing out simply because they don’t know about it.
If you’re one of those, then you’re missing out on the chance to gift that refund back to the charities you support, increasing your donation at no cost to you. Here’s how:
- Check that you’re giving to organisations on the IRD’s ‘donee organisations list‘. If the organisation you want to support isn’t on the list, get in touch with us – we are on the list, so we may be able to help you give to them and preserve your refund. You can claim up to 33% of your total taxable income as a credit, so you may wish to consider staging your giving – see below.
- Submit your donation receipts to IRD, either throughout the year or all in one go. If you give via The Gift Trust, we can send you one receipt at the end of the tax year, regardless of how many charities you’ve given to.
- Receive your refund from the IRD at the end of each tax year.
- Donate your refund back to your originally-chosen charities, or into your Gift Account to be sustainably-invested for even greater impact.
- Repeat steps 3 and 4 every year until your donation is under $5, at which point you can no longer claim the refund.
Giving more with the same money
You can get up to 50% more charitable impact by donating your refunds back every year. Here’s how:
| Year | Amount donated | Refund received and donated back the next year |
|---|---|---|
| 1 | $10,000 | $3,333 |
| 2 | $3,333 | $1,111 |
| 3 | $1,111 | $370 |
| 4 | $370 | $123 |
| 5 | $123 | $41 |
| 6 | $41 | $13 |
| 7 | $13 | – |
| Total | $14,991 | – |
From your original $10,000, you’ve generated an extra $4,991 for your chosen charities, simply by claiming and donating your tax credits. That’s nearly 50 cents on the dollar – a pretty effective matching scheme!
Maximising your tax credit
It’s important to note that you cannot claim a tax credit greater than one-third of your taxable income for any given tax year. You may, therefore, wish to either transfer some of your tax credit to your spouse or partner (see below), or you may wish to stagger your giving to maximise your tax credit with respect to your expected annual income.
For example, say that you want to make a large one-off gift of $1,000,000, and your expected annual taxable income is $500,000. If you were to make your gift all in one go, you could claim a tax credit of $166,666, being ⅓ of your income. However, if you gave $500,000 in each of two years, you could claim a $166,666 credit in both of those years, for a total credit of $333,333.
Things to know
Here’s some things you need to know about donation tax credits:
- Your donation tax credit can be shared with your spouse, de facto or civil union partner who is eligible to make a claim. They can claim the balance of a donation up to the relevant maximum. This applies regardless of whether the receipt is in one person’s name or in both of your names.
- Your donations should be made as an individual and not on behalf of a trust, partnership or company (however, companies can generally deduct charitable donations as business expenses).
- You must be a New Zealand tax resident at any time during the tax year.
- You can only claim on donations that add up to the same amount or less than your taxable income during the tax year.
- You must claim the tax credit for each donation within four years of making it.
For more information about donation tax credits, consult the IRD’s website, or talk to your accountant.
This blog post is for informational purposes only, and should not be considered financial or tax advice. While The Gift Trust makes every effort to ensure the accuracy of this information, it shall not be liable for any errors or omissions, nor shall it be liable for any losses or damages you may incur as a result of the information.
