The Government has announced in the recent Budget significant changes to New Zealand’s donation tax credit regime that are expected to take effect from 1 April 2027. We’re ensuring our clients and partners know about these, in case they are expecting to make donations which could be impacted.
What is changing?
Currently, individuals can claim a donation tax credit equal to one-third of their eligible charitable donations. You can claim donation receipts that add up to your total taxable income for a tax year. Under these changes, the amount of donations eligible for the credit will be capped at $100,000 per person, per year. This means:
- Donations up to $100,000 will continue to qualify for a 33.33% tax credit.
- The maximum annual donation tax credit available to an individual will be $33,333.
- Donations above $100,000 will still be able to be made to charities but will no longer attract an additional donation tax credit.
The changes will apply from 1 April 2027, so any donations made before then would not be impacted and existing donation tax credits will apply. At this stage, there do not appear to be any announced changes to the deductibility of charitable donations made by companies, trusts or other entities. These changes only impact donations made by individuals.
The Gift Trust’s perspective
The Gift Trust is concerned about the potential unintended consequences of these changes to the community and charity sector and the important work they do for society.
While the Government estimates the changes will reduce the fiscal cost of the donation tax credit regime, there is currently limited New Zealand research on how donation tax incentives influence donor behaviour.
If some donors choose to delay, reduce or restructure their giving as a result of the cap, there is a risk that charities and community organisations could receive less funding overall. The effects on communities, charities, and the people who rely on their services could far outweigh any anticipated savings to the Government.
We believe it is important that any changes to charitable giving incentives are informed by robust evidence and careful consideration of their impact on the wider charitable sector. We will therefore be advocating for this change to be removed or adapted before it is introduced in April 2027.
What does this mean for donors?
The practical impact will vary depending on your giving patterns and motivations. We have outlined some potential points for you to consider below.
Many donors give primarily because they want to create positive social, environmental, educational or cultural impact, not due to donation tax credits, and may not change their giving behaviour at all. However, we know many donors who currently make larger annual donations do take the donation tax credit into account when they decide on the total amount to be gifted to charity. You may wish to review your giving plans and seek professional advice regarding the implications of the new cap. We are happy to discuss this with our clients to help them plan ahead.
What should donors consider?
If you currently make, or are considering making, donations to any charities that total over $100,000 per year, you may wish to:
- If you hold a Gift Account at The Gift Trust, you could consider making large donations into your Gift Account prior to 1 April 2027, so you can take advantage of the current donation tax regime before it changes. Remember that your donation tax credit comes into effect when you donate funds into The Gift Trust (as we are a registered charity), not when we make gifts out to other charities from your account.
- Consider structuring your giving across family members. For example, a couple with combined taxable income exceeding $200,000 could potentially donate up to $200,000 annually and receive combined donation tax credits of approximately $66,666.
- Consider structuring your giving to include donations made from a Trust if you have one or from a business. This donation tax credit cap is only applicable to individual donors, so donations from Trusts and businesses are not affected.
- Review your long-term philanthropic plans and giving objectives with these changes in mind. The Gift Trust team are happy to help you with this. If you would like to schedule a meeting with us to discuss your plans, please let us know. We are also very interested to know if you think these changes may impact your future giving behaviour, as we may be able to use these examples in our advocacy (whilst providing you with anonymity).
- You may also wish to discuss the implications of the new rules with your tax adviser, accountant or financial adviser.
- We are keen to speak to any donors who might be interested in supporting us in our advocacy against this change. If you have connections to Ministers or if you would be happy to share your story as an example, we would love to speak to you.
Changes to the claim process
Alongside the $100,000 cap, there was also some positive news. The Government has announced two simplification measures for donation tax credits that will likely have a positive effect on donors and charities.
In-year refunds
From 1 April 2028, eligible donors will be able to receive donation tax credit refunds during the tax year where there is reportable income to support the refund. Currently, donors must wait until the end of the tax year to receive their donation tax credit refund, so this may remove some barriers to claiming the tax credit.
Gifting the tax credit directly to charities
From 1 April 2028, donors will be able to instruct Inland Revenue to send the donation tax credit refund directly to a nominated charity of their choice, if they wish. Donors can already receive their donation tax refund and choose to donate that money to a charity. But this change will allow them to do it seamlessly and directly via the IRD without it being paid to the donor first. This means, for example, that you could direct your donation tax credit refund directly to your Gift Account at The Gift Trust, allowing more funding to be available to support charities at no extra cost or administration to you.
For donors who do not need the refund personally, this is a powerful and frictionless way to increase the amount given to charity.
We are here to help
The Gift Trust will continue to monitor developments and engage with Government and sector stakeholders as further information becomes available.
If you would like to discuss how these changes may affect your charitable giving plans, please contact our team. We are happy to talk through the options available and help you continue achieving the impact you want to make through your philanthropy.
