Radio NZ forms charitable trust

Peter Truman
Peter Truman
The Government might be inadvertently supplementing its funding for Radio New Zealand Concert after the broadcaster formed a charitable trust on July 26. Left-wing politicians are expressing alarm about the Government funding freeze for the public broadcaster.

However, Dunedin Deloitte tax partner Peter Truman said yesterday that the Radio New Zealand Charitable Trust appeared to have been formed to enhance the public radio service provided by RNZ.

"Because of the tax treatment of qualifying donations, the Government is effectively providing up to one-third of the funding provided by donations. While the decision of making over the donation rests with the donor, the Government has no choice but to provide a tax credit."

Many donors factored in the tax credit when deciding how much to give, he said. Provided the charitable trust met the requirements of the Charities Act 2005, and the charitable activities were limited to New Zealand, donations to the charitable trust were likely to qualify for a donation tax credit.

For individuals, that meant a tax credit was available for one-third of the amount donated, up to the level of the individual's taxable income for the year. Donations by companies could also qualify as a deductible amount - reducing taxable profit and the amount of tax payable, Mr Truman said.

"I can give $100 to the Radio New Zealand Charitable Trust but the net cost to me is only $66.67."

It was important to realise that only unconditional cash gifts qualified for the favourable tax treatment, he said.

The tax credit was not available when the donor received back any benefit from the donation or where the donation was not in cash.

Inland Revenue had warned it was taking an "active interest" in donation rebate claims made by individuals, Mr Truman said.

The incentive for individuals to make rebate claims has increased significantly since changes were made in 2009 to the upper limit on donation deductions. Before then, the maximum rebate claim an individual could make was $630 - 33% of $1890.

From 2009, the maximum rebate claim had been governed by the taxable income earned by the individual for the year.

"Inland Revenue is concerned that individuals are making donation rebate claims in situations where a true gift of money has not been made.

"Particularly, they have identified situations where individuals have entered into arrangements to obtain a tax credit where there has not been a true gift of money."

Among the examples cited were a charitable organisation having an outstanding loan to an individual which it could not afford to repay.

The individual made a cash donation to the charitable organisation on the understanding the proceeds would be used to repay the loan.

Mr Truman said Inland Revenue did not consider the payment to the charitable organisation to be a valid gift as the money was only paid on the understanding it would be used to repay the loan.

Because donation rebates were only available for cash gifts, there was an incentive to try to convert gifts of goods into cash gifts.

That was achieved by the person making a cash gift to the charity on the understanding the goods would then be purchased from the individual, he said.

Once again, Inland Revenue did not consider the payment to the charity to be a valid gift as the money was only paid on the understanding it would be used to purchase the goods from the person.

Rather than a charity undertaking a fundraising event, an individual might undertake the fundraising and then seek to donate the cash proceeds to the charity and claim a donation rebate. Inland Revenue would consider that was not a valid claim because in effect, the cash did not belong to the individual, Mr Truman said.

"The increased rebate claims available creates a far greater incentive for individuals to push the boundaries."

Part of the issue existed because the rebate claim was only available for cash donations, rather than gifts in kind, he said.

At a policy level, there should not be a different result between an individual donating a painting to charity to sell compared with the individual selling the painting and donating the proceeds to the charity.

"The increased focus by Inland Revenue will create some doubt in the minds of people as to whether donations they make will qualify for the rebate."

- dene.mackenzie@odt.co.nz

 

 

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