Tax incentives for individuals
Individual donors can claim one third of their donation as tax credits, or one third of their taxable income (whichever is the lesser amount).
- can claim for all donations of $5 or more
- must make their donation to an Inland Revenue Department-approved donee organisation and keep the receipt
- can claim one third of the total donations they have made in one tax year, eg Manu donated $30,000 in one tax year (1 April – 31 March). She can claim back $10,000
- cannot claim back more than one third of their total taxable income for the year, eg Peter donated $60,000 in one tax year (1 April – 31 March). One third of his donation is $20,000. However, Peter’s total taxable income for that tax year was $15,000. One third of his taxable income is $5000. Therefore, Peter can claim back only $5,000
- Claims must be made within a period of four years following the year the donation was made.
Payroll giving is a way for individuals to donate to an organisation straight from their pay. This means the individual can receive their tax credits immediately rather than having to file for them at the end of the financial year. However, individuals can only participate in this scheme if their employers are eligible and choose to offer it.
Incentives for individuals
Individuals receive the same 33.33% tax credit through payroll giving as through other methods of donation, eg Angela donates $30 per pay. This $30 goes to the donee organisation, but Angela’s pay is only about $20 less, as the remaining $10 is a tax credit and immediately subtracted from the amount of tax Angela pays per pay period.
This method of donation also removes the need to file a tax credit claim form (IR526).
Good things about this scheme
Because individuals do not have to do as much paperwork and can get tax credits immediately, it is easier for them to donate to your organisation.
Volunteers and honoraria
For the people who give their time, rather than money, to your organisation there are two types of compensation.
Reimbursement for expenses
If volunteers have to spend their own money while carrying out tasks for you, it is common to reimburse them. This might be for things such as petrol. There is no tax charged on reimbursement.
When you are reimbursing volunteers ensure you file the correct receipts. If you do not provide the receipts with your tax return, the reimbursement will be treated as honoraria and taxed.
An honorarium is a token payment, made at less than market rate. If people are providing you services on a volunteer basis but you would like to give them some payment in return, these payments are honoraria.
In terms of tax, honoraria are treated as schedular payments. This means you must withhold tax at a specified flat rate, regardless of the individual’s normal tax rate. For honoraria, the specified rate is 33%.
It is important to be aware of the current rules around reimbursement and honoraria. Find out more:
- Download the Guide for Arts and Cultural Groups at payrollgivinginfo.org.nz
- IRD website