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Charities' funding allocation rules under consideration

Contributor:
Fuseworks Media
Fuseworks Media

Feedback is being sought from the not-for-profit sector as Inland Revenue considers the rules over who can operate as a donee organisation in New Zealand.

A Draft Interpretation Statement is out for consultation, which looks at whether an organisation is "wholly or mainly" applying its funds to New Zealand purposes.

The statement sets out how IR will interpret the Income Tax Act when it applies to donations.

Currently it is accepted that 51% or more of donations and other funds held by an organisation must be put toward local projects but the new rule proposes a higher threshold at 75%.

Public Rulings Director Susan Price says this is important as it affects the organisation’s donee status and the ability of donors to get a tax credit or deduction for their gift payment.

"This has implications for the donee organisations that apply their funds to overseas purposes."

"Some may need to reorganise themselves to suit the new threshold and are encouraged to make contact with us to talk through their situation."

The draft statement proposes some ways of calculating the minimum 75% threshold and suggests that organisations monitor their compliance with it every year.

"The onus will be on the organisations to show that they are applying the appropriate amount of funding to New Zealand projects," Ms Price says.

"Some flexibility is built into the rules to allow a donee organisation to fall under the threshold in a particular year, such as when it has responded to an overseas natural disaster."

Donee organisations that have been approved by Parliament will be unaffected by this proposed rule.

The statement, when finalised, will apply from the 2018-19 income year.

The full consultation document can be viewed here: http://www.ird.govt.nz/resources/4/0/404f59cf-5340-4b40-ba40-6bc92ae483db/PUB00295.pdf

A two-page factsheet has also been created to highlight the main issues under consideration: http://www.ird.govt.nz/resources/4/6/465dd71f-686e-4813-a9a7-4795a749e58c/PUB00295+Factsheet.pdf

Consultation closes on 30 November 2017.

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