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Inland Revenue
Inland Revenue
Inland Revenue

Tax Policy

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Payroll giving

Overview

Clauses 232, 233, 235, 236, 379, 384, 402, 403, 408(23), 408(38), 408(89), 408(99), 442(1) and (3), 443, 447, 458 and 504

Eleven submissions were received on the proposed payroll-giving scheme. Five confirmed their support for the concept of payroll giving and the tax credit mechanism of delivering tax relief on payroll donations. Even so, most submissions were concerned to ensure that the compliance costs of the scheme for employers were kept to an absolute minimum, otherwise the benefits of the scheme might not be fully realised.

A common theme throughout submissions was the need to provide greater clarity in legislation on the following matters:

  • that participation in payroll giving is voluntary for employers and employees;
  • the roles and responsibilities of employers, employees and donee organisations; and
  • sanctions for non-compliance.

For the most part officials agree with the submissions as they would ensure that underlying policy intentions are achieved, improving the overall integrity of the scheme.

A further prevailing theme in submissions has been the desire for the legislation to prescribe the details of the payroll-giving scheme arrangement. As proposed, the bill simply provides for the tax mechanism to deliver tax relief for payroll donations on a pay-period basis. It does not prescribe the nature of the arrangements or relationships between employers, employees and donee organisations, or how the schemes should be set up. Matters that would need to be decided upon by the relevant parties include:

  • the process for establishing a scheme that works best for all parties concerned;
  • the use of intermediaries;
  • the level of employee education about payroll giving;
  • the process for selecting donee organisations to participate in the scheme;
  • the number of donee organisations that can participate in the scheme;
  • the level of engagement between donee organisations and employee donors; and
  • any minimum payroll donation threshold.

The non-prescriptive nature of the proposed scheme is intended to provide flexibility to allow relevant parties to work together to establish schemes that work best for them and to manage the associated costs. A key policy outcome of payroll giving is that it has the potential to establish genuine partnerships between businesses and the community, while supporting employees’ community activities.

The voluntary nature of the scheme also reflects the ethos of giving, and sets up a system that facilitates, but does not mandate, giving.

We propose to outline these points in Inland Revenue’s publication, Tax Information Bulletin, which will be published following enactment of the bill.

The proposed scheme would deliver payday tax relief on payroll donations by way of a tax credit. Employees would receive a tax credit on the amount of their donation made each payday. Employers would offset the credit against the PAYE calculated on the employee’s gross pay. The tax credit would be calculated on the set rate of 33⅓%. Employees who make payroll donations would not have to keep receipts or wait until the end of the year to claim the tax benefit of their donations. The scheme would also operate in addition to the current end-of-year tax credit claim system. Therefore, employees who do not or are not able to give through payroll giving can still claim tax relief on their donations through the end-of-year process.