Transferring payroll donations to donee organisations

Clause 447

Issue: Responsibility for confirming the status of donee organisations

Submissions

(24 – New Zealand Law Society, 32 – KPMG, 35 – PricewaterhouseCoopers, 37 – Inter-Church Working Party on Taxation, 62 – Minter Ellison Rudd Watts, 68A – Corporate Taxpayers Group)

Employees should be responsible for ensuring that payroll donations are made to an eligible recipient of a payroll donation and required to confirm that a recipient entity is in fact a donee organisation. It would be unfair to place the onus on employers as it could expose them to claims from their employees for compensation for not determining properly the eligibility of the recipient entity. (New Zealand Law Society, Minter Ellison Rudd Watts)

Employers should be responsible for ensuring that payroll donations are made to a donee organisation. This is simply a matter of checking that a chosen entity is listed on Inland Revenue’s website as a “donee organisation”. (Inter-Church Working Party on Taxation)

Employers should not be responsible for monitoring the list of eligible organisations to ensure that the selected donee organisations are still entitled to receive charitable donations. Otherwise, employers would face significant compliance costs given the potential large range of donee organisations employees could ask donations to be made to. For example, there are 1,334 donee organisations with names beginning with the letter “A” alone. (Corporate Taxpayers Group)

Inland Revenue should provide further guidance to employers on what entities are donee organisations. (PricewaterhouseCoopers)

Comment

To be eligible to receive tax relief on payroll donations, these donations must be provided to a donee organisation.

Proposed section 24Q of the Tax Administration Act 1994 requires employers to check that the recipient entity chosen by the employee is in fact a donee organisation. A donee organisation is an organisation that is approved by Inland Revenue or that is approved by Parliament and listed in schedule 32 of the Income Tax Act 2007. A full list of donee organisations can be found at www.ird.govt.nz.

Officials consider that given the accessibility of the Inland Revenue list of donee organisations, it seems reasonable to require employers to check whether an entity is on the list. Employers can manage the compliance costs associated with this requirement by limiting the number of donee organisations that can participate in their payroll-giving scheme. Furthermore, this requirement does not preclude employers from requiring that their employees confirm if the chosen organisation is a donee organisation. Therefore, officials do not recommend any change to the legislation.

We agree, however, that Inland Revenue could raise employer and employee awareness about the donee organisation list through Inland Revenue’s Tax Information Bulletin.

Recommendation

That responsibility for confirming the status of eligible recipients should remain with the employer.

That Inland Revenue publicise the donee organisation list.

Issue: Record-keeping requirements to verify the transfer of payroll donations

Submission

(32 KPMG, 35 – PricewaterhouseCoopers, 67 – New Zealand Institute of Chartered Accountants)

The record-keeping requirements for verifying that payroll donations have been transferred to the correct donee organisation should be clarified.

Comment

Proposed sections 22(2)(ed) and 22(2)(ke) of the Tax Administration Act 1994 provide that employers must maintain sufficient records to enable Inland Revenue to determine the transfer of an employee’s payroll donation to the recipient of that donation.

Officials consider an employer’s bank statement showing the transfer of funds to the recipient would constitute a sufficient record. This matter should be clarified in Inland Revenue’s Tax Information Bulletin, which will be published following enactment of the bill.

Recommendation

That the submission be noted.

Issue: Donee organisations should issue receipts for payroll donations

Submissions

(35 – PricewaterhouseCoopers, 67 – New Zealand Institute of Chartered Accountants)

The bill should require that the entity receiving a payroll donation issues a receipt or other form of acknowledgement to the employee. (New Zealand Institute of Chartered Accountants)

Inland Revenue should also have mechanisms in place to ensure it can determine when a donation has not been paid to the relevant recipient, or when the recipient is not an eligible donee organisation. For example, the issuing of a tax invoice by the recipient could be an appropriate audit mechanism to ensure payments have been received, and to confirm which entity has received them. (PricewaterhouseCoopers)

Comment

As proposed, there is no requirement in the bill for donee organisations to issue receipts to employees who have made payroll donations. The reason for this was to avoid the potential for “double-dipping” – where employees claim tax relief on their payroll donations throughout the year and then use the receipt to claim the tax credit through the end-of-year tax credit claim process.

Because of the potential threat of double-dipping, we do not recommend that donee organisations who receive payroll donations be required to issue receipts to employees.

Recommendation

That the submissions be declined.

Issue: Disclosure of the name of the recipient organisation to Inland Revenue

Submission

(35 – PricewaterhouseCoopers)

The name of the recipient organisation should be included in the employer monthly schedule. Requiring employers to keep a record, and file details with Inland Revenue of the entities to whom an employee has made a donation, would be a way of monitoring whether donations have been paid to eligible entities and provide an audit trail when determining whether a payroll donation has in fact been transferred.

Comment

Officials do not consider it necessary for employers to provide the name of the recipient organisation in the employer monthly schedule. The proposed record-keeping and disclosure requirements should be sufficient for Inland Revenue to undertake effective audits of payroll-giving schemes.

Recommendation

That the submission be declined.