Effect of deregistration on fringe benefit tax and donee organisation status
Issue: Consequences for donors should be dealt with at an administrative, rather than legislative level
Clauses 110
Submission
(Sue Barker)
Loss of registered charitable status does not necessarily mean loss of donee status.
The consequences for donors of donations made to a charity that is subsequently deregistered would be better dealt with at an administrative, rather than legislative level.
Comment
Officials disagree with the submission.
The proposed amendment is intended to ensure that donors have a greater level of certainty that their donations tax relief will not ordinarily be reversed in circumstances when they have made a bona fide monetary gift and the entity they have donated to is later deregistered. We do not consider that the proposed intention can be achieved by continuing to deal with this matter at an administrative level.
If an entity is removed from the charities register, and before deregistration it ceased to comply with the requirements to be a donee organisation, then the donations relief claimed for donations made in the period after the date of non-compliance can be reversed by Inland Revenue. In practice, this requires Inland Revenue to approach each donor for evidence of the amount and circumstances of their gift, which can be onerous. We did not consider that this outcome was satisfactory for donors, and believed that it might discourage charitable giving if people were concerned that any donations tax relief could later be reversed.
Recommendation
That the submission be declined.
Issue: Extending donee status to all registered charities
Clause 110
Submission
(New Zealand Law Society, Sue Barker)
The proposed amendment to section LD 3 will allow registered charities to have donee status even if they carry out their charitable purposes wholly or mainly overseas. It will therefore allow donations to overseas-focussed charities to be eligible for donations tax credits. This will render schedule 32 of the Income Tax Act 2007, and the careful vetting process by which overseas charities are able to become listed on schedule 32, largely redundant. It is not clear if this result is intended.
Comment
The submissions are correct in noting that this drafting has resulted in an unintended change. Officials did not intend to extend the scope of the donations tax credit regime to all entities registered on the charities register. As the submitters note, the current drafting would make all entities that are registered on the charities register “donee organisations”, and therefore make all donations of $5 or more eligible for donations tax relief.
Recommendation
That the submission be noted.
That new section LD 3(1)(ab) in clause 110 be redrafted to ensure that it achieves its policy intention.
Issue: No protection for donors in relation to gifts to approved donee organisations on Inland Revenue’s website
Clause 110
Submission
(New Zealand Law Society)
The protection afforded by new section LD 3(1)(ab) should be extended to donors who have made donations to entities included on the list of approved donee organisations, which is maintained on Inland Revenue’s website.
Comment
The submission raises a valid point but further work is required before a decision can be made to extend the protection for donors in this situation. This work can be carried out as part of the current tax review of donee organisations, which is on the Government’s tax policy work programme.
Recommendation
That the submission be noted.
That the submission be considered further as part of the current tax review of donee organisations.