Following the Christchurch earthquake, and concerns raised by clients we have recommended that gifts by way of verifiable goods and services qualify for the Part LD donations deduction in the same way as cash. We have made this by way of open letter to the Prime Minister, Commissioner and Minister of Revenue.
Below is the substance of our submission, followed by a link to download the full letter as a PDF.
Donations rebate – urgent income tax amendment
We recommend and request urgent amendment to section LD 3(1) of the Income Tax Act 2007 to define a “charitable or other public benefit gift” as being:
- (as currently defined} a gift of $5 or more
- (to include) “or verifiable money’s worth”
In response to recent disasters and in particular the September 2010 and February 2011 Christchurch earthquakes, many individuals and organisations have made donations of goods and services as opposed to cash.
Where the donor has expertise in their field and such goods or services are urgently required, this may in fact be more efficient than donating cash.
The definition of “charitable or other public benefit gift” is currently considered by IRD and others to mean money, and in particular not “money’s worth”. On this basis there may be no tax deduction for the donation.
A company or individual could potentially structure round the restriction to donations of cash by:
- Selling their products or services to a registered charity at cost, or even market value
- Donating the proceeds back to the same charity
This would achieve the same outcome but in a somewhat contrived way.
Our concern (shared by a number of our clients) is that IRD could be placed in an awkward position with the obvious bad publicity that would ensue, should they find themselves having to deny a tax deduction to those businesses who have voluntarily put their hands up to help by donating stocks or equivalent in a form other than cash, or alternatively who have structured round the ‘cash’ limitation in the way noted above.
We recommend that the legislation be amended to define a charitable or other public benefit gift as a gift of $5 or more…or the equivalent value donation of goods or services, provided that gift has that has a defined asset cost or book value in a tax registered entity, or otherwise provable cost price.
In the meantime we recommend a public statement by the Minister of Revenue along the lines that
- such an amendment will be made
- with retrospective effect to (say) the September 2010 Christchurch earthquake (or such earlier time as the Government deems appropriate)
- pending such amendment, a taxpayer that sells goods and services to a charity and then donates the proceeds back to the same charity will be entitled to the deduction or rebate as appropriate.