18 October 2006
Tax incentives for Charities require careful thought
Earlier today the Government released a discussion document outlining a range of possible tax incentives for charitable
organisations intended to encourage philanthropy in New Zealand. The work has been undertaken in response to a
commitment provided to United Future in its support agreement with the Government.
It's great to see the Government acknowledging the value of philanthropic activity to New Zealand and seeking to
encourage it, says Ernst & Young Tax Director Geof Nightingale, but the Government must be cautious about the design of tax incentives used to
achieve that objective.
"Tax incentives are often not the best way to achieve a policy objective as they create costs and distortions in the
system. Some of the tax incentives raised in the document, such as a volunteer's rebate, would cause significant
compliance costs both on Inland Revenue and Charities. Further, such a measure would mean distortions between
volunteering for registered organisations and more informal voluntary labour in one's community, neighbourhood or family
“Broader based changes such as the deductibility of charitable donations in excess of the current rebate threshold would
remove artifical restraints on charitable giving created by the current capped rebate and deduction levels. It may not
significantly increase compliance costs as many large donors will already be filing tax returns.”
"Simplifying the current tax treatment of charitable giving and interactions between the charitable sector and
contributors is welcome. However, further tax incentives need to be carefully analysed as to whether they achieve the
broad objective without creating excessive compliance costs."
"As an alternative to creating new tax incentives the Government might be better providing people with tax cuts so that
they've actually got more money to give and supporting philanthropy with public awareness campaigns."