Tax Incentives Urged For Giving In HB

The Community Foundation Hawke’s Bay is urging the Government to increase tax incentives next year for those who give money to charity.

Increased incentives would help communities help themselves in almost every sphere – from recreation and arts and culture, to emergency and social services, conservation and the environment, said a trustee, accountant and tax adviser Cedric Knowles, in Hastings today.

“Civilised society encourages philanthropy and enables greater generosity,” he added.

“Imputation credits should be refundable for tax purposes. As an alternative an exemption or supplementary credit system could apply in respect to tax-exempt entities.

“Gift giving by business entities should be treated consistently and should be fully deductible for income-tax purposes, with no cap on the level paid.

“And the cap of $630 per taxpayer for income-tax rebate available to individuals should be removed or significantly raised,” he said.

When companies declare dividends the dividend is paid as a net amount. That is because there has effectively been tax deducted. The amount of tax is known as an imputation credit. Taxable entities and individuals are thus able to claim this amount against taxable income. But charities are exempt from paying tax and are therefore unable to claim the imputation credit against taxable income.

“This means that a body which is intended to be a non tax-payer is, in effect, paying tax. Furthermore, the current tax regime makes it more advantageous for charities to invest overseas than in New Zealand. (Overseas shareholders are entitled to a supplementary dividend from the company in which they hold shares.)

Removing the cap on tax rebates for donations made by individuals would bring New Zealand in line with both the UK and Australia. The current individual maximum rebate of $630 is easily reached by people in most income brackets. The rebate provides little incentive for those who are able to make significant donations to do so.

Removal of the threshold would result in greater generosity by more New Zealanders and would encourage more substantial gifts.

Removing the tax rebate threshold would encourage endowments and bequests and would support payroll giving – the voluntary deduction of gifts when a payroll is made up. If a cap is retained it will make tracking of payroll giving onerous and complicated.

The UK Government has shown an awareness of the need to support smaller companies by reducing compliance costs and rewarding generosity within a simplified tax structure. For example, any company with fewer than 500 employees, which sets up a payroll-based giving scheme before December 2006 is entitled to a Government grant of up to ₤500 to assist with the costs of doing so. The British Government has also offered to match employee donations pound for pound, up to a maximum of ₤10 per employee every month for six consecutive months.

“Government support is essential for encouraging greater giving,” Mr Knowles said.

Australia in particular has found that since removing their cap on corporate donations the way in which companies give has tended towards the provision of “untagged” donations and away from the more restrictive sponsorship approach.

All of these changes would greatly assist Hawke’s Bay’s community foundation, which only yesterday considered applications for $242,000 in grant assistance for Hawke’s Bay groups, not one of them a sporting organisation. “Naturally, we do not have the funding for distribution of money on this scale every couple of months. The applications were in good order and the organisations were productive, but we could not meet the demand. We will not be able to build up the endowments and nest eggs that can be directed our way over the next few years.

“Our role now is to encourage the Government to increase the incentives for giving that are inherent in New Zealanders. It is another way in which the foundation can enable people to follow their natural instinct for giving and to support the community in which they live.”

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