With the festive season coming up, those who are thinking of making donations should be mindful of IRD’s Statement released earlier in the week, “Income tax – donee organisations – meaning of wholly or mainly applying funds to specified purposes in New Zealand”.

The interpretation statement explains what is required to qualify as a donee organisation under the Income Tax Act 2007 in terms of how an organisation applies its funds to purposes within New Zealand and to purposes overseas.

As you may be aware if your donation is of $5 or more to a donee organisation then there will be a tax credit available to you. While in the past the tax credit was available on a less stringent basis, there have been changes made to the types of organisations that qualify as a donee organisation.

The statement further clarifies the interpretation of the requirement for a donee organisation to apply its funds “wholly or mainly” to charitable, benevolent, philanthropic or cultural purposes within New Zealand. The statement considers what is wholly and mainly as there has been confusion as to what percentage of activity is required within NZ. 

According to the statement the IRD will generally accept without further question that an organisation meeting the minimum safe harbour percentage of 75% has met the requirement. This means that any organisation that falls between 50-75% can still be subject to review.

While any tax credit available is based on the receipt you receive from the donee organisation, before you donate it may be worth considering if the donee meets the above requirement especially if you are anticipating making a large donation and receiving a tax credit for your donation.

Interpretation statement IS 18/05 applies from the 2019/20 income year.