Call on government to revise tax law to include charitable tax breaks for goods as well as cash

By Amanda Morrall

An organisation representing New Zealand's leading businesses is backing calls to revise tax laws so that goods and services donated to earthquake ravaged Christchurch will receive the same tax treatment as cash.

Business Roundtable chairman Roger Partridge said Monday the issue been discussed in a series of email exchanges with members who were being urged to 'contact Government with a view to securing a law change.'

"I think there are a lot of businesses looking to donate goods in kind and it does seem to make sense for them to be treated in the same way as cash.''

Partridge said while he was personally 'broadly in favour of the idea' he had not had time to take any action beyond participating in discussions.

"I think there are lot of businesses looking to donate goods in kind and it does seem to make sense for them to be treated in the same way as cash."

The Business Roundtable has representation the country's leading and most influential companies. Partridge himself is chairman of law firm Bell Gully.

As it stands, charitable tax laws only apply to gifts of money, not goods in kind. Donors are eligible for a 33.3% tax deduction.

Wellington tax adviser Jeff Owens, in an open letter to Prime Minister John Key, Minister of Revenue Peter Dunne, and Commissioner of Inland Revenue Bob Russell, proposed last week that the Income Tax Act of 2007 be revised to define a gifts as cash and "verifiable money's worth.''

Owens said he had been approached by several companies that were wanting to donate goods while still receiving the tax treatment they would get donating cash.

"As it stands you can donate NZ$1 million in cash, but if you want to donate NZ$1 million worth of pre-fab buildings, you don't quality,'' he said.

While he didn't think the tax law in its current form would deter those who wanted to donate goods, Owens said a more equitable tax treatment would be an incentive for many to help with the efforts.

"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.''

Dunne was not immediately available for comment.

See the letter's text below:

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”

Comment

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.

Our recommendation
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.

 

(Updates with quotes from Business Roundtable chairman Roger Patridge)