A Week in Review
Donee Organisations – “Application of Funds” Requirement
IR has recently released IS 18/05, an interpretation statement that provides the Commissioners views on the qualifying requirement contained in section LD 3(2)(a) of the Income Tax Act, that a donee organisation must apply its funds (wholly or mainly) to specified purposes in NZ, namely of a charitable, benevolent, philanthropic or cultural nature.
Where a person makes a monetary payment of more than $5 to a donee organisation, which is not included in the Schedule 32 list, then provided the donee organisation satisfies the section LD 3(2)(a) requirements, the person is entitled to claim a donation rebate (33.33% of the amount paid for a natural person).
Historically the Commissioner has accepted cases, where provided the donee organisation was applying its funds more than 50% to the specified purposes, it was satisfying the “or mainly” criteria, and consequently entitled a donor to a tax rebate.
However, post a recent review of the legislative meaning of section LD 3(2)(a), IR has formed a view that its historical position was incorrect, the wording of the provision in fact requiring a more restrictive interpretation, and therefore the “or mainly” meaning being something more than a bare majority. Additionally, the review determined that it was also not possible to interpret the legislative provision with any great certainty.
Naturally the latter statement is of little assistance to an organisation attempting to self-police its donee status, and further to be able to provide some level of assurance to its donor’s that a tax rebate is available. In an attempt to provide some certainty to the interpretation issue therefore, IS 18/05 espouses the use of a new “safe habour” threshold by the Commissioner.
In accordance with the published “safe harbour”, provided the organisation can satisfy itself that it meets or exceeds the minimum safe harbour percentage, the Commissioner will generally accept without further enquiry that the organisation meets the “wholly or mainly” requirement of s LD 3(2)(a). The Commissioner has set the safe harbour percentage at a minimum of 75%.
IR also uses IS 18/05 to comment on other aspects of the legislative provision, including the meaning of the terms “funds”, “applied”, “funds are applied” and “when applied in NZ”.
IS 18/05 applies from the 1st April 2019 or the commencement of the taxpayers 2019/2020 income year if later.
Sharing with others – should we really?
Most of you are aware, that presently IR can share information it holds about a taxpayer with the NZ Police, once strict criteria has been satisfied, including that such information sharing will assist the NZ Police with detecting, preventing or prosecuting serious crime.
The Government is now considering whether the ability for the Inland Revenue to share otherwise confidential information, should be expanded to include the Serious Fraud Office and NZ Customs.
A discussion document has been released in this regard, and should you wish to have your say, submissions must be filed no later than 30th October 2018.
Richard Ashby BBus, CA, CPA
PARTNER
Em: [email protected]
Ph: +64 9 365 5532
Mb: +64 21 823 464