We had one of our clients approach us on a query about making donations, from his business, and what the money implications would be.
Let’s begin with the basics. You can donate as much or little to anyone you like. But if you’d like to be able to get some tax credits from Inland Revenue for your donations, there are rules to follow:
The first – All donations, personal or business – must be a minimum of $5.00 dollars and be to a charity listed on the Inland Revenue’s approved Donee Organisation list.
Secondly – The donation must be a complete gift. The wording Inland Revenue has for donations is:
“A donation is an unconditional gift only if the giver receives nothing in return”.
This means you or your business must not get any ‘return’ on that gift. A charity giving you a regular advert in a charity newsletter in return of donated funds, is not a ‘donation’ amount since you are receiving ‘advertising’ in return. Attending a charity fundraiser event e.g. where you have paid for tickets is not a ‘donation’ to that organisation – as most likely you will be receiving a meal, drinks etc on the night, so you are getting ‘something’ in return regardless of ticket cost. (This could be more classified as a business expense at 50%, depending on details).
But should you or your company decide to make a spontaneous cash donation on the night, clearly separate from the cost of ticket that had meals or drinks, yes, that may be recorded as a donation. It’s a clear gift of money with no expectation of return on that cash giving. But, if you take part in bidding on any auction of donated prizes during the evening, then no, it’s not a ‘donation’ by Inland Revenue’s definition, as you receive ‘something’ for your bidding regardless what the item is, or how little or high the bid was. Per Inland Revenue rules, you must get nothing in return.
When the above criteria are followed, tax credits are awarded as follows:
For individuals/sole traders, you can claim on 33% of each dollar of the donated funds, to come off your tax liability owning at year end. Note, the total donations you claim can’t exceed your taxable income for the year. If they do, you can claim donations up to the amount of your taxable income which would allow you a maximum 33% tax credit off your tax liability bill.
For businesses – at financial year end, the donated amount comes off whatever net income your company made, and the balance is then presented to Inland Revenue as ‘taxable income’. So overall – you’ll reduce your company profit balance, but your company pays less tax. But the maximum donation you can claim on, however, is limited to being equal or less than the net income (profit) before the donation amount was deducted. (Make sure receipt shows your Company name, not your name). Click on here for: Approved Inland Revenue Charities
If you have any further questions – do contact me if you have any questions or need professional advice.