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ARE YOU ENTITLED TO DONATION TAX RELIEF?

From 1 April 2008, individuals have been able to claim a rebate on all charitable, or other public benefit, gifts made in a tax year if they meet the requirements. The amount of the rebate is calculated based on the formula: gifts x 33 1/3%.

A company that makes a charitable or other public benefit gift in a tax year is entitled to a deduction to a maximum of its net profit excluding donations for any donations that it makes.

A “charitable or other public benefit gift” means a gift of $5 or more that is paid to a society, institution, association, organisation, trust, or fund that is of the sort listed, or is approved as a “donee organisation” and included in schedule 32 (of the Income Tax Act 2007).

A gift can include a subscription paid to one of the above that does not confer any rights arising from membership in that organisation, but does not include a testamentary gift.

To be able to claim a rebate, the organisation to which the gift is made must not be carried on for the private pecuniary profit of an individual. The organisation must apply those funds wholly or mainly to charitable, benevolent, philanthropic, or cultural purposes within New Zealand.

Tertiary institutes, schools, charitable trusts, and public institutions can all fall within these criteria.

This range of eligible donees is wider than the class of charities under the Charities Act, but still has some reasonably strict criteria.

How it affects you

 When you are making a donation, if you plan on claiming a deduction (for a company), or a rebate (for an individual), make sure that you have checked that the organisation that you have given money to qualifies.

Some organisations’ commonly thought to be “charitable” in the donee sense, such as Greenpeace and World Vision, have only one limb that is charitable, namely Greenpeace Educational Trust and World Vision NZ Limited, respectively. If you get it wrong, there may be penalties. There have been 14 charities de-registered by the Charities Commission in the last year, and a number of high profile Court cases, where organisations’ have been found to not meet the requirements of being a charity.

You will also need to ensure that you retain a receipt as evidence of the donation made.

EARTHQUAKE DEPRECIATION RECOVERY ISSUE.

The Canterbury earthquake and its aftershocks have resulted in the destruction of buildings, plant, and equipment. This has given rise to a number of depreciation issues:

One issue is the cashflow constraints of depreciation recovery income when the insurance proceeds exceed the tax book value of the destroyed asset. The Government has proposed relief for those affected (legislation to be effective 4 September 2010). The proposed relief is:

• Rollover relief will be allowed on depreciation recovered arising from insurance proceeds in respect of the Canterbury earthquake and its aftershocks;
• The election is on a class basis, with two classes identified, being buildings together with fit-out and “other” (i.e. plant and equipment);
• The fixed asset must be replaced by new or second-hand assets (the rollover assets) in the same class by the end of the taxpayer’s 2015-16 income year; and
• If the insured fixed asset was a building, the replacement building must be located inside an area covered by the Christchurch, Selwyn, and Waimakariri District Councils.

How it affects you

The amount of rollover relief available depends on the degree to which assets are replaced. This is to be determined by comparing the cost of the destroyed assets with the cost of the replacement assets. You must make and election to use rollover relief in writing. There are rules for how and when this must be done.

You (the owner) must also advise in writing with your income tax return, when the replacement asset(s) have been acquired and details of the deferred depreciation recovery offset into your adjusted tax value.

If you do not replace the destroyed asset, then to the extent that deferred depreciation recovered has arisen, it is brought to account as income at the earlier of:

• Your 2015-16 income year;
• The income year in which you made a decision not to replace the destroyed asset; or
• Any year in which you go into liquidation or bankruptcy.

If you are in any doubt as to how the relief applies to you, contact our team of accountants here at Gibson & Associates Limited.

POINTS OF INTEREST…

 The Inland Revenue Department has advised the interpretation published in a Tax Information Bulletin concerning deductibility of the cost of unsuccessful software development under section EE 39 of the Income Tax Act 2007 should not be relied upon from 1 April 2011, on the basis that this provision should not apply to capital expenditure that is never used in a taxpayer’s income earning process.

The Inland Revenue Department now communicates online via YouTube.

From 1 April 2011, the rules for verifying interested parties when dealing with land registrations have been tightened.

TO THE POINT…

“If you could kick the person in the pants responsible for most of your trouble you wouldn’t sit for a month.”

- Theodore Rossevelt

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