Not-for-Profit came across this article in a recent edition of the Missions Interlink newsletter. Organisations which operate, or have an interest in operating, overseas need to be aware of this subject.
The article is reproduced in full below and can be read in the MI newsletter here
POTENTIAL DONEE STATUS SHIFT
Frances Tagaloa, Chief Operations Officer of Tandem Ministries brought to our attention a discussion document that suggests the IRD may tighten up what they regard as “wholly or mainly” with regard to donated funds use.
Under the Income Tax Act 2007, an individual donor can get a tax refund of 33.3% of the value of donations over $5, and donations made by companies and Maori authorities get an income tax deduction for the amount of the gift.
But in both cases, tax breaks are only available if the donations are used “wholly or mainly” in New Zealand.
In 2010 the InterChurch Bureau (ICB) provided its members (including Missions Interlink) with a position paper that interprets “wholly or mainly” as being more than 50%. At the moment the IRD would agree, however the internal document we saw suggests that they reconsider this position. The issues paper recommends that, “it might be more consistent with the intent of the current law if ‘wholly or mainly’ had a much higher minimum level – possibly as much as 90%.”
While a long way off being confirmed by the IRD (if at all), this could throw a spanner in the works of any mission organisation that is currently providing tax deductible receipts for donations designated for offshore use, to a missionary or missions project for example.
Even if the money is distributed in New Zealand (e.g. to a missionary’s bank account) the IRD is interested in where the money is applied.
The intended end-use of the donation is their primary point of concern. Back in 2010 mission organisations saw the potential for this shift and split their accounting systems to separate local from offshore.
Many established two trusts, one focused on their NZ operations (more than 90%), which was awarded donee status, and another on their overseas activities, without donee status.
Systems were then set up so that only funds used in NZ operations were eligible for a tax-deductible receipt.