Institutional and individual taxpayers claiming tax credit for ‘dubious donations’ made to charity would get into trouble with the Inland Revenue Department (IRD), under a new alert issued last week.
An IRD Revenue Alert warned people not to claim tax credits for so-called donations that ‘are not true gift of their own money.’
Such alerts, issued by the IRD Commissioner should be treated as serious announcements and the rules followed implicitly.
Group Tax Counsel (Assurance) Manager Graham Tubb said gifts of $5 or more made during the financial year could be treated as charitable donations.
But such gifts or charities must be voluntary and provide no return material benefit to the donor.
“While almost everyone who is donating money is doing it correctly, IRD is seeing cases where arrangements have been entered into where the payment made to a charity is not a true gift of money.
“We have seen examples where an individual might give money to a charity, on the understanding that the money is used to purchase goods or services from the individual. The individual then claims a donations tax credit to which they are not entitled,” he said.
According to one source, companies or individuals sponsoring cultural programmes by purchasing tickets and selling them to their customers at cost, below cost (or in some cases above cost) would also be treated as ‘gifts given for something in return’ and hence exempt from claiming tax credit.
Mr Tubb said that a charity might undertake a fundraising activity and pass the funds on to an individual closely associated with the charity.
“The individual then appears to donate the money to the charity. The individual benefits by obtaining a tax credit for the money donated, when in fact the money did not belong to them and neither does the tax credit,” he said.
IRD does not regard these payments as gifts or donations and therefore they are not eligible for any credits, he said.
Mr Tubb said that his Department will take steps to recover any ineligible payments and may impose penalties in such cases.
“It is our view that some of the arrangements may amount to fraud and prosecution may be undertaken where appropriate. Anyone who has concerns regarding their donation or tax credit should contact their tax advisor or our Department,” he said.
For more information, visit www.ird.govt.nz