New Zealanders are among the world’s most generous donors, according to research by the UK-based Charities Aid Foundation. Our small country has approximately 27,000 registered charities, and Philanthropy New Zealand estimates Kiwis make charitable contributions of around NZ$2.8 billion each year – and that’s excluding the value of volunteer labour. With so much money at stake for such important causes, it’s important to maximise the returns and impact of charitable investments.

Establishing a foundation: a strategic approach to charitable giving

Many prominent business people have taken the approach of setting up a foundation as the vehicle for their philanthropy. Annette and Neal Plowman, Sir Stephen Tindall, Hugh Green and the Todd family, among others, have made their mark on New Zealand’s philanthropic landscape in this way.

Take, for example, the Plowmans’ NEXT Foundation, which plans to invest NZ$100 million over 10 years on projects dealing with environmental and educational excellence. The Plowmans set up a charitable foundation with professional management and a clear strategic focus. They are using many of the same principles in their charitable giving as they did to build their business empire.

A well-funded foundation can take a long-term strategic approach to philanthropy. That long-term strategy, in turn, achieves a better return on this social investment. This type of approach is more difficult for causes reliant on annual donations, which can often rise and fall based on economic cycles.

What’s more, a foundation’s income is exempt from tax if the foundation is registered as a charitable entity. Its donors are also entitled to tax relief for the donations they make.

Tax benefits for individuals and family trusts

You don’t have to be Sir Stephen Tindall or a member of the Plowman family to maximise your charitable donations. An everyday example is a donation that many Kiwi households make: school fees. It’s not widely known that a tax rebate is available for the ‘donations’ most parents are expected to pay to state schools, as these are not ‘tuition fees’.

One of the most effective ways of ensuring you maximise the benefit of your donations to charities is to make sure you file a rebate claim each year. Individuals who donate to charities are entitled to a rebate, but must remember to get a receipt in order to claim this. And no rebates can be claimed for giving away your assets to charities; only for making cash donations.

Based on statistics released by Inland Revenue, a large proportion of donors (potentially the majority) fail to claim any rebates for their donations. And even those who do file a claim don’t necessarily include all their donations.

As an alternative to making personal donations out of your after-tax income and then claiming back a credit, it’s possible to make donations through an ordinary family trust. This means that no tax is ever paid on the income funding the donation. However donations by a family trust need careful planning to ensure the right types of income are available for distribution by the trust.

A donation from a family trust must come from income that has not already been taxed: income earned from interest is a good example. On the other hand, income from corporate dividends is not allowable: the company paying a dividend has already paid tax on its underlying income.

Charitable giving by businesses

Businesses are increasingly incorporating charitable giving into their broader strategies, with a focus on corporate social responsibility and making a contribution back to the communities they operate in. For example, our own PwC Foundation was set up to make a significant and lasting impact in the community through activities carried out by our people, clients and community partners.

Businesses need to consider how to structure their charitable giving. A suitable structure could involve establishing a separate trust with independent governance, having a charitable strategy as part of its people strategy (for example, giving staff volunteer leave) or simply making corporate donations.

Companies and businesses can get a tax deduction for charitable donations up to the level of their net income in the year. Former limits on tax deductions for donations were removed in 2008. This change makes it easier and more compelling for businesses to consider what level of charitable support to provide. Factored into that decision should be the fact that the deduction is worth almost a third of whatever is donated, which may allow a higher level of donations.

Making a tangible impact

Of course, it’s not always about giving money. For example, in PwC’s most recent Family Business Survey, Les Mills Chief Executive Phillip Mills shared his views on giving back through his business. He doesn’t want to only build a global business. For him, the important part is making the world a better place – not only through fitness, but also by leveraging the Les Mills brand to influence environmental and social causes of significance to him.

Giving to charity now, rather than leaving some of your estate to charities in your will, is something to consider. It may make more sense to donate while you’re earning and enjoy seeing the benefits of your generosity in your own lifetime.

CHECKLIST

Is the charity you wish to donate to registered with the Charities Service (charities.govt.nz)?

Do you know how much the charity spends on administration fees, such as paying their director, versus how much is spent on the actual cause?

Do you know what your charitable rebate allowance is for 2016?

DEFINITIONS

Tax rebate: a refund paid by the IRD if the total tax paid exceeds the total tax owed.

Net income: total income from all sources less any allowable deductions or current year losses. If your only income is from your salary or wages, and you don’t have any tax-deductible expenses, your net income will be your annual salary or wages before tax.

PwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries with more than 195,000 people who are committed to delivering quality in assurance, tax and advisory services. Find out more and tell us what matters to you by visiting us at www.pwc.co.nz

PwC refers to the New Zealand member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

First published 16 November, 2016

By Brendan Catchpole

The editorial below reflects the views of the editorial contributor only and content may be out of date. This article is sourced from a previous JUNO issue. JUNO’s content comes from sources that it considers accurate, but we do not guarantee that the content is accurate. Charts are visually indicative only. JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.