Using donation tax refunds more wisely

Tax. Its not something most of us get excited about. So perhaps its no wonder that nearly three quarters of New Zealanders who make charitable donations each year don't bother to claim their donation tax refund. Some estimates say there is $200 million in unclaimed donation tax credits that could be claimed.

So as the end of the financial year looms, think about claiming those donation tax credits, or planning better for next years donations. If you don't want to use the tax credit yourself, you could donate it back to the causes you care about, making an even bigger impact.

How do donation tax credits work and how can I claim them?

Lets start with some basics about how tax credits work. If you make donations of more than $5 to an eligible registered charity you can claim one third of your total donations in a year as a tax credit back from the IRD. Donation tax credits are capped at one third of your total income, so if you've made an extra large donation or are thinking about doing so, speak to The Gift Trust first so we can help you plan.

To claim your donation tax credit you need to fill in an IRD form (IR526) and provide all your donation receipts. If you use a Gift Trust account, this will save you a lot of time as we provide you with one donation tax receipt at the end of the financial year for all your donations, no matter how many donations to charities you've made. So there'll be no more rummaging around for those receipts. To find the IRD form and for more information on donation tax credits go to the IRD donation tax page.

How can I make more impact on charities by using my donation tax credit?

Many people don't realise that they can donate a tax credit directly back to a cause they care about, if they don't want to keep it themselves. This means you could be donating an extra third to the causes you care about, at no extra cost to you. So if you're not claiming, those charities are really missing out. If you have a Gift Trust account, you can have your donation tax credit refunded to your Gift Trust account, meaning you can distribute this extra cash to the charities you care about in the following year. Easy.

To get some ideas of how to think more creatively about your donation tax credits, take a look at our donation tax case study. For more advanced donation tax planning examples, take a look at our guide to donation tax for professional advisers.

And if you really can't be bothered to fill in those IRD forms, or have an accountant do it for you, there are now companies who will do the work for you (at a cost of course). Some include Smart Donation and WooHoo.

If you'd like to discuss how The Gift Trust can help you with your donation tax planning, get in touch and we're happy to chat through ideas.