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Introduction
The amount we donate to
charities is a hot topic that is constantly in the media. A few weeks ago the National Australia Bank
released its Charitable Giving Index which showed the average Australian
donates $346 a year to charity. That
was followed by the release of a World Giving Index which found that New
Zealanders are donating even more money, ranking NZ as the world’s third most
generous country behind Myanmar and the US (Canada was fourth and Australia
fifth).
According to the NZ charity register, NZ’s registered charities receive about $1.2b each year in donations. The purpose of this paper is to look behind the figures to find out which charities actually receive that income, highlight any donation trends and draw out new insights from the charity data.
Donation analysis would not be complete without considering donation tax credits. We know that 365,500 individuals made a donation tax credit claim in the year ending March 2013, so the paper also looks at which charities have IRD approved donee status. Of course, whether a charity has donee status or not may not always be a deal breaker for donors. I took these two photos of people soliciting donations in Wellington last week – you can claim a donation tax credit for helping the Salvation Army but not the monkey. If the monkey could generate a tax credit for you, would it influence your donation decision?
Summary
Here are 10 insights you
will find in this paper:
1. Charities that receive,
or expect to receive, donation income: 56% (13,993) of total
registered charities recorded donation income in their most recent return,
amounting to $1.35b. 25% (6,194) of
total registered charities did not record donation income in their most recent
return, but told the regulator they expect to receive donation income in the
future. Combining these two groups,
there are 80% (20,187) of total registered charities that either receive, or
expect to receive, donation income.
2. Donation income as a
proportion of total charity income: Based on the most recent
returns filed by charities, donation income makes up only 7% of total gross income
in the sector (ie $1.35b / $18.25b).
3. Donation tax credit
claims: For the 2012/2013
financial year, 365,500 individuals told the Inland Revenue Department (IRD) they made donations of $655m and
as a result they claimed donation tax credit refunds totalling $218.3m.
4. Donation tax credit
trends: The number of
individuals making donation tax credit claims is steadily reducing, however the
total value of tax credits claimed is steadily increasing.
5. Charity donation income
trends: Over the last five
years, registered charities have received donation income that fluctuated between
$1.0-$1.3 billion per annum. This means there is potentially $600m in donations
each year which are not currently subject to donation tax credit claims.
6. Donations by sector: Charities that conduct
religious activities are dominant, both in terms of the number of charities
that receive donations (23% of charities that receive donations are religious)
and the value of donations actually received (45% of all donations go to
religious charities). Two sectors –
arts/culture/heritage and sports/recreation - have a high proportion of
charities that obtain donations compared to the amount of donations they
actually received. Surprisingly, environmental
charities rank low against charities operating in other sectors - only 3% of
charities that receive donations are environmental charities and they only
attract 1% of donation income.
7. Top 10 donation
recipients: The 10 charities that recorded the most
donation income in their last return were World Vision, the Church of
Latter-Day Saints, the National Assistance Fund, St John Ambulance, The
Salvation Army, the Roman Catholic Diocese of Auckland, the Association of
Jehovah’s Witnesses, The Red Cross, The Life Church, and Auckland University. All of these charities have approved IRD
donee status.
8. Charities heavily reliant
on donation income: Out of the 13,993 charities that reported
donation income in their most recent return, 34% (4,746) were heavily reliant
on donations as a source of income, ie their donation income exceeded half of
their total gross income. As the value
of donations increases, so too does a charity’s reliance on donations. At the small end, of the 917 charities that
received donations between $1 and $100, only 5% of these charities were so
small that donations were their main source of income. At the top end, out of the 1,562 charities that
reported receiving donation income between $100,000 and $1m, 74% of these
charities were heavily reliant on donations as their main source of income.
9. Donee status: My estimate is that
70-80% of charities with donation income have approved IRD donee status. Those that do not have donee status either do
not require it (for example because their only donation income is from trusts
or non-cash donations); they are not entitled to donee status because they operate
wholly or mainly overseas; they did not need to be on the donee list because
they automatically qualified (eg they were state / integrated schools or their
boards of trustees, and tertiary education institutions) or they mistakenly
believe they have donee status (and may in fact be entitled to it) but did not
indicate to the charity regulator that donations would be a source of revenue
and therefore IRD approval was never triggered.
10. NZ vs Australia: There are a number of
similarities and differences between NZ and Australia in terms of donation tax
incentives. Perhaps the most striking
difference is that NZ allows donation tax credits for donations to religious
charities (and, as stated above, 45% of total donation income goes to these
charities) however in Australia donations to religious charities are not
deductible.
_________________________________________
The details
1. Donee organisations
If an organisation is a
“donee organisation” then cash donations made to it by individuals will qualify
for 33 and 1/3% donation tax credits and cash donations made to it by certain
companies and Maori authorities will qualify for an income tax deduction.
Donee organisations must
either be organisations described in section
LD 3(2) or listed in Schedule
32 of the Income Tax Act 2007.
Section LD 3(2) refers to
a society, institution, association, organisation, trust or fund that is not carried on for the private
pecuniary profit of an individual, and whose funds are applied wholly or mainly to charitable, benevolent,
philanthropic, or cultural purposes within New Zealand. There are 24,883 such organisations recorded on Inland Revenue’s list
of approved donee organisations at the time of writing
this paper (27,919 organisations that received approval, less 3,036 which
subsequently had their donee status ‘ceased’).
Section LD 3(2) also refers to payments to certain
community housing entities, state and state
integrated schools or their boards of trustees, and tertiary education institutions
not carried on for the private
pecuniary profit of any individual. These
organisations do not have to be recorded on Inland Revenue’s approved donee
organisations list.
A key point to note is that none of the donee organisations
have to be registered charities to qualify for donee status. A well known example is Greenpeace of NZ Inc,
which currently holds IRD donee status even though it is not a registered
charity. Conversely, even if an
organisation is a registered charity, it will still not qualify for donee
status if funds are not applied wholly or mainly within NZ (unless it is listed
on Schedule 32). Schedule 32 lists
organisations that have Government approval for charitable donee status for
their overseas activities. These organisations must meet certain criteria, outlined in Inland Revenue
guidelines. Organisations are added to
the list each year – there are 110 on the list at the time of writing this
paper.
2. Rules for donation tax
credits and donation deduction claims
To be eligible for a tax
credit or deduction, a donation must be made to a donee organisation and be a cash
gift of $5 or more.
As explained in Inland
Revenue’s April 2008 Tax Information
Bulletin, from the 2009 income year onwards there were significant changes
to rules relating to donations and tax benefits:
·
The maximum limit on the
tax credit for donations made by individuals was increased (it used to be
$1,890, however now a claim can be made for all donations up to a maximum of an
individual’s taxable income for the year)
·
The 5 percent deduction
limit on donations made by companies and Māori authorities was increased (so,
similar to the situation with individuals, the deduction is now limited to the
amount that would be the company’s or Māori authority’s net income before
taking into account the donation deduction), and
·
Donation deductions for
companies were extended to apply to close companies not listed on a recognised
stock exchange.
3. Amounts of donation
tax credits actually claimed
According to the most
recent Inland
Revenue statistics, 365,500 individuals made a donation tax credit claim in
the year ending March 2013. They claimed
credits to the value of $218.3 million which is 33.3% of $654.9 million in cash
donations. Curiously, the number of
individuals making donation tax credit claims are steadily reducing, with a
fall of 8% between 2009 and 2013.
However, the total value of tax credits claimed are steadily increasing,
with a rise of 13% between 2009 and 2013, as shown in Graph A.
Graph A
Notes to Graph A
· Graph A does not include tax credits occurring through payroll
giving, which are relatively minor (payroll giving donation tax credits were $1.1m
in the year ending 31/3/12).
· Inland Revenue will release donation tax credit data for the
year ending 31/3/14 in December 2015.
· Donation deductions claimed by companies and Māori authorities
are not published by Inland Revenue.
4. Charities and
donations
All registered charities
must file an annual return with DIA Charities Services and disclose the total
amount of “Donations / Koha” they received for that year. As shown in Graph B, the trend over the last
four years has been fairly static, with aggregate donation income of between
$1.2-$1.3 billion received by 12,500-13,000 registered charities. The donations subject to individual tax
credit claims were only about half (52%) of total charity donation income in
2012 and 2013. This means there is
potentially $600m in unclaimed donations each year which could generate $200m more
in annual tax credit claims.* Note that
many charity returns for the year ending 31 March 2015 were due to be filed on
30 September 2015, so it is possible some are still overdue which could explain
the drop in the number of charities disclosing donations/koha in YE 31/3/15.
* The estimate of $200m
unclaimed tax credits is approximate only.
Adjustments would have to be made to arrive at a more accurate estimate
of the potential tax credit claims. For
example, adjustments could include:
- The donation tax
credits claimed on donations to schools and approved donee organisations that
are not registered charities (such as Greenpeace NZ Inc). Once included, they will increase the tax claim gap.
- The donation deductions
claimed by companies and Māori authorities, which are not shown on Graph
B. Once included, they will decrease the tax claim gap.
- Donations that some charities
have paid to other charities. Once
included, they will decrease the tax
claim gap.
- Donation income
recorded by charities that are not approved donee organisations. Once excluded, this will decrease the tax claim gap.
Graph B
Based on the most recent
returns filed by registered charities, 56% (13,993) of charities recorded
donation income (out of 25,163 charities registered charities that have filed a
return). Total donation income reported
by these charities was $1.3 billion. Graph
C shows the sector breakdown of the 13,993 charities that received donation
income. Graph D shows how the $1.3
billion donation income was actually distributed. Here are some observations from a comparison
of the two pie charts:
·
Charities that conduct
religious activities are dominant, both in terms of the number of charities
that receive donations (23%) and the value of donations actually received
(45%). They are far ahead of charities
operating in any other sector.
·
Two sectors –
arts/culture/heritage and sports/recreation - have a high proportion of
charities that obtain donations (10% and 6% respectively) compared to the
amount of donations they actually received (3% and 1% respectively).
·
It is curious that
environmental charities rank so low against charities operating in other
sectors. Only 3% of charities that
receive donations are environmental charities and they only attract 1% (14m) of
total donation income, ranking behind sports/recreation and animal
charities. The three largest recipients
of donation income were Royal Forest and Bird Protection Society, World Wide
Fund for Nature and Franklin Zoo. (Note
the Greenpeace of NZ Inc is not a registered charity, however it does have IRD-approved donee status).
·
The last-ranked sector in
terms of donations is the employment sector.
A total of 15 charities indicated they operated primarily for employment
and they raised donations totalling $335,393.
Graph C
Graph D
In addition to the 13,993
charities that filed a return and recorded donation income, a further 6,194
charities that filed returns (25% of total charities) told the charity
regulator that donations would be one of their sources of funds at some point
in the future, but did not record donation income in their most recent return. Assuming these charities do obtain donation
income at some point, then a total of 20,187 or 80% of charities will have
donations as a source of income.
The top 10 charities,
ranked by size of their donations, are shown in Table 1. Six of the top 10 are directly linked to
churches, with the four remaining charities being World Vision, St John
Ambulance, the Red Cross and the University of Auckland. Within the top 10, donations accounted for
between 1% and 100% of their total gross income. All 10 have IRD-approved donee status.
Table 1: Registered
charities with largest donation income in their most recent return
|
Charity legal name
|
Last return
|
Donation Inc
($m)
|
Total gross income ($m)
|
Donations as a % of total gross income
|
% spent overseas
|
IRD donee status
|
1
|
|
30/09/2014
|
$42.9
|
$57.0
|
75%
|
75%
|
Y
(Sch 32)
|
2
|
|
31/12/2014
|
$39.9
|
$87.7
|
45%
|
0
|
Y
|
3
|
|
30/06/2014
|
$30.1
|
$30.1
|
100%
|
0
|
Y
|
4
|
|
30/06/2014
|
$18.6
|
$242.0
|
8%
|
0
|
Y
|
5
|
|
30/06/2014
|
$17.5
|
$163.4
|
11%
|
3%
|
Y
|
6
|
|
31/12/2014
|
$15.6
|
$40.0
|
39%
|
0
|
Y
|
7
|
|
31/08/2014
|
$13.5
|
$14.0
|
96%
|
48%
|
Y
|
8
|
|
30/06/2014
|
$13.5
|
$38.2
|
35%
|
13%
|
Y
(Sch 32)
|
9
|
|
30/06/2014
|
$12.7
|
$15.5
|
82%
|
0
|
Y
|
10
|
|
31/12/2014
|
$11.6
|
$919.9
|
1%
|
0
|
Y
|
5. Charities heavily reliant
on donation income
Out of the 13,993
charities that reported donation income in their most recent return, 34% (4,746)
were heavily reliant on donations as a source of income, ie their donation
income was over half of their total gross income.
Graph E shows the size of
donation income reported by the 13,993 charities in their most recent return. It also shows the relative proportion of
charities that are heavily reliant on donation income. As you would expect, charities with only a
small amount of donation income are not reliant on donations. For example, 917 charities reported receiving
donation of $100 or less, and only 5% of these charities were reliant on
donations as their main source of income.
However, as the value of donations increases, so too does the reliance
on donations. For example, 1,562
charities reported receiving donation income between $100,001 and $1m, and 74%
of these charities were reliant on donations as their main source of income.
Graph E
5. Charities and approved
donee status
There are two main
reasons why a registered charity will not automatically get approved donee
status from IRD:
· As explained in the charity regulator’s Form 1: Application for registration as a charitable entity
(question 18), an organisation that wants donee status must indicate that
“donations / koha” will be a source of funds in the future when it applies to
be a charity. If it does not do this,
IRD will not assess and approve donee status.
However if this is overlooked in error, or circumstances change, a
separate application can be made to IRD at a later date.
· Question 20 in the charity regulator’s Form 1: Application for registration as a charitable entity asks
“What percentage of NZ sourced funds did you spend carrying out charitable
purposes overseas in the last financial year?”
The annual return used to ask a similar question although it has now
been removed, so the only annual indictor of overseas activity is the
requirement to quantify “grants/donations paid outside NZ”. This information is used by IRD to assess
whether the charity meets the donee status requirement of applying funds “wholly or mainly… within New Zealand”.
Unfortunately the IRD
Donee organisations database and the charity
register are not linked, so it is not possible to confirm precisely how
many of the 13,993 charities that reported donation income to the charity
regulator are also one of the 24,883 organisations recorded on IRD’s list. The
legal names for 49% (6,813) of the charities with donation income do match
exactly, so the balance either do not have donee status or their legal names
are recorded differently by IRD and the charity regulator. Many name mismatches could be manually
reconciled, for example trusts, foundations and boards often had different
legal names for IRD and the charity regulator.
My estimate is that the number of donation charities with IRD donee
status is much higher than 49% - probably in the ballpark of 70-80%.
I
reviewed some of the largest (unmatched) charities with significant donation
income and my findings are in table 2. In
summary, the reasons the charities did not have donee status were:
·
They
did not request or require donee status, because their only donation income was
from trusts (Polaris), or the settlement of an asset (John Nesfield Trust), or
debt forgiveness (Ohinetahi)
·
They
were not entitled to donee status because they did not operate wholly or mainly
within NZ and were not listed on Schedule 32 (World Animal Protection;
Effective Charitable Trust; Asia Harvest Trust)
·
It
was not clear why they were not on IRD’s donee list but they appeared to be entitled to donee status and
had told the charity regulator that donations would be a source of income. (See Middlemore Foundation for Health
Innovation, which explicitly tells donors on their website that donations will
qualify for a tax credit; HRL Morrison Foundation, which received a donation
from a related limited liability company).
·
They
were a college and by virtue of s.LD 3(2) of the Income Tax Act 2007 did not
need to be on the donee list for donations to qualify for tax credits
(Lindisfarne).
·
They
had IRD donee status but it was ceased for no apparent reason (Christchurch
Earthquake Appeal Trust had its donee status ceased on 31/03/14 which was
unusual because it received donations for its year ending 30/06/14 and appears
to still be active).
Table 2: Registered
charities with large donation income in their most recent return but they do
not appear to have IRD donee status
|
Charity legal name on
Charities Register
|
Last return
|
Donation Inc
($m)
|
Donations as a % of total gross income
|
Main sector
|
Source of funds
|
% spent overseas
|
IRD donee status
|
1
|
|
31/03/2014
|
$4.0
|
100%
|
Care/protection of animals
|
Beneficiary income from trusts
|
0
|
No
|
2
|
|
31/12/2014
|
$4.3
|
97%
|
Care/protection of animals
|
Donations, investment income
|
48%
|
Ceased 22/9/14
|
3
|
|
30/06/2014
|
$4.1
|
96%
|
Fundraising
|
Donations, bequests, grants (website states donation tax
credit is available)
|
0
|
No
|
4
|
|
31/03/2015
|
$2.7
|
100%
|
International activities (Israel)
|
Donations (Champs Elysees Trust)
|
100%
|
No
|
5
|
|
30/06/14
|
$2.3
|
100%
|
Accommodation / housing
|
Sale of asset, investments
|
0
|
No
|
6
|
|
31/12/14
|
$2.0
|
27%
|
Education
|
Donations, govt grants, providing services, investments
|
0
|
No
|
7
|
|
30/06/14
|
$2.0
|
96%
|
Arts / culture / heritage
|
Service provision, trading, investments (the donation was a
debt forgiven)
|
0
|
No
|
8
|
|
31/03/15
|
$1.9
|
100%
|
Health
|
Donations, grants, investments (all donations from HRL
Morrison & Co Ltd)
|
0
|
No (but there is an HRL Morrison Arts Trust and Music
Trust)
|
9
|
|
30/06/14
|
$1.9m
|
48%
|
Disaster relief
|
Donations, grants, investments
|
0
|
Ceased 31/03/14
|
10
|
|
31/12/14
|
$1.6m
|
88%
|
Religious activities
|
Donations
|
90
|
No
|
6. Looking across the Tasman
The
2010 Productivity Commission Research Report ”Contribution
of the Not-for-Profit Sector” referred to total Australian philanthropy for
economically significant organisations in 2006-7 at $7.2b, of which donations
from philanthropic trusts/foundations were $300m, donations from
businesses/organisations were $600m and donations from individuals (including
bequests) were $4.2b (p.72). At the time of writing this paper, the ACNC has
not published any financial information datasets, so it is not possible to
analyse the current donation income received by registered charities.
In
many ways Australia takes a similar tax incentive approach to NZ, with only some
charities approved by the Australian Tax Office to receive tax deductible
donations (called ‘Deductive Gift Recipients’ or DGRs). In the Australian
Charities 2013 Report, released
by the Australian Charities and Not-for-profits Commission and Curtin
University in September 2014, it was stated that DGR was held by 29% of
registered charities (10,938/38,341). The
general categories of DGRs in Australia include public benevolent institutions
(PBIs), public universities, public hospitals, approved research institutes,
arts and cultural organisations, environmental organisations, school building
funds and overseas aid funds.
Table
3 highlights some of the similarities, and differences, between NZ and
Australia’s approach to charitable donations and tax incentives.
Table 3: Charitable
donations and tax incentives: Australia vs NZ
|
Similarities
|
|
Differences
|
1
|
Information collected by the charity regulators: Donation information
collected by the charity regulators is very similar. The NZ charity regulator’s annual return
requires charities to disclose their donation/koha income and their bequest
income separately. They must also
disclose donations/grants they paid within NZ and donations/grants they paid
outside NZ. The ACNC annual return
requires charities to disclose their donation and bequest income (the two are
not separated). They must also
disclose grants/donations made in Australia and grants/donations made outside
Australia.
|
1
|
Scope of eligibility: The scope of organisations which can
receive deductible gifts is narrower in Australia – there are approximately
40 specific categories listed
on the ATO website. In Australia
there is no DGR category for religious purposes other than for funds
established to assist with providing instruction in government schools. NZ does not have specific categories and allows
tax credits for donations to religious organisations.
|
2
|
Tax concessions: Both countries offer
tax concessions for donations to some charities as well as other
not-for-profits. However, NZ’s system
allows a 33 1/3rd tax credit on donations, whereas Australia
offers a deduction where the tax benefit is determined by the donor’s
marginal tax rate.
|
2
|
Cash vs in-kind donations: NZ only allows tax credits for cash
donations; Australia allows tax deductions for some in-kind donations at market
value (such as property and shares).
|
3
|
Role of tax administration:
In both countries the tax office decides which charities qualify for donation
tax incentives, not the charity regulator.
However the Australian charity regulator does have more influence than
the NZ regulator as it also approves subtypes, some of which are able to be
DGRs.
|
3
|
Planned giving: Australia offers
planned giving vehicles, for example wealthy individuals often use Private
Ancillary Funds. NZ does not have such
vehicles.
|
4
|
Lists approved by Parliament: Both countries also maintain separate lists or registers of
organisations that qualify for donation tax incentives which are approved by
amending legislation through Parliament.
However NZ maintains just one such register (for organisations seeking
charitable donee status for their overseas activities) whereas Australia has
registers for Cultural Organisations, Environmental Organisations, Overseas
Aid Gift Deduction Schemes and Harm Prevention Charities.
|
4
|
Charity registration is a pre-requisite: In Australia some DGR
categories require registration with the charity regulator (for example
hospitals carried on by a society or association), however that is not the case
in NZ.
|
5
|
Payroll giving: Both countries offer
payroll giving, where donations are distributed from pre-tax income and the
donor receives the tax benefit immediately.
|
5
|
Local operations: An ‘in Australia’ condition applies to all Australian DGRs,
which means all organisations must be in Australia to be a DGR. Funds, institutions and authorities must be
established and operated in Australia.
Some funds require the purposes and beneficiaries to be in Australia,
others, like the Overseas Aid Funds, do not.
A NZ local application requirement also exists but it is not so
prescriptive and simply requires that all funds are applied wholly or mainly to
charitable, benevolent, philanthropic, or cultural purposes within NZ.
|
Data references
Data for this paper was
extracted from the New Zealand charity register (at www.charities.govt.nz) and the IRD Donee List on 19 November 2015.
Disclosure
I
worked for the New Zealand Charities Commission and the Australian Charities
and Not-for-profits Commission from 2011 to August 2015. The above analysis does not take into
account any protected information obtained during my time at the charity
regulators. Any errors and opinions are
mine and opinions do not represent the views of my previous employers.
Further reference
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