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Business income tax
Te take whiwhinga pakihi
Paying tax: Deduction for donations

Companies - claiming deductions for donations to donee organisations

Is the donation an unconditional gift?

A donation is an unconditional gift only if the giver receives nothing in return.

To work out the income tax and GST treatment of a donation you first need to know whether the donation is an unconditional gift, or if it's really a payment in exchange for something of value.

Claiming a deduction

Income year What companies can claim
Up to 2002 If a company (except a close company) makes a donation to a donee organisation it can claim a tax deduction for that donation. The maximum deduction it can claim is the greater of these amounts:
  • for a donation to a single donee organisation, the greater of $4,000, or 1% of the company's net income* for the year
  • for total donations to more than one donee organisation, the greater of $1,000 or 5% of the company's net income* for the year.

* Net income means gross income minus allowable deductions, but before any deduction for company gifts.

Note: Companies do not show the donations amount in the IR4 tax return.It is included in the net profit figure at keypoint 18B.

2003 to 2008
  • If a company makes a donation to a donee organisation it can claim a tax deduction for that donation. The maximum deduction it can claim is 5% of company's net income calculated before taking into account the deduction.
  • Close companies also qualify for this deduction, provided they are listed on the official list of a recognised exchange like the NZSE.

Note: The donation deduction amount is not entered on the tax return. It is included in the net profit figure.

2009 onwards
  • If a company makes a donation to a donee organisation it can claim a deduction. The maximum deduction it can claim is limited to the amount of its net income, calculated before taking into account the deduction.
  • All close companies (including ones that are not listed on the official list of a recognised exchange), also qualify for this deduction.

Note: Companies need to show the donations amount in the IR4 tax return in the area provided.

GST and donations

Even if you're registered for GST you cannot claim GST input tax for any donations you make. GST is claimable on supplies purchased as part of your taxable activity, but your donation doesn't purchase any supplies.

However, if you're registered for GST and you purchase supplies from a donee organisation which is also registered for GST, the donee organisation will charge you GST on your purchase. In this situation you could claim a GST input tax, but the purchase wouldn't be a donation.

 


Date published: 16 Dec 2008

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