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In August 2018 a High Court judgement held that forgiveness of a debt owed by a donee organisation can constitute a "monetary gift...paid" to a donee organisation. Therefore the donor may be eligible to claim a donation tax credit or gift deduction.

In October 2018 the Commissioner of Inland Revenue announced she would appeal that decision.

The Commissioner's position continues to be that forgiveness of a debt owed by a donee organisation will not qualify for a donor donation tax credit or gift deduction.

An amendment was included in the Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Act to clarify that only gifts of money, including payments made by way of electronic bank transfers, credit cards, and cheques, qualify for donation tax credits. This amendment is consistent with the policy intent. The previous words "monetary gift of $5 or more" have been replaced with "gift of money of $5 or more". The application date of the amendment is 1 April 2008. There is a savings provision for donors who have already taken a position that debt forgiveness qualifies as gift, however the savings provision will only apply if these donors filed a return or a donation tax credit claim before 16 January 2019. For these donors, their entitlement to donation tax credits will be subject to the outcome of the Commissioner's appeal of the High Court judgement.

You can find out more about the August 2018 High Court judgement and the legislation change is explained in Tax Information Bulletin Vol 31 No 4 (May 2019).

August 2018 High Court judgement

Tax Information Bulletins

You can also read the Commissioner's 2011 Revenue Alert about arrangements entered into to get a donation tax credit where there has not been a true gift of money.

Commissioner's 2011 Revenue Alert