On 28 March 2011 the Government announced measures to alleviate the significant financial burden on businesses in Christchurch caused by the September 2010 and February 2011 earthquakes.
In this series of blogs we cover the Christchurch Earthquake tax relief measures. This blog considers the exemptions in relation to donated trading stock.
Tax relief for donated trading stock
If you were charitable enough to donate some of your trading stock during the earthquake crisis then you may be surprised to find out that you could be up for tax on this donation. The normal rule is that the trading stock are deemed to have been sold at market value, and this would have given rise to income on which you would have been taxed.
The main points are:
- Only the value of the actual consideration will be taken into account. So, if you gave the goods away and did not get paid anything for them, this will effectively reduce your profits by the cost price of the trading stock. This is a very welcome amendment. Note that where you give money to charities there are also credits and deductions available. Broadly speaking, companies can claim a deduction to the extent of their income, and individuals can claim a credit of 33% as long as the donation does not exceed their income.
- A further surprise is that Gift Duty could potentially apply to gifts made as part of the earthquake. For example, the water tanks that Fonterra made available, and the free gas that was given away at services stations. Again, this is a very sensible amendment, and adds to the Government’s excellent response to the issues caused by the earthquake.
- Finally, you don’t have to be concerned about returning the GST on the goods given away.
- The exclusions only apply in the case of goods given away during the September 2010 and February 2011 earthquakes, and also note that it does not apply where you gave the goods to an associated person.
If you are a charity, then this exemption is a great opportunity to lobby your constituents for gifts in kind. Previous to the amendment no deduction was available for such gifts, the current exemption represents a significant shifting of the goal posts in this context.