Payroll giving occurs when employers enable their employees to make donations directly from their gross wages. The tax benefit is that the amount of PAYE or withholding tax the employee pays is reduced by the amount of their donation. They also receive a ‘tax credit’ from the donation, which is 33.3% of the donation value.
Payroll giving is therefore a bit simpler than making a donation directly to a charity as donors do not have to submit their donation receipts to IRD to claim the tax credit.
What needs to be in place for payroll giving?
Employers will only be able to offer this service if they file their payroll taxes electronically. They can either use the myIR online service, or attach files from their own payroll software.
Even if an employer has the ability to use payroll giving, it is discretionary. Employers may also use their discretion to choose how the donations will operate, for example, they may designate specific charities that can be donated to, and they may designate a minimum donation amount.
Only ‘tax donee’ organisations can receive payroll donations.
What is a donee organisation?
IRD maintains a list of donee organisations. Charities are added to the list if they use at least 75% of their funds within New Zealand (that is, they operate “wholly or mainly” here), or for the public good if an organisation is not a charity. For more on the threshold, you can check to see if a charity is on the IRD donee organisation list here.
Other resources
The IRD has put together this excellent guide to payroll giving.
It is also possible to claim tax credits on donations to charities supporting overseas causes.
This article is general in nature and is not a substitute for legal advice. You should talk to a lawyer about your specific situation. Reproduction is permitted with prior approval and credit being given back to the source.
If you would like to discuss further, please contact one of our team, stevenmoe@parryfield.com, or annemariemora@parryfield.com at Parry Field Lawyers.
