Donors warned to be careful

The Business Development Mana-ger for Baptist Savings is warning Christians to consider whether their charitable giving might in fact be tax fraud.

Andrew L’Almont was responding to an article in the Otago Daily Times by Scott Mason, tax consulting principal at WHK in Dunedin. Mr Mason wrote that the Inland Revenue Department had been investigating arrangements where tax credits for donations had been claimed in circumstances where a true gift of money had not been made. Mr L’Almont said anyone donating to a charitable organisation needed to know what they did with the money, and what benefits came back to the donor.

“In the world we live in today, there’s so much information available. It’s no longer valid to say ‘I naively gave’. I think it’s time we didn’t leave our brains at the church door but we actually asked the hard questions,” he said. The IRD recently gave examples where donation tax credits were being claimed which they considered were not valid. They have made it clear that if an unlawful arrangement is identified, not only will the IRD recover the excess tax credit from the person making the claim, but consider imposing monetary penalties and criminal prosecution.

For example, donating $200 to a church on Sunday and picking up $200 of groceries on Wednesday from the same church (and claiming a rebate for the gift) may run close to that line.

Mr Mason provided three examples to indicate where the IRD’s inquiries were focusing.

Example 1: An organisation has a loan it is unable to repay.

Instead of forgiving the loan, a person ‘donates’ the amount of the loan, knowing it will be used for loan repayment, rather than the activities of the charity. That person then claims a donations tax credit.

Example 2: Instead of gifting property to the charity (which would not qualify for the tax credit as it is not ‘cash’) the person makes a gift to the organisation which the organisation then uses to purchase the property from them. The person claims a donations tax credit.

Example 3: Fundraising is done on behalf of a charity.

The money raised is then passed to an individual (generally closely associated with the charity) under the understanding that the person will ‘donate’ that money to the organisation.

The charity will then avoid paying GST on the fundraising event, and the donor will claim a tax credit.

By Aaron Ironside