Donation Tax Credits Can Include Debt Forgiveness

Brad Phillips
Principal
03 211 3782
021 317 151
bradp(at)mdp.co.nz

Craig McCallum
Associate
03 928 5158
027 698 9511
craigm(at)mdp.co.nz

Kathryn Ball
Consultant
03 211 3774
027 454 8414
kathrynb(at)mdp.co.nz

To claim a donation tax credit a person needs to provide an unconditional gift of money, of $5 or more, to a charity. There cannot be conditions attached to gift, for example, a payment to a charitable trust on the proviso the money is used for the purchase of a new building. If a payment has conditions it is not an unconditional gift.

It was previously thought that if a person loaned a charity money and that some or all of the loan was forgiven, a donation tax credit was denied. This was on the basis that the forgiveness of debt is not money, a condition required for a donation tax credit.

However, the High Court found on 2 October 2018 that annual forgiveness of debts to a charitable trust are monetary gifts paid to that charitable trust and as such qualified as charitable gifts. It is unclear whether Inland Revenue is appealing this decision.

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