The Government has introduced a cap on the donation tax credit effective from April 2027, limiting eligible donations to $100,000.
Under the new rules, individuals can claim a 33.33% rebate on donations up to the cap. The change affects around 350 donors who collectively represent 10% of all claimed donations and $103 million in annual giving.
Inland Revenue's regulatory impact statement said there was not conclusive evidence the tax credit increased charitable giving. The scheme costs $350 million annually and has grown at 2.6% per year.
Jonathan Ande of the Fundraising Institute Australasia said consultation feedback showed overwhelming concern the cap would alter donor behaviour. He warned the new limit might be viewed as a ceiling rather than a threshold.
Robyn Scott, acting chief executive of Philanthropy New Zealand, said charities were already experiencing reduced funding. She said government contract funding had fallen while demand on food banks and charitable services had risen sharply. "This is the time we really want to be encouraging generosity, not discouraging it," Scott said.
One youth disability organisation reported a donor cutting their annual contribution from $180,000 to $100,000. Simon Bowden of Forsyth Barr said he met with a donor this week who donated all her income and relied on the rebate to live. "They feel quite surprised, startled, and as if they've sort of been abandoned," Bowden said.
Simplicity economist Shamubeel Eaqub said research showed large donors were the most responsive to price signals. "At these levels the cap is self-defeating, each dollar of tax revenue saved destroys more than a dollar of charitable giving," he said. He said examination of sector data indicated charities deliver $2 for every $1 of government funding.
Deloitte tax expert Robyn Walker said Budget fiscal projections assume donations will continue at levels above the maximum cap. She noted 99.9% of donors remain unaffected by the change.
Business donations remain uncapped at the level of net income, and trust distributions to tax-exempt beneficiaries face no limit. A planned change from 1 April 2028 will streamline the process for donors to transfer their tax credit directly to charities.