There are only about 11 weeks left in the current tax year which ends on 31 March. It seemed appropriate to write this in January, rather than, say, 29 March, so folk have plenty of time to take my advice should they wish to do so. What always surprises me about New Zealanders is the quite extraordinary amount of income taxes they pay, mostly due to ignorance; pull up a chair and let me explain how to make the tax system work in your favour.
The sole achievement of Peter Dunne’s political career was to change the tax laws surrounding charitable donations when he was Minister of Revenue. What Dunne did was make 33.33 per cent of your donation a tax credit able to be subtracted from the income tax you owe. I shall give an example in a moment, but first wish to clear up a huge misapprehension I’ve found many are under.
When some New Zealanders think of the word charity, they misguidedly think it only means organisations that give food, clothing or similar items to lazy people that should get off their backsides. Many people – and I am at the head of the line – have a huge problem with giving handouts to grown men and women who are perfectly capable of managing their own affairs in life.
However this view of charities is quite wrong: only a very small percentage of charities actually give handouts to no hopers. There are numerous organisations that are registered charities in New Zealand – sports organisations, arts, culture, music, outdoorsy things, medical, art galleries, animals – the list is huge.
Just to give you an example, I donate money to charity hospitals (because for ideological reasons I disagree with a socialist health system), various classical music organisations, a couple of things up north the in-laws are involved with, various animal welfare organisations, outdoor education organisations, some organisations connected with my religion and even the local historical museum. Each time, I trouser a 33.33 per cent tax credit, so each of us gets something worthwhile out of it.
Start writing a list of some organisations you think rather highly of, visit their website or call them to ascertain if they are registered charities. You may be surprised to find they are.
But wait – there’s more!
NZ doesn’t have a capital gains tax, so here is where you can take the tax laws out for a spin and make your dealings with the tax man entirely theoretical. Let’s say you earn $100,000 in income: the tax on that is around $24,000. Let’s say you also make a cheeky $200,000 in capital gains from shares or real estate. What would be sensible is to donate $72,000 of your tax-free capital gains money to various charities and receive $24,000 in tax credits – which you subtract from the $24,000 you owe from your day job. See what just happened? I’ve always found it extraordinary that so few New Zealanders make charitable donations and take advantage of the tax benefits from doing so – particularly those who are awash in capital gains! – but rather hand over a sizeable chunk of their taxable income for the government to waste. Madness. It’s big stuff in America, which is why so few billionaires are taxpayers. Time to get smart: time to think of yourself and your financial future.