A donee organisation has been defined as an entity or association whose funds are applied to charitable, philanthropic, cultural, or other allowed purposes. An organisation with donee status presents benefits in the form of donation and other credits.
What are the types of Donee Organisations?
There are four types of donee organisations:
- Entities registered with Charities Service
As of 1 April 2020, it is a requirement for an entity with a charitable purpose to register as a charity to obtain donee status. To maintain donee status, at least 75% funds of the association must be attributed to charitable, philanthropic, or cultural purposes. Only if the above requirements are met can an organisation become an approved donee.
2. Entities that have not been registered but are approved by the commissioner
Entities that aren’t eligible to be registered under charities service may apply to the commissioner for donee status. In order to be approved, they must meet the compulsory requirement of entity funds being applied to charitable, philanthropic, or cultural purposes. The type of entities eligible to seek commissioner approval include public institutions, a fund, public fund or other society, institution, or trust.
3.Automatically qualifying entities
Certain entities are automatically identified as donee organisations. These include board of trustees that are not carried on for the private profit of any individual, tertiary institutions and certain community housing.
4.Entities that apply funds toward purposes other than those mentioned above and are approved by parliament
Entities that do not apply a significant portion of their funds for charitable, philanthropic, or cultural purposes can also be approved as donee organisations. In this case, rather than the commissioner’s approval, legislation is used. OS 22/04 provides a long list of documents that must be provided when seeking donee status through parliament. IRD will make an initial assessment and be in contact with organisation representatives during their review process. The commissioner will then make a recommendation to parliament who decide whether to grant donee status. They review the organisation against their guidelines which highlight that funds should be applied to:
- The relief of poverty, sickness, natural disaster or war
- Raising education standards and the economy of developing countries
If donee status is granted, the ITA(Income Tax Act) is amended to include the entity.
What are the tax benefits of a donee organisation?
A donee organisation may be exempt to income tax on certain portions of their income, FBT exclusions and also GST exclusions where the entity is a non-profit body.
The advantages of being a donee organisation are also experienced by those donating to donee organisations. Donating individuals may claim donation tax credit of 33.33% as long as they have made a subscription/donation above the value of $5. This gift/subscription cannot provide the individual with any rights, and is unconditional.
Administration
Receipts of donation must be submitted to the IRD through the online myIR platform. Once this has been approved by the Commissioner, the individual will be refunded accordingly. If the Commissioner refuses a refund, the taxpayer is able to challenge the decision through a dispute.
To ensure a donor is able to efficiently make donation claims, donee organisations have requirements surrounding the issue of donation tax receipts. These requirements are provided in OS 22/04. Donee organisations must also operate in accordance with reporting requirements. It is required to keep sufficient records to calculate tax liability as well as eligibility for exemptions or concessions. Along with this, they must also keep record of any donations made and how these funds have been used. These records should be kept for a minimum of 7 years.
Organisations with donee status must self-assess their eligibility. They have the responsibility to alert the commissioner as soon as they no longer meet the donee requirements. The entity will then be revoked from having donee status.
While we have provided a summary of the key points, the law around donee organisations is quite complex and it is recommended to consult with one of our advisors for the best advice.
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