Revenue alert RA 11/01 issued by Inland Revenue, 2 August 2011
On 2 August 2011, the Commissioner issued a Revenue alert on claiming tax credits for “donations” where there has not been a true gift of money. Numerous charitable donations are made each year and receive tax credits as a matter of course. However, more and more the Inland Revenue Department (IRD) is coming across arrangements where people are claiming tax credits for “donations” in situations where they have not made a true gift of their own money.
Features of the arrangements
The IRD has outlined that the common feature of these arrangements is that the “payment of money is made on the understanding that the donor will receive something in return for the payment of money eg the purchase of property”.
It has also identified that “in many such cases the money is paid back to the donor or an associate within a short period of time (often a matter of days). Inland Revenue consider that a payment in those circumstances is not a gift.”
Other cases have been seen “where donations tax credits are being claimed where the money being donated does not even belong to the donor”.
The Commissioner’s view
The Revenue alert sets out that payments made under these arrangements “are not a charitable or other public benefit gift, and do not qualify for a tax credit. These payments of money are made in circumstances where the person (or an associate) expects to receive a material benefit or advantage in return”.
Should the IRD consider that donations tax credits have been claimed in situations where a true gift of money has not been made, it will recover the excess tax credit from the person making the claim and will also consider the imposition of monetary penalties. It is the IRD’s view that some of these arrangements “may in extreme cases amount to fraud and it will consider prosecution where appropriate”.
If you think that you may have claimed donations incorrectly as part of an arrangement, or the IRD has identified you as having done that, you may need representation. If you do, click here.
Source: www.ird.govt.nz, and CCH