Letter to Ministers: New Zealand Donation Tax Credit Cap

Dear Minister Watts,

New Zealand Donation Tax Credit Cap, Request for Engagement Before Implementation

We write on behalf of the charitable and philanthropic sector to express our serious concern about the donation tax credit cap announced in Budget 2026, and to respectfully request that the Government reconsider whether this instrument was the appropriate response to the problem it is trying to solve.

We want to acknowledge at the outset that the Government has taken a positive step in announcing simplification measures alongside the cap, particularly the ability for donors to receive refunds during the tax year and to direct their tax credit to charity. These are meaningful improvements that the sector welcomes, and they reflect a genuine understanding of how the donation tax credit can work better for donors and charities alike.

Our concern goes to a more fundamental question: the donation tax credit should not have been on the table as a policy response to this problem in the first place. It is not a discretionary subsidy or a line item to be adjusted when fiscal pressure arises. It is one of the foundational instruments of philanthropy in New Zealand, a deliberate and long-standing policy choice to encourage the private funding of public good. Treating it as a lever available to address a narrow compliance concern affecting a small number of arrangements risks causing serious and lasting damage to the broader philanthropic ecosystem that depends on it.

1. The tax credit reduces the cost of giving, it is not a benefit to the donor

We are concerned that the framing of this policy in some quarters conflates the tax credit with a personal financial benefit to the donor. This is a misunderstanding of how major philanthropy works, and it matters for how the impact of this change is assessed.

A donor who gives $1 million to charity receives nothing in return. They do not retain the funds, they do not receive goods or services, and they have no claim over how the money is applied. What the donation tax credit does is reduce the after-tax cost of that gift, under the existing rules, a $1 million donation costs the donor approximately $667,000 net. Under the new cap, the same donation costs approximately $967,000. The credit does not reward the donor. Removing it would increase the price of generosity meaning charities will receive less.

At the level of giving above $100,000, donor behaviour is considered and strategic. These are not impulsive gifts. Many of the donors in this group are working with advisers as part of structured wealth transition plans, a sector-wide conversation that is highly relevant given the estimated $1.6 trillion intergenerational wealth transfer expected over the coming decades. The donation tax credit has played a material role in bringing forward and increasing those gifts. Removing the credit above $100,000 changes the calculus for donors at precisely the moment New Zealand has the opportunity to cultivate a culture of major philanthropy.

2. The sector was surprised, and charities are already reporting real impacts

Aside from a small mention, a potential cap was not discussed in any significant way during Inland Revenue's earlier and lengthy consultation on the not-for-profit sector. The sector had no opportunity to provide evidence on its potential impact before the decision was made. That absence of consultation, noted in the Regulatory Impact Statement, means the Government is proceeding without the data it needs to assess the true cost.

We are already hearing directly from charities that donors have notified reductions in their giving for next year. In one case, a frontline youth charity has been told it will receive $80,000 less from a single donor, the equivalent of a youth worker's salary. These are not hypothetical risks. They are happening now, more than a year before the cap takes effect, because donors plan ahead.

Many charities have built strategies, capital campaigns, and operating models that are explicitly calibrated around the donation tax credit at the major gift level. Those strategies were developed in good faith under the existing settings. They are happening now more than almost a year before the cap takes effect and a 12-to-9-month transition window, announced without prior consultation.

3. The fiscal saving may be significantly outweighed by the cost to the sector

The Regulatory Impact Statement estimates the fiscal saving at approximately $19 million per year. We do not dispute that figure. What concerns us is that no equivalent modelling has been published on the cost to the charitable sector if donors in the affected group reduce their giving in response to the cap.

Working from the IRD's data, the 350 affected donors currently give approximately $103 million annually, with an average donation of around $294,000 each. If those donors reduce their giving to $100,000, the sector could forgo up to $68 million per year in charitable donations. That is more than three and a half times the Government's projected saving. We are not asserting this is the inevitable outcome. But we are asserting that a policy with that potential asymmetry deserves to be tested against evidence before it is enacted.

4. The donor-controlled charity problem has a more targeted solution

We want to be direct on this point: we share the Government's concern about arrangements where individuals derive private benefit from charitable structures, where distributions to independently governed charities are delayed, or where charitable vehicles are used primarily for tax advantage rather than public good.

However, we have not seen evidence that establishes the scale of this problem. The Regulatory Impact Statement identifies approximately 350 donors as affected by the cap, but it does not quantify how many of those donors are engaged in the arrangements that concern IRD, as opposed to making straightforward large gifts to independently governed charities with no donor control features. Without that data, it is not possible to assess whether the policy is proportionate to the problem, or whether it is capturing vast amounts of genuine philanthropy to address a much smaller number of problematic arrangements.

The donation tax credit has been part of New Zealand's tax system since 1962. It was not designed as a tool for managing compliance risk. It was designed to encourage charitable giving and to recognise that donations create wider social benefits that justify Government support.

Using it as the instrument to address donor-controlled charity concerns conflates two entirely separate policy objectives and risks unintended harm to the philanthropic sector in pursuit of a goal that existing law is already equipped to achieve.

The Charities Act, IRD's anti-avoidance provisions, and existing compliance powers are all available to address the specific conduct issue. A proportionate and logical first step would have been to issue clear guidance to the sector on IRD's expectations regarding donor-controlled arrangements, followed by targeted enforcement action in cases where those expectations are not met. That approach would have addressed the problem without touching the foundational tax credit that many donors and charities depend on. We would have engaged with that process constructively and without hesitation. That option was not taken, and we believe it should have been.

5. The charitable sector delivers value that the tax credit multiplies

New Zealand's charitable sector provides services that Government would otherwise need to fund directly, in social services, sport, health, environment, education, arts, research, and community support. In many cases, charities deliver those services at lower cost than the State, drawing on volunteer labour, community networks, and philanthropic capital that cannot simply be replaced by a government grant. Every dollar donated to an effective charity generates social value that frequently exceeds what the same dollar would produce if retained in Crown revenue.

The donation tax credit has a genuine multiplier effect. When a donor gives $100,000 and receives a $33,333 credit, the charity receives the full $100,000 while the net cost to the donor is $66,667. The Government contributes $33,333 to support $100,000 of charitable activity. That is a meaningful return on public investment.

New Zealand is at the beginning of a significant intergenerational wealth transfer. The donation tax credit is one of the tools that encourages major donors to direct a portion of that wealth toward charitable purposes while they are alive rather than retain it. The cap reduces that encouragement at a time when the sector needs it most. In addition, this change may well operate as a dampener on the establishment of new family foundations who are set up to support local communities and charitable initiatives.

6. What we are asking for

We are writing to ask for time, evidence, and a genuine process of engagement before a change of this magnitude becomes law. The scale of the potential consequences, for charitable funding, for communities, and for New Zealand's emerging culture of major philanthropy, warrants a more thorough examination than has been possible to date.

Specifically, we ask that the Government:

• Abandon the implementation of any cap on tax credits as it is the incorrect policy response to the stated problem.

• Failing that, commission or publish modelling of the likely impact on charitable sector funding under a range of donor behavioural responses to the cap, before the legislation is enacted.

• Engage with the sector through a structured process, a select committee process, a sector working group, or both, to gather evidence on impact and to explore whether more targeted measures could address the integrity concerns without the same breadth of effect.

• Consider whether the implementation date of 1 April 2027 provides sufficient transition time given the absence of prior consultation, and whether an extension would allow for better-informed policy.

• Clarify, through published guidance, IRD's approach to the donor-controlled charity arrangements that motivated this change, so that the sector understands what conduct is at issue and can respond accordingly.

We are ready to provide evidence, to facilitate engagement between Ministers and affected donors and charities, and to work constructively toward an outcome that serves both the Government's objectives and the communities that depend on a well-funded charitable sector.

We would welcome the opportunity to meet with you at your earliest convenience. We are interested and available and can facilitate a broader sector meeting if that would be useful.

Yours sincerely,

Robyn Scott

Acting CEO Philanthropy NZ

On behalf of:

Phil Veal

Forthco

Hugh Cotterill

Individual

Xavier English

Individual

Jonty Kelt

Fantail Ventures

Mel Hewitson MNZM

Individual

Paul Brown

Independent Living Charitable Trust

Chris Bethwaite

Interchurch Bureau and Elim Church

Cheryl Spain

The Gift Trust

Paul Dalton

YMCA

Derek Caudwell

Trust Horizon

Katie Boxall and Patrick Gemmell

Hui E!

Max Baxter

Baxter Advisory

Memo Musa

Platform

Errol Burn

Lynch & Associates

Paul Gilberd

Community Housing Aotearoa

Matthew Wall

Top Edge Advisory

Todd Cleaver

Centre for International Development

Hans Buwalda

Raglan Naturally

Kristen Waters

Centre for Strategic Philanthropy

Monica Briggs

Child Cancer Foundation

Eleanor Cater

Community Foundations of Aotearoa and New Zealand

Jim Boult

Individual

Jenny Gill ONZM

Individual

John McCarthy

The Tindall Foundation

Finn Puklowski

General Compute

Arron Perriam

Individual

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Steven Moe

Individual

Philip Stevenson

Bloomsbury Associates

Blair Gilbert

Rotorua Trust

Jessica Palalagi

The Arts Foundation

David Teece, CNZM

Endeavor NZ

Austin Teece

Endeavor NZ

Randy Reddig

Endeavor NZ

Charles (CJ) Daniel-Nield

Planes Agency

Anna Kominik

Growth NZ

Bowen Pan

Growth NZ

Privahini Bradoo

Growth NZ

Linda Falwasser

Growth NZ

Alyssa Laakman

Growth NZ