Snippets

Private School Donations

Private schools will typically be registered as a charity. As such, parents will sometimes treat payments to the school as a charitable donation for tax purposes.

Inland Revenue are making it clear on its interpretation on this subject through the release in October 2022 of QB 22/09 – Income Tax – Payments made by parents to private schools and donation tax credits; which may impact the approach taken by some parents.

In summary, payments will qualify as a “gift” for donation tax credit purposes when all of the following apply:

  • the school is a donee organisation;

  • the payment is money of $5 or more;

  • the parent makes the payment voluntarily to benefit the school either generally or for a specific purpose or project; and

  • the parent or child gains no material benefit or advantage in return for making the payment.

QB 22/09 includes the below examples which Inland Revenue assert will not be eligible for a donation tax credit:

  • A “donation” which results in a discount on tuition fees, or the payer’s business being advertised in a school publication.

  • Contributions requested by the school with reference to its operating costs, number of students and each family’s circumstances.

  • A donation of a non-cash prize for the school to use in a fundraising auction.

  • The purchase of a ticket for a school event (e.g. quiz night), where part of the ticket proceeds will go towards a school project.

It would be wise to assume the circumstances surrounding a payment to a school will be reviewed by Inland Revenue if it is claimed as a charitable donation. 

Marginal tax rates

In New Zealand, a marginal tax rate system is used to tax an individual’s income, i.e. the tax rate increases as one’s income increases. As at today, the marginal tax rates are as follows:

$0 to $14,000 10.5%

$14,001 to $48,000 17.5%

$48,001 to $70,000 30%

$70,001 to $180,000 33%

> $180,000 39%

The first three thresholds have not changed since 1 October 2010, while the current top tax rate of 39% has applied from the 2021 / 2022.

With the rate of wage inflation being a hot topic at the moment, and a general election due later this year, we adjusted the marginal tax rates for inflation since October 2010 to see what they would look like – particularly given this is an election promise that might be made. The marginal tax thresholds would look something along the lines of:

$0 to $21,000 10.5%

$21,001 to $72,000 17.5%

$72,001 to $105,000 30%

$105,001 to $270,000 33%

> $270,000 39%

With the average salary in New Zealand being around $62,000. Under the current marginal tax rates, this results in $11,620 of income tax payable. However, applying the adjusted rates above, $9,380 would be payable – a difference of over $2,000. For someone on a $100,000 salary, the difference in annual tax payable between the thresholds is almost $4,400 a year.

How much less tax would you be paying?