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IRD is getting upset about “donations” which are really in the nature of fees for services.

In Revenue Alert 14/01 it lists the criteria for a donation. When you analyse the list it amounts to:

• The gift is made voluntarily
• Nothing is received back in return for the gift either by the giver or anyone else
• The charity doesn’t have to give anything away in return for receiving the gift.

The department is investigating arrangements where private education and child care centres charge nominal fees and then get parents to make substantial donations, for which they issue a donations receipt. They say these are payments, which would not ordinarily be donations, and are fees for services. The purported donations are used to meet running costs, which would otherwise have had to have been charged to parents.

GST is also an issue. These “donations” are really being paid for services. Therefore the education centre must charge GST.

The department says penalties and interest may be applied if it catches anyone transgressing.

What can you do? If this announcement affects you and you have been used to claiming these donations, you may need to forgo these claims, which is, of course, exactly what the IRD wants to achieve.