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A Government Match Better than KiwiSaver!

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Ever heard of a charity where some famous or rich person says that they’ll match your donation? If you give a dollar to the charity, they’ll match your donation so the charity gets two dollars.

One group even did a study on the effect of this type of charity matching has, and found it increased the probability that someone donates by 22%!1

In New Zealand, our government already has a matching program. If you give money to a charity and reinvest all the tax savings you receive, the government effectively matches your donation by 49 cents on the dollar. For every dollar you put in, the government puts in close to 50 cents.

You might ask, how is that possible; the highest tax bracket is only 33%, surely you can’t get more than 33% back on your donation?

You can if you direct all the tax savings back to the charity over the years.

Looking at an example, if you give away $1,000, you may be eligible to get back $333.33 of tax savings. Now let’s say that you decided to donate that $333.33 tax savings back to the charity. You’ll get another tax refund of $111.11 (33% of your donation) the following year. But what if you gave that money to the charity as well? You can see how this would work. The table below shows the math all the way to a $4 donation.

 

Round Donation Amount Tax refund
1 $1,000 $333
2 $333 $111
3 $111 $37
4 $37 $12.35
5 $12.35 $4.12
6 $4.12 $1.37
Total $1,497.47 $498.87

 

By the time you’re done, the government has put in 49 cents for every dollar you’ve donated (which is only really the $1,000 original donation). Another way of thinking of this, is by giving money away in this fashion you guarantee your charity gets a 49% risk free return on your original investment.

Of course, all this assumes that you have the taxable income to make the deduction.

At BWT Financial, we encourage our clients to be generous with their extra money. Many of them want to give away money in their will as a consequence. Instead, we encourage them to give money away now as an intention. In fact, they can even set up an account where they retain the control of the money, can see the money when they log into their account, but essentially transfer the ownership to a charitable trust. By doing this the money starts growing tax free, while they are deciding which causes to support. If you give you money away in a will the government won’t match anything, and that’s a big potential loss for the charity you support.

The point is that philanthropy is more effective via planning. If you’re interested in philanthropy or planning to give any money away when you pass on, talk to us now. We might be able to increase the value of your contributions.

 

  1. https://www.povertyactionlab.org/evaluation/effect-matching-ratios-charitable-giving-united-states