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Woman volunteering in a soup kitchen

Bloomsbury blog Focus on charitable giving

Bloomsbury newsletter, 30 June 2016

Abraham Lincoln once said, "to ease another's heartache is to forget one's own." He was unfortunately well acquainted with heartache after the loss of his mother, fiancée and son far too early in life. If easing someone else's burdens can help lighten our own, then people who volunteer their time to others should experience bigger benefits than most and, as it turns out, they do.

A 2010 study called Do Good. Live Well. 1 canvassed over 4,500 people and found that, of those who volunteered their time:

  • 68% felt physically healthier
  • 73% reported that it reduced their stress levels
  • 89% found it improved their sense of wellbeing

Those of us who have volunteered for causes or charities and get to see the benefits it can bring - both to the charities and ourselves - would readily agree. Abraham Lincoln was clearly onto something.

However, where it may be impractical or impossible for people to donate their time or physical effort, another alternative is to make a charitable donation. Are the positive effects outlined above also applicable to charitable giving?

Research published by the Harvard Business School 2 and in the International Journal of Happiness and Development 3 found that while charitable giving of any kind makes us happier, it brings us the greatest happiness when our gifts foster a social connection - in other words, when we give to a friend, relative or a social cause that we have some personal involvement with. This is in contrast to an arm's length donation to a charitable cause.

One of the conclusions we might draw is that, while all giving is good, we can maximise our own happiness by giving to causes where we can personally see the positive outcomes (even if the giving is itself anonymous). Better still, we should give to causes that we volunteer for.

The Harvard study also said that happier people give more, so the more we seek to foster a social connection with our giving, the more we may be inclined to want to give.

As wealth managers we occasionally speak to clients who want to make bequests to specific charities in their will. Our experience is that many of these clients have assembled wealth and live lifestyles that, when combined with prudent investment management, mean they often go to their own graves with a more than healthy bank balance. If that's likely to be the case for you, then why not allow yourself the enjoyment of giving now?

Not only will you derive pleasure from seeing your charitable donations make a difference while you are alive, but changes in the Income Tax Act 2007 also mean that charitable giving makes greater tax sense as well.

Prior to 1 April 2008 the maximum refund available was $630, meaning that only the first $1,890 of an individual's giving received any income tax relief. This has now changed, and individuals can claim the lesser of:

  • 33.33% of total donations made, or
  • 33.33% of their taxable income.

Income that qualifies includes portfolio income such as dividends and interest, New Zealand superannuation income and more traditional forms of income, including salary and wages.

For those still working it is possible, via some payroll systems, to set up an automatic payment to approved donee organisations.4 This means you don't have to file an IR526 tax credit claim form. Instead, you get your tax credit at the time the donation is deducted from your wages.

The way it works is if you donate $100 via your payroll system, $100 goes to the approved organisation but you only pay $66.66. The remaining $33.33 effectively comes from the government and is immediately supplied to you as a tax credit, which effectively reduces the amount of tax you pay on the rest of your earnings.

This option is even more relevant when you consider that a survey found only 26% of New Zealand donors claimed a refund on donations made5. Perhaps this is a result of many New Zealanders giving to organisations that approach them for money directly, rather than the individuals having a planned strategy for their charitable giving.

As your wealth adviser we are here to help you make smart financial decisions. That doesn't have to be limited to investment stewardship, but can also include how to protect your wealth, reduce your taxes, transfer wealth to those you love, or how to spend your money in ways that are enjoyable, meaningful and in line with your long term needs.

If you are considering giving to charities or approved organisations in the future (or if you want to but are unsure if you can afford it), talk to us and we can help you consider those aims in conjunction with your other identified investment goals and objectives.


  1. Do Good. Live Well.
  2. Lalin Anik, Lara Aknin, Michael Norton, Elizabeth , Harvard Business School Working Paper, Feeling Good about Giving: The Benefits (and Costs) of Self-Interested Charitable Behavior
  3. Aknin, L.B., Dunn, E.W., Sandstrom, G.M. and Norton, M.I. (2013). Does social connection turn good deeds into good feelings?: On the value ofDunn putting the 'social' in prosocial spending. International Journal of Happiness and Development, 1(2), pp. 155-171.
  4. A list can be found at IRD - Donee organisations list
  5. Charities Services - Public trust and confidence in charities