In the past month ASB and BNZ have each donated tens of millions of dollars worth of land or cash to charity. Is this pure altruism or a clever tax move?
Banks are not known for giving away free money, but in the past few weeks both ASB and BNZ have made some of the largest publicly-known gifts in recent years. Were these gifts truly from the goodness of their hearts? Or did both banks also secure a handy tax break for their altruism? A bit of both, it seems.
For almost 90 years, Mount Albert Grammar School has leased 8.1 hectares of central Auckland farmland from ASB. The bank originally acquired the land in 1933 as part of a plan to enable city kids to learn about farming. At the time of the purchase, covenants were put in place to ensure the original purpose of using the land for agricultural education was observed, and the school paid a token dollar to the bank to lease the land every year.
Earlier this month ASB donated the land, apparently now worth $150m, to the Mount Albert Grammar School Foundation, a registered charity, just as the school celebrated its centenary.
Businesses are able to claim deductions for donations to registered charities. So is ASB able to claim a deduction for its generous gift? Probably not, is the short answer. For a gift to be deductible for income tax purposes it must be made in money. As tax legislation presently stands, a gift of land would not be deductible.
So why might ASB give away $150m for no return? One reason is that the covenants over the land’s use essentially mean it is practically valueless as far as ASB is concerned. It is unable to sell the land on the open market and probably also unable to borrow against it either. Giving away an unproductive asset therefore makes business sense for ASB’s Australian owners and doing so comes with some bonus favourable publicity.
Meanwhile over at BNZ
During the 1980s when the Bank of New Zealand was actually owned by the government, it commissioned an art dealer, Peter McLeavey, to purchase a New Zealand art collection for display in its Wellington head office. Over time, BNZ acquired some 350 pieces, including works by some of Aotearoa’s greatest artists such as Colin McCahon, Rita Angus, Gordon Walters, Toss Woollaston, Gretchen Albrecht, Milan Mrkusich, Don Binney and Ralph Hotere.
When BNZ was privatised and sold to National Australia Bank in 1992, the art collection went with it. Last month at a special auction run by Webb’s, BNZ sold some 200 artworks, reportedly realising more than $13.5m in the process, including a New Zealand record $2.39m for Colin McCahon’s ‘Is there anything of which one can say look this is new?‘
The news that the proceeds from the auction will be used to establish a philanthropic foundation indicates that BNZ has been able to achieve a very tax-advantageous result. As noted above, a gift of the artwork to the philanthropic foundation would not be tax deductible. However, by selling the works, BNZ has realised cash which it can now gift to the foundation and claim a deduction. Better still, because Aotearoa has no capital gains tax, any gains from the sale of the artworks are almost certainly not taxable.
In fairness to BNZ, the present requirement to gift cash rather than property to qualify for a tax deduction pretty much compelled it to get creative. It’s been apparent for some time that the current rules around donations by businesses hinder making gifts of not just land or artwork but trading stock.
At present if a company gives away some trading stock such as excess food, it’s deemed to have done so at market value. Fortunately, in the wake of the pandemic a special measure was introduced in March 2020 which put a temporary pause on the application of these anti-avoidance rules. A business will effectively get a deduction for a donation of trading stock which is either donated to a charitable organisation or someone not associated with the business. However, that temporary exemption is due to expire on March 31, 2023. It would be nice to see it made permanent.
In the meantime, banks and other organisations will continue to get creative around donations. Which, as Colin McCahon would probably say, is not new.