If you work in fundraising, you have almost certainly seen the headlines. As part of Budget 2026, the Government announced a cap on the donation tax credit. Most of the commentary since has landed in the same place: this is bad news for the charitable sector. We agree it is the wrong lever to pull right now. We are also more interested in a more useful question. If this is coming, what can your charity actually do about it?
This is a practical guide to the change, why it lands at a difficult moment, and the steps a board or fundraising team can action before it takes effect.
What actually changed
From 1 April 2027, the donation tax credit will be capped at the lower of $100,000 or your taxable income each year. The credit rate itself stays at 33.33%, so the practical effect is a ceiling of around $33,000 on what any single donor can claim back in a year. Inland Revenue expects the cap to affect roughly 350 donors, about 0.1% of all givers in the country.
That sounds small, and for most donors it is. The catch is that this tiny group gives a hugely disproportionate share of the total. Those few hundred donors account for more than $100 million of giving each year, which is over a tenth of all charitable giving in New Zealand. Inland Revenue projects the change will return roughly $19 million a year to government coffers. Set against the potential impact on the sector, that is a modest saving for a meaningful risk.
It is worth being fair about the rest of the package, because there is some good in it. Budget 2026 also raised the income a not-for-profit can earn without paying tax from $1,000 to $10,000, which is a genuine and welcome relief for smaller organisations. Membership subscriptions and levies have been confirmed as non-taxable. Donors will be able to receive their tax credit refunds during the year rather than waiting until the end of it, and they will be able to gift that credit straight back to the charity if they choose. These are sensible, helpful changes. They simply do not fill the hole the cap could leave for organisations that rely on major gifts.
Why this lands at a difficult moment
The timing is the part that frustrates many of us in the sector. Philanthropy has been the one part of the funding picture that has kept growing while almost everything else goes backwards. Central government funding has tightened, local government is focussing on fixing deplated infrastructure, and gaming trusts, community trusts and foundations are all oversubscribed… At the same time, charities are increasingly delivering services that are arguably a government responsibility. Adding a barrier to private giving, just as public funding retreats, takes pressure off one hand and adds it to the other.
There is a second squeeze happening to many charities that rely on lower level donations. The regular givers who reliably contribute small amounts are pulling back across many charities, simply because the cost of living, fuel, rents, winter power bills and looming rates rises are all landing on the same households. So the sector is facing pressure at both ends at once: the major donors at the top and the loyal regular givers in the middle. That makes getting ahead of this more important, not less.
What your charity can do now
Grumbling about it and hoping the problem goes away will not protect your income. Here is where we would focus between now and April 2027.
- Have early conversations with your major donors. This is the single most important step. Talk to the partners who give at scale. Yes, these conversations may feel slightly awkward, but you need to get a read on whether the cap is likely to change what they give next year. You may not get a definitive answer, and that is fine. Even a rough sense of the impact gives you the runway to plan rather than react.
- Diversify your funding base. If a large share of your income sits with a handful of donors, the cap is a useful prompt to spread that risk. Look at where you are over-reliant on one stream and start building others before you need them.
- Start, or sharpen, a gifts-in-wills strategy. Bequests are a long game that rewards starting early. Talk to the local solicitors who write wills in your area, get in front of your community foundation, and make sure people understand what you do. A gift you secure today may arrive in five or ten years, which is exactly why now is the time to begin.
- Prepare for the wealth transfer and new giving pathways. New Zealand is heading into the largest intergenerational transfer of wealth in its history, and the money only reaches your cause if you have built the relationships first. For larger national organisations, the new ability to direct part of a migrant investor visa toward philanthropy is another pathway worth understanding. Both reward charities that are visible to wealth managers, advisers and families well before any money moves.
- Look after the regular givers you already have. In a tight year, retention matters more than acquisition. Thank your regular supporters specifically, show them the impact of even a small gift, and make it easy for them to keep giving in a way that suits their budget right now.
- Use your voice. The cap is a proposal, and the sector is already mobilising. Philanthropy New Zealand and professional bodies such as the Fundraising Institute Australasia are advocating against it, and many charities are advocating for change. Tell your local MP you are concerned, and add your organisation’s voice to the collective effort. With an election ahead, what has been announced is not necessarily what will end up in law.
The bottom line
The donation tax credit cap is an unsound policy, and it may yet change before it takes effect. Either way, the charities that come through this best will be the resourceful ones, and resourcefulness is what this sector does better than almost anyone. Use the runway you have. Start the conversations, spread your risk, look after the supporters who look after you, and make your voice heard. Do that, and whatever happens come April next year, you will have done the work to get ahead of it.
Funding HQ helps not-for-profits across New Zealand build the kind of diversified, relationship-led fundraising that holds up when the environment gets harder. If you want a hand thinking through what this means for your organisation, we are here for the conversation.