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 here at Funding HQ 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.

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.

The Auckland Art Gallery Foundation honors major benefactors on a dedicated wall.

The arts sit at the sharp end of this change, and officials know it. Inland Revenue's own analysis accepts that the cap is likely to reduce very high-value donations to arts, culture and other charities that depend on major gifts. That is not an unfortunate side effect of the policy, it is a predictable consequence of it. Arts organisations rarely have a broad base of small regular givers to fall back on. A gallery extension, a national tour, an instrument fund, a commissioning programme: these are almost always built on a handful of large gifts from people who have decided this work matters. Capping the incentive at that level does not trim the edges of arts funding. It reaches into the part of the model the sector actually runs on.

Public funding is moving the same way with squeeze tighter here too. Budget 2026 reduced the arts portfolio over the next four years, Creative New Zealand's baseline allocation falls again this year, and a two percent savings requirement applies across arts, culture, heritage and sport. In the first Creative Impact Fund round of 2026, 247 eligible applicants applied and 27 projects were approved, meeting less than eight percent of what was sought.

Arts organisations are being encouraged to look harder at private philanthropy at the same moment the incentive to give at scale is being reduced. If you work in the arts, the practical point is the calendar. The cap does not take effect until 1 April 2027, which leaves a window to talk with your major donors now about what they were planning to give later, and whether it makes sense to bring some of it forward.

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 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.

A version of this article was originally published on Funding HQ’s website. 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, they are here for the conversation.

More coverage of Budget 2026

What the budget means for the arts by Andrew Paul Wood