Tax working group



Tax Working Group Interim Report

By Andrew Babbage

The charitable sector in New Zealand benefits from a number of tax concessions and it is not surprising that the Tax Working Group (TWG) has decided to take a look at charities to ensure the rules work to achieve social outcomes.

In recent years there has been an increase in the size and value of the charitable and not-for-profit sector. As noted in the Interim Report, the number of not-for-profits rose from 97,000 in 2004 to 114,110 in 2013, with donations, grants and fees to those organisations growing by 40% from $1.9 billion to $2.7 billion. In 2016/17, charities earned gross income of $18 billion and managed total assets of $59 billion.

As has been commonplace for years, the tax exemption for the business income of charities has been singled out by submitters as providing an unfair advantage to charities, which can allow them to undercut competitors. The TWG has focused more on the accumulation of surpluses which are not applied for charitable purposes, taking the view that the accumulated assets and income of all charitable businesses should be used for charitable purposes in order to qualify for the tax exemption. This approach to taxation would need to be balanced against the need for some charities to accumulate funds over a number of years or to take an intergenerational view of the management of assets.

The TWG notes that the Government is undertaking a review of the Charities Act 2005 and that, as a matter of process, tax changes should be considered only at the conclusion of this review.

While in its purest form, effectively providing a tax exemption to charities to the extent they have done public good has some appeal. It would effectively place charities on an equal footing with other businesses who receive a tax deduction for donations to charities but are otherwise taxable on their income. However, the design of such a regime may have to be very complex in order to ensure that charities are not penalised for having objectives and savings goals that span income years.    

Charities recommendations

  • The Government should periodically review the charitable sector’s use of what would otherwise be tax revenue to verify that intended social outcomes are being achieved
  • The TWG supports the inclusion of a review of the charitable sector in the Tax Policy Work Programme
  • Recommends considering whether to apply a distinction between privately controlled foundations and other charitable organisations
  • Recommends considering whether to amend the deregistration rules to more effectively keep assets in the sector, or to ensure there is no deferral benefit through the application of these rules
  • The Government reviews whether the GST treatment of not-for-profit organisations is appropriate
  • The Government consider if the issues identified have been addressed as part of the review of the Charities Act 2005


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Tax Working Group Interim Report

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