The New Zealand Government has recently proposed a significant overhaul of the taxation rules affecting charities and not-for-profits (NFPs), which could have far-reaching implications for businesses and organisations across the country. With public consultation on these changes closing soon, now is the time to assess how your organisation might be affected.
What’s Changing?
The Government’s review targets three key areas:
-
Tax Exemptions for Business Activities of Charities
-
The proposed changes seek to tax income from business activities that are unrelated to a charity’s core charitable purpose.
-
This could impact large organisations like Sanitarium and Trinity Lands, which operate as charities but run significant commercial enterprises.
-
The Government argues that allowing tax-free accumulation of business income creates an unfair advantage over private-sector competitors.
-
Donor-Controlled Charities
-
There is increasing concern over donor-controlled charities—entities where a single individual or family exerts significant control while benefiting from tax deductions.
-
The proposed reforms may introduce stricter regulations, requiring these charities to distribute a minimum percentage of their assets annually to ensure public benefit.
-
Not-for-Profit Tax Exemptions
-
Around 9,000 clubs, societies, and professional bodies may face new tax obligations if their exemptions are removed.
-
The Government is scrutinising whether certain long-standing exemptions, such as those for industry bodies and regional promotional groups, remain fit for purpose.
Why Does This Matter?
For many charities and NFPs, these changes could mean:
-
Increased compliance costs, as they may need to report and pay tax on certain income.
-
Reduced funds available for charitable activities, especially if surplus income is taxed.
-
A potential restructuring of operations to ensure business activities remain aligned with charitable objectives.
For private-sector businesses, particularly SMEs, these changes could help level the playing field, ensuring commercial operations run by charities pay their fair share of tax.
What Should You Do?
-
Review Your Charity Status: If your organisation relies on tax-exempt business income, now is the time to assess the potential impact.
-
Stay Informed: The final details are likely to be announced in the May 2025 Budget. Submissions to Inland Revenue close on 31 March 2025.
-
Seek Advice: If you operate in the NFP or charitable sector, it’s crucial to understand whether restructuring or compliance changes will be necessary.
The Road Ahead
While these proposed changes are still in the consultation phase, they reflect the Government’s broader objective to close tax loopholes and ensure tax fairness. If implemented, charities and NFPs will need to rethink how they generate and allocate funds.
For tailored advice on how these changes might affect your organisation, reach out to our team. We’re here to help you navigate this evolving landscape.