News & Insights

The Inland Revenue’s Issues Paper: Taxation and the not-for-profit sector raises questions about the future of charity income tax exemptions, particularly business income unrelated to a charity’s core purpose, and the additional compliance for organisations. 

We offer here:

• General comments on the Issues Paper and its objectives, and
• A response on the question of taxing the non-related business income of charities, particularly in relation to investments.

In reviewing the Issues Paper we raise concern that the proposed changes could risk undermining the substantial public benefit delivered by the charitable sector.

Our main recommendation:

• Inland Revenue undertake a comprehensive policy impact assessment before introducing any significant changes to the taxation rules affecting charities.

In the absence of a widespread problem the challenge is in addressing specific issues without negatively impacting well-functioning charities.

Any changes to the current system must be carefully designed to avoid unintended consequences that could weaken the charitable sector and its ability to serve communities.

We took the view, the priority should be ensuring that the income generated by charities continues to directly support their charitable purposes—rather than focusing narrowly on the types of income received. We cited Australia and Singapore as examples to follow.

Rather than tax reform we support strengthening Charities Services and its registration processes to effectively target entities acting illegally or undermining sector integrity.

Our submission also:

• Outlined five policy considerations for any tax reform of the sector.
• In assessing the impact of taxing non-related business income, we noted six items that were not raised in the Issues Paper (four relating to charity investment income).

You can view our full submission here.

Acknowledgement: We thank John Godfrey of Godfrey and Associates, Lani Evans of Generous Ventures, and Community Governance Aotearoa for the opportunity to read their submissions prior to submitting. We also are grateful to Steven Moe of Parry Field, Craig Fisher - Independent director, and Jenn Chowaniec of Wayne Francis Charitable Trust for their prior briefings on the Issues Paper.