Wednesday, 18 October 2006
Meddling Charities Beware
Charities will need to “stick to their knitting”or seriously risk losing their tax exempt status when new legislation
comes into effect on 1 January 2008, warns Ernst & Young Tax Director Jo Doolan. “Charities who meddle in affairs outside of their agreed purposes, beware.”
The new legislation requires New Zealand-based charities to be registered by the Charities Commission to enjoy tax
exemptions. This will entail additional administration as well as increased scrutiny.
The current rules provide exemptions from income tax for approved charities. For an organisation to be charitable its
activities or aims must be for public purposes and the benefit must be available to a large part of the community. The
organisation cannot be carried on for the benefit or profit of individuals.
Charities will be liable for income tax if they operate with no written rules, constitution or trust deed or they
operate under a set of rules, a constitution or a trust deed that does not meet the requirements for income tax
exemption. The same applies if they use business income for charitable purposes outside of New Zealand, and from 2008
they will not be exempt from income tax if they are not registered with the Charities Commission.
Jo Doolan says this is not just a case of registering and forgetting about it. The Charities Commission has the
authority to impose penalties, undertake formal investigations or deregister charities that are not fulfilling their
described charitable purposes or have seriously failed to comply with the Act.
With the register opening on 1 February 2007 Ms Doolan urges charities to start preparing now. For example, officers
must qualify under the Charities Act 2005 which means - among other things – officers cannot have been convicted for
dishonesty in the last seven years or an un-discharged bankrupt or less than sixteen years old.