MEDIA RELEASE (NZ)

An Issues Paper exploring ‘Taxation and the not-for-profit sector’ needs better data and a clearly defined problem to address, says Chartered Accountants Australia and New Zealand (CA ANZ).

“It’s not clear what the paper is trying to address. Is it raising more revenue for the Government of the day? Or is it trying to address perceived profit accumulation from business activity not connected with the charitable purpose?" said CA ANZ Tax Leader John Cuthbertson FCA.

“Neither of the perceived issues raised by the paper are accompanied by data, which is essential to good decision making. We need to quantify accumulation of profit, loss of revenue, and the benefits that charities deliver to New Zealand, among a range of metrics, to get a grip on the issue here.

“New Zealand has more than 27,000 registered charities which deliver huge social value to our communities, particularly in health, education and social support. Changing the business income exemption risks undermining the immense value that the charities sector provides.

“If data shows there is an issue with charities’ business trading activities accumulating revenue or gaining an unfair commercial advantage, then the Charities Commission should review the charitable status of individual organisations, or there needs to be a review of the Charities Act 2005, to deliver tighter boundaries.

“Making charities pay tax on business activities deemed not to be connected to their charitable purpose, and then claim back a deduction when funds are transferred to the charity, would result in a significant administrative burden.

“Our suggestion is that misconduct by charities should be addressed through the Charities Act followed by consideration of whether that organisation should have charitable status.

“There are often very good reasons for charities to accumulate income. Achieving long-term objectives, such as building new facilities or implementing social programs, can take years. Insisting that charities allocate funding in the short term may create undue pressure, resulting in poor outcomes and short-sighted decisions that could undermine the charitable mission and the organization's sustainability.

“Charities typically receive funding through donors or business earnings. If you’re reliant on a small pool of donors, that creates less independence and the need to compete for donations in a challenging environment, which can distract from the ultimate charitable purpose and service delivery.

“Another broad challenge is defining unrelated business activities. Around the world, it’s proven very hard to define this.

“By creating a ‘bright line’ you’re creating arbitrary boundaries and complexity as to who retains the exemption and who doesn’t. It would likely add complexity and cost to charities with business activities.

“There may be a perceived issue with a few charities at the big end of town, but again, if this is proven that should be addressed through the Charities Act. If the Government pushes forward with these changes, we would support the introduction of a de minimis rule for small-scale charities, that if tied to Tier 3 and 4 reporting requirements would exempt 88 per cent of reporting charities.

“Our preference is that we get much better data on the Charities Sector, before decisions are made that could compromise the huge benefit that Charities deliver to many of New Zealand’s most vulnerable communities,” concluded Mr Cuthbertson.