Reports in various media outlets suggest that approximately $2 billion in ‘profits’ within New Zealand’s charitable sector is not subject to tax, and the Finance Minister is reported to be considering whether some charities may be taxed. A response to a recent Official Information Act (OAI) request (published by Deloitte) provides the detail, and some press reports are linked at the end of this article.
In essence:
Finance Minister Nicola Willis has promised upcoming tax changes aimed at closing any loopholes, to be announced in next year’s Budget. The annual report by Charities Services indicates that in the 2023/24 year, charities had total expenditures of $25.28 billion against a total income of $27.34 billion, resulting in this $2 billion difference.
In New Zealand, registered charities that engage solely in charitable activities and do not benefit members, trustees, or associates directly can access a tax exemption. This exemption’s fairness is debated, especially regarding high-profile charities like Sanitarium and Best Start childcare, which compete with tax-paying non-charitable businesses.
A paper prepared for the Tax Working Group estimated that about 30 percent of registered charities engage in some form of trading activity. The group’s final report suggested periodic government reviews to ensure that charitable sector tax exemptions are justified by social outcomes.
Michael Gousmett from the University of Canterbury has raised fairness concerns, especially regarding iwi organizations like Ngāi Tahu’s seafood businesses, which enjoy tax exemptions for non-primary purpose trading. Te Rūnanga o Ngāi Tahu’s chief executive, Ben Bateman, stated that their charitable entities comply with all obligations and provide significant social benefits to their community.
Robyn Walker, a Deloitte tax partner, noted the government’s concern about whether charities are timely in their charitable activities. She mentioned that most charities probably spend their income appropriately, but a small subset might contribute significantly to the $2 billion profit. She also discussed the possibility of requiring charitable businesses to donate their profits to their parent charity, reducing their tax obligations.
The government faces a challenge in targeting specific issues without negatively impacting well-functioning charities. There have been suggestions for measures such as a memorandum account to manage tax payments and charitable spending, although this could increase compliance costs.
Charities’ $2 billion in untaxed profits (RNZ)
Charity tax crackdown likely to be unveiled at Budget 2025 – Nicola Willis (NZ HERALD)
Tax changes likely to focus on charities’ business income – expert (NEWSTALK ZB)