Late in November we received a newsletter from lawyer Sue Barker which contained the following information:
“In a new consultation paper issued on 14 November 2025, entitled Taxation and the not-for-profit sector: Targeted consultation on detailed design, IRD is proposing to create a new category of “donor-controlled” charity (an oxymoron in charities law terms) for the purposes of imposing minimum distribution requirements and creating very complex tax rules. It appears IRD was a bit overwhelmed by the response to their February issues paper – at the Sector Group meeting yesterday, they said they don’t have the resources or capacity to undertake “public” consultation. Accordingly, IRD is only releasing this paper to 50 stakeholders, with feedback sought by 24 December 2025. Their intention is to have the new measures included in a tax bill before next year’s election.
Make no mistake, this is a shot across the bows of the charitable sector: IRD’s proposals will cut across the underlying law and be very expensive to comply with and administer. They will force charities to expend charitable funds on lawyers and accountants, as charities and IRD argue whether a particular charity falls on any particular side of a host of arbitrary “lines”. The experience of other jurisdictions indicates that such complex tax rules will require constant amendment to fill gaps and address unintended consequences, all of which will create a hostile “poacher and gamekeeper” environment that will push people with genuine charitable intent away from the charitable sector (contrary to the Minister for the Community and Voluntary Sector’s desire to increase philanthropic giving), and will ironically encourage into the charitable sector the very things that the Charities Act was introduced to counteract (such as fraud, money laundering, tax avoidance, etc).
IRD’s proposals are based on complex tax rules in Canada and the US, but without reference to the fact that Canada and the US administer charities law through their tax systems. New Zealand specifically removed the charities function away from IRD when the Charities Act was passed in 2005. IRD also doesn’t examine whether the rules in Canada and the US are working – there has been a lot of criticism in Canada about the tax focus of their system for charities …”
The full text can be read in Sue Barker’s newsletter. If you want to see the IRD discussion paper (which does not appear to be available on the IRD website) please contact Sue through her newsletter.