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Getting the best tax incentives for charity

Reader Hui Lee Phua had raised the following queries relating to the article, ‘Not everything charitable is tax free,’ written by Abdul Rafik, Inland Revenue Department Community Relationship Advisor (Indian Newslink, February 15, 2012).

In response, IRD had referred the Reader to the following web link:

http://www.ird.govt.nz/resources/f/2/f214ed804bc1d3189852992b4d8740fd/ir255.pdf

However, we invited our tax expert Vijay Talekar to clarify.

The following are the Reader’s questions and his answers:

An Incorporated Society’s main source of funds is donations from the public.

If the Society’s only source of income is donations, could it claim any GST on its expenses? The Society is also registered under the Charities Commission and has ‘Donee-free Organisation’ status.

The society will not be considered to be carrying on a taxable activity if its only source of income is donations. In such a case, if the entity is registered for GST, it would be advisable to de-register for GST, as the society will not be able to claim GST on its expenses.

The Society would like to sell food in a local annual event held by the local Council to raise funds.

Does the society need to pay GST on the sales (and claim GST on the expenses related to the fundraising events)? With this be considered as taxable activity?

If the society conducts other fundraising events, mainly by selling food to the public, would the income be subject to tax?

Does the Society have to pay GST on the sales (and claim GST on the expenses related to the fundraising events?

As the society is registered for GST, the society would be required to collect the GST on the food item/s it sells in the local annual event held by the local Council. Accordingly, GST can be claimed on the expenses it incurs on the related expenses incurred in fundraising.

Should the Society be GST registered, if the total sales (before deducting related expenses) are less than $60,000 a year?

The Society has to take account of the total revenue and sales. This excludes exempt income (such as income from donations, residential rent, interest or dividends). No deductions for the related expenses should be considered in arriving at the threshold of $60,000. If the total sales are below this threshold, then GST Registration is not compulsory.

Editor’s Note: Vijay Talekar is Director of Tax Experts Limited, Chartered Accountants. The above response should be taken only as a guide and not as specific advice. Mr Talekar absolves himself, along with the management and staff of Tax Experts Ltd and Indian Newslink of any responsibility or liability that may arise from the above responses. Readers should seek professional advice before acting upon any information contained above. Mr Talekar can be contacted on phone: (09) 2792987. Email: vijay@taxexperts.co.nz Website: www.taxeperts.co.nz

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