Do you manage an organisation involved in charitable activities?
If yes, I recommend that you register with the Charities Commission.
That way, your organisation could qualify for an income tax exemption and your supporters may be able to claim a tax credit for their donations.
A Charitable Organisation (incorporated or not) is a body that carries on charitable activities or exists exclusively for charitable purposes.
‘Charitable purposes’ include relief of poverty, advancement of education, advancement of religion and activities that benefit the community.
An organisation’s purposes must fall within one of these categories to be considered as charitable. Its activities or aims must be for public purposes and the benefit must be available to a large section of the community.
In addition, it must not be carried on for the benefit or profit of any individual.
The portion of a charity’s business income, which is used for charitable purposes in New Zealand, is exempt from income tax.
If an organisation uses its business income for charitable purposes outside New Zealand as well, only the New Zealand part is exempt.
GST, PAYE not exempt
Charities are exempt from income tax on non-business income such as interest, dividends and rents. They may use the income for charitable purposes in and outside New Zealand and still keep the exemption.
Only charities registered with the Charities Commission are eligible for an exemption from income tax.
There is no exemption from GST or PAYE. If a charity carries out a taxable activity, and the annual turnover exceeds $60,000, the charity must register for GST, and file regular GST returns. If it employs staff, the charity must account for PAYE like any other organisation.
Donee Organisations
Donee Organisations are those that meet certain requirements under our tax laws. Individuals can claim a tax credit by making gifts of money to a donee organisation.
A charity can be a donee organisation, but other types of organisation may also qualify.
A donee organisation must be a New Zealand society, institution, association, organisation, trust or fund.
Its funds must be applied wholly or principally to charitable, benevolent, philanthropic or cultural purposes in New Zealand.
This means the organisation’s aims or purposes should be carried out in New Zealand, even if this results in paying money outside New Zealand to achieve these purposes.
Cultural activities include dramatic, theatrical, operatic, ballet, choral or musical performances.
Benevolent and philanthropic purposes mean doing good for other people. This includes organisations that are not charitable in the strict legal sense, but are popularly seen as charitable (for example, organisations whose proceeds or funds are used to benefit all or a large part of the public).
Another condition is that the organisation must not be carried on for the private benefit of any member or an associate of any member.
Overseas charities
Charities that apply the principal part or all of their funds outside New Zealand must be approved for donee organisation status by Parliament.
Such approval is limited to organisations whose funds are mainly used for the relief of poverty, hunger, sickness or the results of war or natural disaster, the economy of developing countries (as recognised by the UN) and raising the educational standards of a developing country.
Inland Revenue considers these applications and makes appropriate recommendations to the government.
A donee organisation is still liable for income tax on any taxable income it earns from sources outside its own membership if it has no other income tax exemption.
Charities Commission
If your organisation is registering as a charity with the Charities Commission, and indicates that donations are a source of income on the application form, this information will be passed on to us and we will automatically consider the status of the donee organisation.
If your organisation is not registered as a charity with the Charities Commission, you must apply in writing directly to us for consideration of benevolent, philanthropic or cultural donee status.
For details, please visit, www.charities.govt.nz
If you need more information about charities and donee organisations, go to www.ird.govt.nz and look under ‘Non-profit organisations’.
Free workshops
If you are in business, you may like to attend one of our free tax seminars or workshops held in various parts of the country.
Visit www.ird.govt.nz and enter the search term ‘Seminars.’
Abdul Rafik is Inland Revenue’s Community Relationships Advisor based in Auckland. He is happy to answer readers’ queries, which should be sent to venkat@indiannewslink.co.nz
