How the Charities Act affects your tax status
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Inland Revenue and the Charities Commission have worked jointly on these guidelines to:
- explain how the Charities Act 2005 affects the tax benefits available to charities, and
- answer frequently asked questions about registration under the Charities Act and tax exemption.
The Charities Act changes the requirements for charitable organisations claiming income tax
and gift duty exemptions.
From 1 July 2008, you must be registered with the Charities Commission to be eligible for
tax-exempt status based on the grounds of charitable purposes.
This applies even if you already have a letter from Inland Revenue confirming your entitlement to tax exemptions.
What does “tax exempt status” mean for charities?
Charitable organisations are eligible for various tax benefits.
From 1 July 2008, charities must be registered under the Charities Act to receive:
- exemption from income tax for non-business income
- exemption for business income derived by or in support of charities
- an exemption from gift duty for persons who make gifts to your charity.
Charities can also qualify for donee organisation status, but this is not linked to registration under the Charities Act—see Donee Status below.
My charity has a letter from Inland Revenue confirming its tax-exempt status – do I still need to register with the Charities Commission?
Yes. This is because of a change to the tax laws that takes effect from 1 July 2008. You will have to be registered with the Charities Commission to be eligible for income tax and gift duty exemptions after that date.
Who will grant the tax exemption?
Inland Revenue will continue to administer the tax exemptions available to charities and decide whether donations to a charity are eligible for rebates and deductions – see “Donee Status” below.
The Charities Commission will decide if an organisation qualifies for registration as a charity. It will look at whether the organisation has charitable purposes and whether the organisation’s name and officers meet the requirements of the Charities Act. Generally, Inland Revenue will accept the Commission’s decision so that registration can in most cases lead to tax exemption.
How will I know that I have tax exemption?
From 1 July 2008 charities must be registered with the Charities Commission if they want to
claim exemptions from income tax and gift duty. They will need to work out whether they meet other requirements for the tax exemptions under tax legislation.
To help your organisation decide, Inland Revenue will send you information when you get your registration certificate from the Charities Commission. More detailed information about the tax exemptions is published in an Operational Statement available on Inland Revenue’s website www.ird.govt.nz.
In most cases, charities with non-business income only (eg investment income such as
interest and dividends) that are registered under the Charities Act will be eligible for the exemptions.
Registered charities carrying on a business will need to refer to the information they receive from Inland Revenue.
Will Inland Revenue give me confirmation of my tax exemptions?
No. Inland Revenue did give (nonbinding) advice to individual organisations about their tax
exempt status in the past but will not in the future. Most of the factors that Inland Revenue looked at are also now requirements for registration as a charity and these will be looked at by the Charities Commission in the context of the Charities Act.
Instead, Inland Revenue will give charities general information when they register, explaining
what they need to know about their tax status.
Do I need to tell Inland Revenue when I’ve registered with the Charities Commission?
No. The Charities Commission will tell Inland Revenue that you’ve registered. The Commission will also tell Inland Revenue if your organisation is de-registered for any reason.
You’ll only need to contact Inland Revenue if you need to file a tax return because you think you may have taxable income.
You’ll also need to contact Inland Revenue if you have any other tax matters - eg goods and services tax, you employ new staff, or you need to update your address or other records for any reason
What about RWT certificates of exemption (COE)?
From 1 July 2008 you will need to be a charity registered with the Charities Commission to be eligible for this exemption.
If you are eligible for income tax exemptions, you are also entitled to a resident withholding tax (RWT) certificate of exemption.
If you already have a COE, and you’ve registered with the Charities Commission you don’t
need to reapply.
If you don’t have one, you should apply to Inland Revenue for a COE by completing their form IR 451. You can get this from www.ird.govt.nz or by calling 0800 377 774.
There’s a clause in our rules that says I must tell Inland Revenue about certain changes. Is this still relevant?
Some organisations may have a clause in their rules that prevents additions or alterations to their charitable objects, personal benefit and winding-up clauses without first getting Inland
Revenue’s approval.
Inland Revenue has consented to the removal of any clause in a charity’s rules that requires the charity to obtain Inland Revenue approval before making any changes to these rules.
In order to comply with the Charities Act, you’ll need to advise the Charities Commission of any rule changes after they are made.
Do I need a letter from Inland Revenue to register with the Charities Commission?
No. You just have to provide your IRD number, if you have one, when you apply for registration.
Donee status
Individuals who give donations to charities with approved donee status can claim a rebate.
Companies and Māori authorities can claim a deduction for donations to an organisation with
donee status.
Donee status is not affected by the Charities Act. Inland Revenue will continue to administer donee status.
You don’t have to make a separate application for donee status when you apply to register.
Inland Revenue will use the information you give when you apply for registration under the Charities Act to work out or reconfirm your donee status. They will send you a letter about this shortly after you register with the Charities Commission.
If you don’t want to register under the Charities Act you’ll need to apply for donee status directly to Inland Revenue (if you don’t already have it).
Further information
For more information about tax benefits available to charities, refer to Inland Revenue’s Charitable organisations (IR255) booklet, available at www.ird.govt.nz or by calling 0800 377 774.