Don’t rush changes to tax rules for charities, researchers say

Associate Professor Juliet Chevalier-Watts and Professor Frank Scrimgeour from the University of Waikato Law and Management Schools respectively warn that overhauling tax rules could undermine the sustainability of some charities.

The total value of the services provided by charities in 2018 alone was $6.1 billion – the equivalent of around 3 per cent of annual Government spending. Charities make substantial contributions to education, sports, the arts, the environment and other activities that don’t get enough support from the Government, the researchers stated.

Inland Revenue is currently consulting on rule changes that would include taxing business income unrelated to a charity’s charitable purpose. Arguments for a “level playing field” for all businesses have been advanced.

The University of Waikato researchers noted that donations to charities fluctuate from time to time. Therefore, having a steady income stream from a business can assist with sustainability.

In consideration of tax rules in this sector, they argue Government should consider the major contributions to society made by charities, the gaps in services that the state doesn’t fill, administrative costs and the impact on charities other than religious groups.

The researchers also observed that the Inland Revenue discussion paper only offers examples of businesses in the primary and manufacturing sectors. But it is silent about the financial and services sectors. It appears charities’ income from interest or financial assets will still be exempt.

Tax rules should be consistent between financial assets and non-financial assets, such as a farm or business, the researchers stated.

“More needs to be done to understand the implications for communities should tax changes occur – and what could be lost if charities are substantially less sustainable. So, if the government delivers a plan, let’s read and evaluate the small print.”

FULL STORY

The viability of some charities could rest on how they’re taxed – we should be cautious about changing the rules (By Juliet Chevalier-Watts and Frank Scrimgeour/The Conversation)