Most submissions opposed plan to tax charity businesses

After a two-month consultation period about charities and tax earlier this year, Finance Minister Nicola Willis asked Inland Revenue to do more work on the options. Documents obtained by The New Zealand Herald under the Official Information Act showed that, of the 901 submissions on the proposals, 86 per cent were opposed to removing the tax exemption for charity business income.

In addition to written submissions, IRD also met with 40 large charities and sector groups as part of its consultation. Full feedback on the submissions is scheduled to be made public later this month.

An IRD summary of submissions cited complaints about the short period of consultation, the load charities carry that would need to be taken over by government if their income was reduced and a preference for regulator Charities Services or IRD to better focus on problematic charities rather than trying to bring the entire sector into the tax system.

An analysis done by The New Zealand Herald showed nearly 8000 entities on the charities register with $36 billion in gross income and $1.56 billion in annual surpluses. This points to a possible annual tax take of $400 million. But there are many very small charities and only a few very large ones. The IRD proposals would have exempted the smaller ones – leaving only 15 per cent of charities affected.

Other complexities involve business activities that are directly related to a charity’s purpose, such as universities supplying education or health services delivering health care, as distinct from unrelated business activities. These would require separate accounts for tax purposes under the proposals.

Methods of calculation of a charity’s surplus are also markedly different from those for working out the taxable profit for a company. Factors such as these saw the estimated potential tax take from charities drop to $50 million. And most of this would come from a few large charities.

The Finance Minister’s office said it is important that changes made are the right ones, and that is going to take some time to do so.

FULL STORY

Why charities tax got kicked into touch and what it means for New Zealand (By Matt Nippert/New Zealand Herald – subscription required)