Compliance focus 2009-10: Community and business segments
Non-profit groups
At a glance
- Non-profit groups are organisations, societies or associations that are self-governing, non-government and/or voluntary. Their activities can not be carried out for the profit or gain of any member and their rules do not allow money, property or any other benefit to be distributed to any of their members.
- In 2008 there were 98,000 non-profit entities registered with Inland Revenue.
- Only 12% have paid employees (a total of 173,000 paid employees, a significant number are part time).
- In 2008 non-profit groups generated about $1.5 billion tax revenue.
Our compliance approach
Non-profit groups provide important community services and products that make a difference for thousands of New Zealanders.
Funding for these groups is mainly through donations, grants, member subscriptions and sponsorships.In recognition of their important role in society, New Zealand, like other countries, provides tax relief for non-profit groups and tax incentives for the people who support them.
We receive and pay donation claims, making sure they are accurate and paid to an approved organisation, raise awareness among non-profit groups of their tax obligations and focus on organisations that intentionally do not comply or are structured for evasion, fraudulent or avoidance purposes.
We are undertaking research to give us a better understanding of the organisations working in the non-profit sector.The range and level of our interactions will develop as our understanding grows.
By grouping organisations by their size and complexity we will be able to tailor our services and responses appropriately.
We are using our relationships with a range of national and regional organisations and other agencies to provide information and advice.Our community relationship advisors hold seminars for non-profit groups, including iwi/hapu.
Areas of focus
Non-profit groups generally meet their tax obligations.The most common causes of non compliance are due to the implementation of new laws, unclear information or lack of knowledge.
Recent policy initiatives and legislative changes |
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A number of recent and proposed policy initiatives and legislative changes impact on the non-profit sector.
Our agreement with the Charities Commission will see us working together to provide greater certainty about the tax obligations of charitable organisations.This is being developed further to ensure a coordinated approach to confirming organisations' tax exempt status and co-hosting events, such as expos, to raise awareness and provide information. We will provide information for non-profit groups about the legislative changes and their impact.For example, we will be working with organisations that have not registered with the Charities Commission to ensure they understand their tax obligations. |
Misusing charities tax-exempt status
We are aware of schemes that have been used overseas where charities or others, such as tax return preparers or fraudsters, misuse the tax advantages provided to charities.This is also an issue in New Zealand.
Registered charities do not have to pay tax in recognition of the important and significant role the non-profit sector plays in building a strong, caring and well-functioning society.The vast majority of charities are legitimate, but their tax-exempt status makes them an attractive avenue for fraudulent activity for some members of society.Schemes can often involve people posing as charitable organisations and providing false receipts or charities issuing receipts
for payments that are not true donations, or manipulating the value of the donation.
What we will be doing
We will be:
- identifying fraudulent schemes by using information passed on by members of the public, third-party data and information from other tax authorities, along with our analysis of donation claims
- educating non-profit groups about their tax obligations and investigating, where appropriate.
Mutual associations
Income tax liability for mutual associations is based on the nature of mutual transactions undertaken by an association.
In some cases, there are issues associated with the correct classification of income from mutual transactions and in attributing expenditure to that income to determine appropriate tax deductions.
What we will be doing
We will be:
- investigating cases of associations with mutual transactions and answering questions of income derivation and expense deductibility on a case-by-case basis
- providing clarity in this area.
Helping you get it right
Date published: 09 Jun 2009
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