Charitable organisations: Income tax and charitable organisations

Income tax and charitable organisations

Liability for income tax

Charitable organisations can receive many types of income, including subscriptions, grants, subsidies, donations or koha, fees, raffle money, trading profits, and proceeds from selling assets.

They are liable for income tax if they:

• operate with no written rules, constitution or trust deed
• operate under a set of rules, a constitution or a trust deed that does not meet the requirements for an income tax exemption
• use business income for charitable purposes outside New Zealand.
• they are not registered by the Charities Commission - please go to the Charities Commission website for further information.

If your charitable organisation is assessed as being fully exempt from income tax, you don't need to file an income tax return unless we request one. However, you still need to keep accurate records for the organisation.

You can request an exemption from RWT (resident withholding tax) by completing an Application for exemption from resident withholding tax on interest and dividends (IR451).

Note

Some organisations may have rules that prevent additions or alterations to the charitable objects, personal benefit and winding up clauses without first getting Inland Revenue approval. For charitable organisations that are registering with the Charities Commission, we will no longer give approval for changes to rules and recommends that any such requirement be removed from your rules. To enable this to happen, we give general consent to any amendment removing such rule.

Tax rates

If a charitable organisation ...	and ...	then ...
is incorporated under the Incorporated Societies Act 1908 or Companies Act 1993	does not qualify for a tax exemption	its income is taxed at the company rate - currently 30 cents in the dollar.
operates as a trust including trusts incorporated under the Charitable Trust Act 1957	is not tax-exempt	they are liable for tax at 33 cents in the dollar on trustees' income.*
is not incorporated under a specific Act, and so is an unincorporated charitable organisations	it is not entitled to a tax exemption	it will be liable for income tax at the same rate as an individual taxpayer. However, it will not qualify for any of the tax credits (formerly rebates) that individual taxpayers can claim.

*Our booklet Trusts and estates income tax rules (IR288) gives you more information about this - go to "Forms and guides".

Tax rate for individuals

The annual tax rates for individuals for the period of 1 April 2009 to 31 March 2010 are:

Income thresholds	Rates
Income to $14,000	12.5%
$14,001 to $48,000	21%
$48,001 to $70,000	33%
$70,001 and over	38%

The personal income tax rates change midway through the 2011 income year. The tax rates for individuals from 1 April 2010 to 30 September 2010 are the same as the rates for the 2010 income year above.

The tax rates for individuals from 1 October 2010 onwards are:

Income thresholds	Rates
Income to $14,000	10.5%
$14,001 to $48,000	17.5%
$48,001 to $70,000	30%
$70,001 and over	33%

Non-exempt organisations and provisional tax

If a non-exempt organisation's residual income tax for a financial year is more than $2,500, it may have to pay provisional tax for the following year.

The due dates for the three instalments of provisional tax depend on the organisation's balance date. For an organisation with a 31 March balance date the due dates are:

• 28 Aug
• 15 Jan
• 7 May.

Please see our Provisional tax guide (IR289) for further information - go to "Forms and guides".

Exemptions from income tax

The Income Tax Act 2007 and the Estate and Gift Duties Act 1968 set out a number of income tax and duty exemptions. Some of these exemptions give benefits to charitable organisations and some give benefits to people or companies who make donations to such organisations.

There are generally two main conditions that a charitable organisation must meet to qualify for any of the exemptions available:

• The organisation's aims and activities must be exclusively charitable.
• None of the organisation's income or funds may be used (or be available for use) to benefit any of its members, trustees or associates.

Note

From 1 July 2008 charities must also be registered by the Charities Commission to qualify for income tax exemptions. The Charities Commission website has more detailed information. In particular see Fact Sheet 18, How the Charities Act affects your tax status. For more information see also our Operational Statement 06/02 Interaction of tax and charities rules, covering tax exemption and donee status.

Operational practice for charities

We are comfortable that the registration process of the Charities Commission also meets most of the requirements for tax exemption. It is therefore no longer necessary for charities to provide us with their founding documents and for us to review those documents.

Once the Commission have approved registration, they will issue a registration certificate and letter. They will also send you our leaflet Tax information for charities registered under the Charities Act 2005 (IR256) advising about the exemptions available to registered charities. Charities will be expected to self- assess their tax exempt status on an annual basis using the information provided.We will no longer issue a letter confirming tax exempt status for registered charities.

IRD numbers

Any type of charitable organisations you are running will need an IRD number. You may also need to register for GST and PAYE.

To get an IRD number you can download an IRD number application - non individuals (IR596) form - go to "Forms and guides".

Filing income tax returns for charitable organisations

If your charitable organisation ...	then you ...	Note
is assessed as being fully exempt from income tax	don't need to file an income tax return unless we request one.	You do still need to keep accurate records for the organisation.
runs a business	must file an income tax return and include a copy of the financial accounts with the return.	Alternatively you can use our: Schedule of business income (IR3B), or Rental income (IR3R) form to work out the gross income and allowable deductions for these activities. You can use an Accounts information (IR10) form, instead of sending us a set of accounts this will speed up the tax return. processing.
an estate or trust	must file an Income tax return - estates and trusts (IR6).
any other society or association	must file an Income tax return - clubs or societies (IR9).

If you don't receive a taxpack, you can order through one through our 0800 self-service line on 0800 257 773.

Balance dates

If your organisation has a balance date between October and March, you must send your tax return to us by 7 July. For other approved balance dates, send us the return by the seventh day of the fourth month after your balance date.

If a tax agent completes the return, we may extend its due date - this is because many tax agents have extensions of time for filing their clients' tax returns.

 

Date published: 29 Sep 2010

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