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Some non-profit organisations may qualify for a $1,000 income deduction. This deduction makes the first $1,000 of income that organisation earns free from income tax.
- If your organisation earns under $1,000
- If your organisation earns over $1,000
- Applying for the $1,000 income deduction
- Applying for an income tax exemption
If your organisation's net income is below $1,000 per year, then the deduction effectively means you are exempt from income tax.
Therefore you won't be taxed on any income you earn, and don't need to file any income tax returns.
However, we recommend your organisation keeps records of any financial transactions, in case they are required for future reference.
An exemption or deduction of income tax doesn't automatically qualify your organisation for an exemption to all taxes. You may still be liable to pay other taxes, such as GST.
If your organisation's net income is above $1,000 per year, you may be eligible for a deduction of up to $1,000. If you subtract this amount from your organisation's income, you reduce the amount of tax to pay.
To qualify for this deduction, your organisation will need to have written rules. An organisation without rules or a constitution won't qualify for the $1,000 income deduction.
If your organisation doesn't qualify for an income tax exemption, you can apply for a deduction against your net income.
A non-profit organisation is allowed a deduction for the amount equal to the lesser of:
- $1,000, or
- the amount that would be the net income of the organisation.
To apply for a deduction, your organisation will need to follow the same processes as applying for the income exemption.
If you're a charitable organisation, go to the Charities Services website to register as a charity.
If you're a non-profit body of any other kind, you may qualify for an income tax exemption.
Income tax exemptions aren't automatic. You'll need to apply to us in writing.
Your organisation can send us a draft document of your exemption application for us to review. We can then suggest any changes before your organisation goes through the process and cost of having it submitted.
When you apply for the exemption, please include the following information about your organisation:
- IRD number - if you don't have one, you'll need to apply. Please complete an IRD number application - resident non-individual (IR596)
- a copy of its rules, constitution, trust deed or other founding documents - preferably in draft (before being finalised) form
- a copy of its certificate of incorporation (if applicable)
- a letter stating the type(s) of exemption being requested, eg sports club
- details of how it has been or will be operating.
Your rules, constitution, trust deed or other founding documents
Your rules, constitution, trust deed or other founding documents will need to contain the following clauses before we can grant the exemption. Read the suggested examples we have given you for each one.
Clause preventing payments and unrestricted benefits to members
No member or person who is associated with a member of the organisation shall derive any income, benefit or advantage from the organisation where they can materially influence the payment of the income, benefit or advantage. The exceptions are where it is derived from:
- professional services to the organisation carried out in the course of business that are charged at a rate that is not greater than current market rates, or
- interest on money lent at a rate that is not greater than current market rates.
Wind-up clause preventing any funds or assets being passed onto members for private use
Any property left after the organisation has been wound up or dissolved, and all its debts and liabilities paid shall not be paid to or distributed among the members of the organisation. It must be given or transferred to another other organisation or body with similar objectives, or to some other charitable organisation or purpose within New Zealand.
Rule alteration clause that prevents the two above clauses being changed (not required if your rules do not allow for any rule alterations)
Inland Revenue must approve any addition to or alteration of the aims/objects, payments to the members clause or the winding-up clause. The provisions and effect of this clause shouldn't be removed from this document and shall be included and implied into any document that replaces this document.
We'll then give you written confirmation of your organisation's tax exempt status for income tax.