Delwyn Shaw is a member of Wellington Central Baptist Church and has been involved in accounting for churches and other charities for more than 30 years. She was the founder of CATAS, the accounting & payroll service owned by the Baptist Union of New Zealand. Delwyn is a Fellow Chartered Accountant and a graduate of Carey Baptist College (BAppTheol).
The question of whether to tax the business income of charities is one that has cropped up from time to time. It was considered by the Government’s Tax Working Group, and in their 2019 report, they discussed if there should be a minimum requirement for charities to distribute surpluses for their own or other charitable purposes. They recommended that ‘the Government periodically review the charitable sector’s use of what would otherwise be tax revenue, to verify that the intended social outcomes are actually being achieved.’
In November 2024, the Government announced a tax and social policy work programme, including reviewing elements of charities and not-for-profits. Inland Revenue (IR) has now opened a consultation on a review of the taxation of the not-for-profit sector, and we only have until 31 March 2025 to make submissions. They are considering the possibility of taxing business income that is unrelated to charitable purposes.
Inland Revenue has provided a consultation paper: Taxation and the not-for-profit sector (24 February 2025), a 24-page PDF (download from the IRD Taxation website here). From the introduction:
New Zealand has long adopted a policy of providing tax concessions to charities and not-for-profits (NFPs) to support organisations that provide public benefit. Today, the support provided to NFPs through the tax system includes income tax deductions and exemptions, tax concessions to some donors for donations made, goods and services tax (GST) concessions, and fringe benefit tax (FBT) concessions for certain employees.
Registered charities generally receive the most tax benefits, which reflects the public benefits they provide. Other NFPs receive limited income tax concessions because they do not have such a formal public benefit requirement.
Every tax concession has a “cost”, that is, it reduces government revenue and therefore shifts the tax burden to other taxpayers. [This review is] to determine the effectiveness of certain tax concessions, both in meeting their objectives, and relative to alternative methods of providing assistance. The review will consider a range of integrity measures as well as what improvements and simplifications can be made to some of the existing rules.[1]
Some key questions from the document are:
- Should charities be able to accumulate surpluses for (sometimes) many years before the public receives any benefit?
- Do charitable businesses have an unfair advantage over other similar businesses because of their tax-free status?
- Do charitable businesses have an advantage due to lower compliance costs i.e. not having to keep records that enable them to file tax returns? (This ignores the compliance cost of reporting to Charities Services each year and, in many cases, being required to have the charity’s Performance Report audited)
- How should related and unrelated business income be defined if the latter is to be taxed?
- Should changes be made to the donation tax credit (DTC) regime to allow refunds of DTCs during the year rather than making people wait until after 31st March?
Submissions
The Baptist National Support Centre will make a submission to IR as part of this review process. So, too, will the Interchurch Bureau, of which The Baptist Union of New Zealand is a member. The Interchurch Bureau is an inter-denominational body tasked with monitoring the impact of legislation on the wider Church’s affairs.
Your local Church, trust, not-for-profit, or For Purpose organisation is encouraged to make a submission as part of this review as well.
The IR document includes 15 questions (you don’t have to submit an answer to all of them!). Probably the most significant are:
Q1. What are the most compelling reasons to tax, or not to tax, charity business income?
Q2. If the tax exemption is removed for charity business income that is unrelated to charitable purposes, what would be the most significant practical implications?
Q3. If the tax exemption is removed for charity business income that is unrelated to charitable purposes, what criteria should be used to define an unrelated business?
Q4. If the tax exemption is removed for charity business income that is unrelated to charitable purposes, what would be an appropriate threshold to continue to provide an exemption for small-scale business activities?
Q5. If the tax exemption is removed for charity business income that is unrelated to charitable purposes, do you agree that charity business income distributed for charitable purposes should remain tax exempt? If so, what is the most effective way to achieve this? If not, why not?
Q10. What policy changes, if any, should be considered to reduce the impact of the Commissioner’s updated view on NFPs?
Q13. If the compliance costs are reduced following the current review of FBT settings, what are the likely implications of removing or reducing the exemption for charities?
Resources
A great resource put out this year by Steven Moe and Craig Fisher is the 15-page booklet/PDF Charities & Tax: Examining the foundations of how and why we empower charities to have positive impact (download from the Parry Field Lawyers website here). The authors (a lawyer and an accountant) ‘consider the role of charities in Aotearoa New Zealand and consider their funding streams and their future, in light of potential changes to introduce taxes on business income.’
They are also running a free online discussion on Monday, 10th March at noon for one hour, where they will discuss the IR consultation document: Making sense of charities consultation and discussion points (click here to sign up for this webinar on the humanitix website). By attending this discussion, you’ll be empowered to understand key themes and issues, what the consultation paper covers, the 15 questions explained simply, and what you might want to submit on. I’m confident that this will be an invaluable asset in assisting your thoughts and submission.
Making submissions
Many of our churches obtain income from business sources. Some examples are Op shops, cafes, early childhood education centres, rental income (commercial and/or residential), vege co-ops, and classes (e.g. fitness, English language).
Imposition of tax on business income (however that may be defined) will incur compliance costs as well as the cost of any tax itself, both of which would reduce the amount of money available to be applied to charitable purposes.
I’d encourage you to consider the potential implications for your Church or other not-for-profit and to make a submission. If we don’t make our opinions known, we may find that decisions are made that disadvantage our organisations.
Anyone can make a submission: Church Treasurers, Elders, and anyone with an interest in a Church or other charity. Your submission doesn’t need to be long or technical – the more submissions made, the better! And remember that the deadline for submissions is 31 March.
[1] Pg 4 Taxation and the not-for-profit sector document, IRD 2025.
Photo credit: eFile989 on flickr
