The following information is from IRD NZ the Link here:
www.ird.govt.nz/.../our-compliance-focus-2010-11.pdf
Non-profit groups, eg, society clubs, amateur sports clubs, charities
and district societies, are exempt from income tax. There are 26,000 registered
charities in New Zealand. Non-profit groups employ over 200,000 staff and
volunteers—just over 9% of the working population.
Updated webpages for
non-profit groups
In
2009–10 we developed a better understanding of the non-profit sector and how
best to interact with them. Research showed us that the key to improving
compliance for non-profit groups is in understanding their communication needs.
In March
2010 we launched an updated non-profit section on our website. We’ve tailored
the refreshed site to meet non-profit groups’ needs.
The new non-profit section
at www.ird.govt.nz/non-profit includes information about employing staff
and volunteers, paying and claiming GST, recovering donations and grants, and
keeping records and filing returns.
The
feedback, so far, has been positive with non-profit groups telling us it gives
them a better understanding of what they need to do to comply.
We based
our refresh on changes non-profit groups asked for through research we did in
August 2009. Overall, we found they prefer targeted information.
Misusing
charities
tax-exempt status
The
non-profit sector provides important community services and products that make
a difference for thousands of New Zealanders. To recognise this, registered
charities don’t have to pay tax.
The
majority of charities are legitimate, but they can be targeted by a small group
of individuals who try to exploit their tax-exempt status. Charities have been
used to abuse the tax system through aggressive tax planning and fraud.
We will address misuse
of charities tax-exempt status by:
·
working with the Charities
Commission to reduce opportunities for misusing tax-exempt status
·
identifying charities that
create false receipts and invoices, organisations that claim to be charities
but aren’t, and claims from claimants who are trustees, officers or who derive
a monetary benefit from the charity
(in this case NARK.Org.NZ founder)
·
investigating and applying
sanctions and penalties to anyone who chooses not to comply with their
obligations and prosecuting them, where necessary.
Non-profit groups’
awareness of their obligations
Non-profit
groups play an important role in maintaining the integrity and quality of the
giving schemes. They need to provide authentic receipts for donations and
ensure arrangements they put in place to encourage these donations don’t
compromise customer privacy and Inland Revenue systems.
We work
with non-profit groups that aren’t registered with the Charities Commission. We
give advice about the registration process and make sure they understand
their tax obligations and the potential consequences of not registering. The
non-profit groups we’ve contacted have responded positively to our
information about their obligations.
We will work with
non-profit groups to ensure they:
·
understand charitable giving,
eg, the donation tax credit and payroll giving schemes
·
comply with the rules.
Tax incentives for
charitable giving
New
Zealand offers tax incentives to people who give money to registered charities.
They can claim part of it back as a tax credit, either as a donation tax credit
or through the payroll giving scheme.
But, in
the past year, we’ve identified a number of issues that could affect the
integrity of the tax system. They include:
·
ineligible or fraudulent
donation tax credit claims being filed
·
people claiming a donation tax
credit without meeting the application requirements
·
uncertainties about an
organisation’s status, or interpretation of the donee organisation rules.
(No interpretation as to Nark.Org.NZ, being a Trust, Charity, Cause, Organization....)
We want
individuals and businesses to understand the charitable giving process and
follow the correct processes for making claims.
We will address tax
issues around charitable giving by:
·
publicising the donation tax
credit and payroll giving schemes to donors and non-profit organisations, eg, contributing
to an inter-agency education programme
·
educating tax agents and
employers about the application requirements for charitable giving
·
educating individuals who file
an Individual tax return (IR 3) income tax return about the steps we follow
when processing their donation tax credit claims
·
raising awareness about how to
access information on the donations tax credit requirements and the payroll
giving scheme
·
improving our internal systems
to quickly and accurately pick up incorrect and fraudulent claims,
eg, income verification and tolerance checks to find input errors
·
continuing to investigate,
apply sanctions and penalties, and prosecute, if necessary.
Misuse of charities
In recognition of the non-profit sector’s contribution to our communities, registered charities are allowed various exemptions and concessions. They also receive public and private donations, for which tax credits are claimed.
Most charities are legitimate, but they can be targeted by people wanting to take advantage of their tax-exempt or concessionary status. Charities have been used to abuse the tax system through aggressive tax planning and fraud.
In the past year, we have seen a growing range of abusive practices involving charities. These do not appear to involve generic schemes for tax avoidance. Instead, some taxpayers and their advisors are trying to use charities as a tax-saving device.
Increasingly, we are working in partnership with the Charities Commission (whose business functions have recently been moved to the Department of Internal Affairs) to identify charities and individuals whose activities warrant investigation. We are also developing appropriate compliance strategies.
A key resource for this work is the “open government data” that the Charities Commission now publishes on its website. Our information exchange with the Commission also helps us to identify existing and emerging trends in the misuse of charities.
We also liaise regularly with the ATO.
We are refining the legal and technical issues for cases involving charities, and have resourced specialist investigators to identify abusive practices and progress cases swiftly.
We will investigate people who enter into tax avoidance schemes involving charities or who create false receipts and invoices. We will also focus on organisations that claim to be charities but are not, and on claims from trustees, officers or other people who receive payment from the charity.
Where appropriate, we will prosecute those who choose not to comply with their obligations.
What you can do
• Make sure you understand your obligations. Avoid entering into any scheme that uses charities inappropriately. If you are unsure about your obligations, contact us for confirmation.
• If you or your client have misused a charity’s status, you can contact us and make a voluntary disclosure,
www.ird.govt.nz (keyword: voluntary disclosure).
• If you have information about the misuse of a charity, you can report it to us anonymously through our website,
www.ird.govt.nz (keyword: anonymous).
Charitable organisations are organisations (whether incorporated or not) that carry out charitable activities or exist exclusively for charitable purposes. Since 1 July 2008 a charitable organisation needs to be registered by the Charities Commission to receive tax exemptions.
Charitable organisations are liable for income tax if they operate with no written rules, constitution or trust deed or they operate under a set of rules, a constitution or a trust deed that does not meet the requirements for income tax exemption or they use business income for charitable purposes outside New Zealand. Learn about rates of income tax, when to file returns and possible exemptions.
The Charities Commission maintains a register of charitable entities that opened on 1 February 2007. Registration is voluntary, but if a charity wishes to be exempt from income tax and donors of gifts exempt from gift duty it will need to register.
These administrative guidelines are intended to provide clarity about the tax position for entities that have not completed the process of registering with the Charities Commission by 1 July 2008.
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'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.
Note
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 earns over $1,000
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.
Applying 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.
Applying for an income tax exemption
If you're a charitable organisation, go to the
Charities Commission 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 - go to "
Contact us" for our address details.
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 - 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.
We'll then give you written confirmation of your organisation's tax exempt status for income tax.
Charitable purpose
Charitable purposes include:
- the relief of poverty
- the advancement of education
- the advancement of religion
- activities for the benefit of the community.
An organisation's purposes must fall within one of these categories to be charitable. Its activities or aims must be for public purposes and the benefit must be available to a large section of the community. In addition, it must not be carried on for the benefit or profit of any individual. If the beneficiaries are limited by blood ties the charitable purpose can still be met in some circumstances.
Many organisations consider themselves charitable because of the work they do or because they are registered under the Charitable Trusts Act 1957. As a result, they may also think they are exempt from income tax.
However, from 1 July 2008, an organisation will only be tax-exempt if it is a registered charity. Such an exemption does not apply to goods and services tax (GST) or PAYE.
The organisation must still account for these.
Your organisation's income tax return
If your organisation has an annual turnover of less than $1,000, you don't need to file an income tax return. You'll simply need to
keep sufficient records for your organisation.
If
your income is above this threshold, or is expected to be, then you'll need to
file an income tax return. The table below outlines what income return you'll need to file, depending on the type of your organisation.
| If your organisation is a... | then you'll need to file an... |
|---|
| registered and incorporated company | IR4 company income tax return |
| trust or estate | IR6 income tax return for estates or trusts |
| club, society or association | IR9 income tax return for clubs or societies |
Go to Filing your income tax return at the end of the tax year
N.A.R.K Org.NZ threshold was well over $1,000
