Tax Changes for the Charity and Not-for-Profit Sector

The Government has introduced legislation into Parliament that will ensure that a non-profit body is required to pay GST whenever it sells an asset on which it has claimed GST. The same legislation includes a requirement that organisations will need to be registered as a charity in order to obtain donee status. Subsidiary entities of a registered charity will also be required to be registered charities to obtain tax exempt status. Donee status means that persons donating to an organisation are allowed a tax credit or tax deduction. In addition, Inland Revenue approval of donee status will be required. To this end Inland Revenue has released a statement of the requirements an organisation needs to satisfy in order to be granted donee status.

Non-profit bodies are given concessionary treatment that allows them to claim GST on most goods they acquire, even when the body did not acquire the goods for making supplies on which the body will charge GST. Usually a registered person can only claim GST on goods when they are bought for the making of supplies on which the person will charge GST. This concession has meant that a non-profit body could sell a good on which it had claimed GST without charging GST. The rule change means that the non-profit body will need to charge GST on the disposal of an asset whenever it has claimed GST on the purchase.

Although not yet enacted, the rule change is to apply retrospectively from 15 May 2018. There are transition rules that apply for a limited period that allows for a non-profit body to elect to remove assets from the GST base by effectively repaying the GST claimed on the asset and associated expenditure. Due to the change, a non-profit body may also wish to deregister for GST. Again, there is a limited period concession for such bodies.

In relation to donee status, there is a requirement that an organisation apply its funds “mainly or wholly” to approved purposes in New Zealand to qualify as a donee organisation. Inland Revenue has released a statement on what it considers necessary to satisfy this “mainly or wholly” requirement. This statement is detailed and complex, but boils down to a requirement that the body prove each year that it has applied at least 75% of its funds to approved purposes in New Zealand during the year. This will affect organisations that conduct a mix of charitable and non-charitable activities in New Zealand and those that send funds overseas to support charitable activities outside New Zealand. The onus is on the organisation to show it satisfies this requirement to maintain donee status.

If you are a non-profit body or charity, that is GST registered, has donee status, or has subsidiary entities that are not registered charities, contact your Crowe Horwath adviser to find out how these changes may affect your organisation.

Stephen Richards
Technical Director – Tax Advisory