Tax concessions

A business carried on by a trust settled for charitable purposes can have tax advantages not available to a non-charitable business.   The flow on effect of this requires consideration.

The Government periodically reviews the charitable sector’s use of what would otherwise be tax revenue, to ensure that intended social outcomes are being achieved.

A project is underway (with a report due by the end of 2019) to address recommendations of the Tax Working Group. The project will take into account the Department if Internal Affair’s  review of the Charities Act.  Detailed policy decisions to follow in the first half of 2020. The specific tax policy issues are:

• accumulation
• business activity for significant charities
• tax on de-registration, and
• GST and not-for-profits.

A second report to Ministers will outline other sector tax matters that could potentially be subject to policy change and sector consultation. For example:

• imputation credit refundability
• tax rules for mutuals/the $1,000 NFP deduction threshold
• rules for donating trading stock
• removing out-of-date concessions, and
• resetting concessions to donation recipients and clarifying the approach to social enterprises.

Tax exemptions available in respect of income earned by charities and businesses run for charitable purposes, Local Authorities, Government entities often as public authorities, and Crown-controlled companies (in certain circumstances) is also a live issue. In contrast state enterprises are subject to income tax and local council-controlled companies are also taxable. There is a view that the overall treatment of different entities is not completely consistent. An increasing number of requests for income tax exemptions suggests that there is a need to adopt a coherent framework to consider such requests.

The tax policy work program will consider entity tax exemptions with a view to providing more consistency. It will consider:

• how different entities fit within the Government’s public policy purposes
• the compliance costs and benefits
• fiscal implications, and
• the impact of particular exemptions on competitive neutrality with the private sector.

See Government tax policy work programme 2019 -20