Part 3: Alternative Pathway Available for Entities Providing Housing

If you have got to Part 3, obtaining charitable status may not be the most viable option for your entity. As mentioned in Part 2 , an alternative pathway is to apply for an exemption through Inland Revenue whereby income derived from your entity will be exempt from tax.¹⁰

To be eligible, your entity must:

(a) Be either a trust or a company;

(b) Be registered as a community housing provider (for more on that, see our Community Housing guide);

(c) Not be carrying out its activities for any personal gain or profit;

(d) Ensure that all profits made are to be retained by the entity or either distributed or applied to its beneficiaries or clients, other community housing providers that meet this exemption, tax charities, or organisations with are allowed to receive charitable donations; and

(e) Ensure that those who control the entity cannot personally benefit from the entity’s activities.¹¹

However, you must ensure that no more than 15% of your entity’s beneficiaries and clients have income or assets over particular amounts. Provided your beneficiary or client has never owned property before, then they must just satisfy the income limit requirement. Currently, the income limits are:

(a) Income limit for a single person’s income: ≥$85,000

(b) Income limit for a group of people: ≥ $130,000.¹²

The asset limit varies depending on where abouts your beneficiary or client will reside in. Currently, the asset limit ranges from $80,000 – $120,000.¹³

Conclusion

We have helped many groups in this area and have created a free guide for Community Housing providers which is available here.

If you would like assistance in obtaining a tax exemption for your entity, please contact us and we can help you decide which pathway is better suited for your entity.

This article is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact a qualified legal professional. Reproduction is permitted with prior approval and credit to the source.

¹⁰Inland Revenue “Community Housing Providers” <www.ird.govt.nz>.
¹¹Income Tax Act 2007, s CW 42B (2).
¹²At s CW 42B (3), Schedule 34 (1).
¹³At s CW 42B (3), Schedule 34 (2).

Part 1: When an Entity which Provides Housing will be Charitable

We support many groups looking at providing housing and often answer this common question. In this three-part series, we set out the information you need to know.

An entity may be eligible for registration as a charity and the resulting income tax exemption, provided it obtains that charitable status, although this pathway may not suit all entities.

In this Part 1, we outline when charitable status can be obtained. In Part 2, we explain when entities which provide housing may not be granted charitable status. Part 3 outlines an alternative pathway through Inland Revenue which may better suit some groups.

A Charitable Purpose

When seeking registration on the Charities register, a key question for an entity that’s purpose is to provide housing is whether this purpose qualifies for charitable status. Under the current Charities Act 2005 (the “Act”), an entity will qualify for registration as a charitable entity if it is advancing charitable purposes and provided it is:

(a) a trust which has an amount of income derived by the trustees in trust for charitable purposes; or

(b) a society or institution which is established and maintained exclusively for charitable purposes¹.

A charitable purpose is defined within the Act as a purpose which includes purposes such as:

(a) the relief of poverty; or

(b) advancing education; or

(c) advancing religion; or

(d) any other matter that is beneficial to the community.²

So how poor is poor?

There is currently no set definition for what constitutes “poverty” so it can be unclear what will qualify to reduce it.

This is important for community housing providers because often they are helping those who are poor – but are they poor enough?

The courts have made it clear that they will look into who is eligible to participate in the entity’s programme, what the participants’ needs are, and whether they are capable of meeting such needs.³ This also involves looking at whether there are any alternative options available for participants in that region which may mean they are not considered to be in a state of poverty.⁴

As long as an entity provides housing to those generally considered to be in poverty (for example, those who are homeless) then the entity may qualify for charitable status.

How does this impact a housing provider?

An entity that provides housing may also qualify for charitable status on the basis that what it does is beneficial to the community. For example, an entity’s purpose may be to provide housing in areas of social and economic deprivation in order to promote and regenerate rural and urban areas.⁵ However, according to Charities Services, the benefit to the community must be clearly identifiable; it cannot be “too nebulous and remote, or simply ‘hoped for’”.⁶

Although these are the key aspects which will be considered, Charities Services will also look at various other factors before granting charitable status to an entity that provides housing. This could include any non-charitable purposes of the entity and the entity’s current and future activities.⁷

The requirements stated above appear to make obtaining charitable status for an entity that provides housing very simple. However, there can be situations where it is not so clear if these requirements are met. We discuss such situations in Part 2.

We have helped many groups in this area and have created a free guide for Community Housing providers which is available here.

This article is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact a qualified legal professional. Reproduction is permitted with prior approval and credit to the source.

¹Charities Act 2005, s 13 (1).
²At s 5 (1).
³Re Queenstown Lakes Community Housing Trust [2011] 3 NZLR 502 (HC), at [31].
⁴At [41].
⁵At [69] – [70].
⁶Charities Services Registration Decision: Queenstown Lakes Community Housing Trust (QUE51343, 2 November 2015) at [21].
⁷Charities Act 2005, s 5 (3), (4), s 13 (3)(a).