New Zealand’s Charities Act 2005 was passed to address concerns that:
- There was no way for the public to identify legitimate charities as opposed to sham operations; and
- There was no way of monitoring charities claiming tax free status.
Parry Field Lawyers provide legal advice on a range of charitable matters including compliance with the Charities Act 2005.
Registration needed for Tax Exempt Status
Under the Charities Act 2005, a charity must register with the Charities Commission if it wants to obtain tax exempt status. Registered charities no longer apply to the IRD for income tax exemption although they still need to comply with the IRD’s requirements for obtaining tax exempt status.
To register, charities must submit a copy of their rules or trust deed, and other information about current and proposed charitable purposes and activities. This information will then be assessed against the requirements of the charitable purposes test.
Charitable purposes must fall within one of these groups:
- The advancement of education;
- The advancement of religion;
- The relief of poverty; and
- Any other matter beneficial to the community
If you wish to register with the charities commission, we can assist you by:
- Checking that your founding documents are in order, and advising on any necessary changes that may now be required.
- Advising whether your stated purposes accurately describe what you are doing now, and whether the law regards them as charitable.
- Advising whether your trustees or officers are legally eligible to serve and apply for exemptions if they are disqualified under the new Act.
- Advising whether your decision making and record keeping practices need to change and if so in what ways.
- Identifying risk areas and advise on how to address them. For example, if your trust also engages in non-charitable activities such as overseas mission work or political lobbying this may have an impact on your charitable status and on the tax treatment of the trust’s income.
- Completing the registration forms for you.
Once your trust has registered with the Commission it will be issued with a unique registration number which must be displayed on all fundraising materials used (eg, collection tins) when money is collected from the public. You will need to file a detailed annual return within six months of your next balance date. The annual return must include:
- Financial Accounts, audited or otherwise.
- A Statement of Financial Performance including a break down of the sources of your income by type i.e. donations, government contracts, bequests, etc.
- Details of grants paid overseas.
- The cost of service provision (excluding salaries and wages).
- The cost of trading operations (excluding salaries and wages).
- A balance sheet.
- Details of paid employee time, broken down by fulltime and part time, and volunteer time employed.
The Charities Commission
The Charities Act 2005 established the Charities Commission to register and monitor charitable entities to ensure that those entities receiving tax relief, continue to carry out charitable purposes and provide a clear public benefit.
Once a charitable organisation has registered with the Commission it will be issued with a unique registration number which must be displayed on all fundraising materials used (eg, collection tins) when money is collected from the public. This should provide the public with a high degree of confidence that an organisation is undertaking activities that are both charitable and in the public interest.
If a charity changes any or part of its core practices during the year (such as the organisation’s charitable purpose) it must notify the Commission. Penalties will be imposed on organisations that fail to notify the Commission of these changes within a specified time. The Commission has monitoring and enforcement roles, and a statutory power to compel you to answer questions about your operations. Refusal to answer could lead to a criminal conviction and a $10,000 fine. Based on the UK experience with similar legislation, the NZ Commission is likely to stretch its wings and require more detailed operational information, and monitor compliance with other legal requirements. We think it likely that over time charities that wish to obtain funding directly from the public or government agencies will need to be able to demonstrate the cost and value of what they contribute to remain credible.
Should you need any assistance with this, or with any other Charity related matters, please contact Ken Lord (348-8480) at Parry Field.