New Zealand has the most complex reporting regime for registered Charities in the world, and many organisations want to avoid the cost and hassle of having to comply with it.
If you are thinking of becoming a registered Charity, but are unsure about what it means, talk to CCA.
Here’s some advantages and disadvantages of becoming a charity:
|Automatic exemption from Income Tax
|High compliance regime with very involved annual financial and non-financial reporting
|Possibly higher trust from the public
|Difficult to de-register (if continuing to operate) due to punitive taxation rules
|Automatically qualify for the donation rebate
|Register of officers is public; some potentially sensitive information about individuals (earnings) may become public.
Below we clarify some misconceptions about Charity registration.
Myth: Charity registration is the only way to get an exemption from Income Tax.
Reality: Most not-for-profit organisations can get at least an exemption from filing income tax returns from Inland Revenue directly, and are very unlikely to ever having to pay tax because of the nature of their income. Some organisations, such as sports clubs, can get a full income tax exemption from Inland Revenue directly.
Information on IRD web site:
Filing exemption: http://www.ird.govt.nz/non-profit/np-gst/exemption/?id=201711MegaMenu
Income exempt from Income Tax for not-for-profits: http://www.ird.govt.nz/non-profit/np-gst/liable-gst/
Myth: Funders will only support Charities, or give them more.
Reality: CCA liaises closely with the significant funders in the Canterbury area and we are assured that registration as a Charity does not give the applicant a more favourable position with them. Funding decisions are driven by the potential outcomes an organisation can deliver, not how they are structured.
Myth: Charities officers are protected from being held liable for wrongdoing.
Reality: Whether or not individuals involved with a community organisation can be held individually liable has nothing to do with Charity registration, but is determined by whether or not they are incorporated (as a Society, Trust, Company, or not at all).
Myth: Only donations to registered Charities qualify for Inland Revenue’s donation rebate.
Reality: This is almost true. The donation rebate is an amount that IRD will pay back to taxpayers for any donations they have made to IRD-recognised donee organisations. Taxpayers can claim back 33% of such donations. IRD does not give donee status anymore to community organisations not registered as charities, unless they have been declined by Charities Services for registration, and Inland Revenue still considers them to have community benefit.
In theory this is a good incentive for donors, as it means that for every dollar they give to Charity they only pay 67 cents. In practice, there is a claims process for this rebate, and receipts need to be forwarded to IRD when doing so. It is not a well-known process and CCA does not believe that the donation rebate is a decision-making factor for any individual wanting to donate to an organisation.