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Guidelines for Schedule 32 inclusion
9 December 2009
The Government today released its guidelines for the use of Cabinet criteria for determining eligibility for inclusion in Schedule 32 of the Income Tax Act, as guidance for organisations seeking charitable donee status for their overseas activities. Revenue Minister Peter Dunne said the information was being made available to give organisations information about the kind of questions that are asked when they seek overseas donee status, and to promote self-evaluation before they ask the Government to amend the law on their behalf. For more information see the media release and the guidelines.
Dunne: Guidance for charitable bodies seeking overseas donee status
The Government is providing greater guidance to organisations seeking charitable donee status for their overseas activities, Revenue Minister Peter Dunne announced today.
"Help comes in the form of a set of guidelines for using Cabinet criteria for determining an organisation's eligibility to have 'overseas' donee status in the Income Tax Act, which I am making available today for the information of organisations that request that status," Mr Dunne said.
"Recent months have seen a flood of requests for donee status for charitable activities overseas, probably as a result of the recent lifting of the limits on the tax relief that is available for donors.
"It has become clear that many of these organisations need a lot more guidance about what is involved, and that many of them think sending a request to Inland Revenue for overseas donee status means automatic entry into law.
"Organisations should note that there is nothing automatic about the process, nor is there a fast track - a lot of research, consultation and consideration go into the Government's decision to add an organisation to the list of those who have official donee status for their charitable activities overseas.
"For example, many organisations seem unaware that the Government looks at the credibility, transparency and accountability of an organisation, and at questions like whether its activities are ones that the Government would want to support, being mindful that taxpayers' funds should not be applied where there is a risk of private benefit or other misuse.
"The guidelines that I am making available today are nothing new - they are intended to give organisations information about the kind of questions that are asked when they seek overseas donee status, and to promote self-evaluation before they ask the Government to amend the law on their behalf.
"Organisations that request overseas donee status must demonstrate to the Government that they are robust in terms of their internal management and potential longevity, have adequate checks and balances in place for their project management and financial systems, and that they comply with the relevant law in New Zealand and the recipient countries.
"All this is essential to ensure that the tax relief afforded by overseas donee status is appropriately targeted and the potential for misuse of public money is minimised.
"This release of guidelines is an interim measure that will be followed in the first half of next year by a review of the relevant Cabinet guidelines and of the process for adding organisations to Schedule 32", Mr Dunne said.
Mark Stewart - Press Secretary, Office of Hon Peter Dunne
Cell +64 21 243 6985
The Government must ensure that any organisation seeking overseas donee status is credible, transparent and accountable and its activities are ones that the Government would want to support, being mindful that tax credits should not be available where donations are made to an organisation and there is a risk of private benefit or other misuse.
For these purposes, a number of questions are asked of these organisations. The responses to any of these questions may not necessarily be determinative.
Types of organisations
The following questions help to clarify the types of organisations that the Government may consider for inclusion in Schedule 32 of the Income Tax Act 2007.
Key questions include:
- Is the organisation carried on for any private pecuniary profit of an individual?
- In the event that the organisation winds up, does it distribute funds to charitable purposes (consistent with the Cabinet criteria) within New Zealand or to those organisations already listed in Schedule 32 of the Income Tax Act 2007?
- Is the organisation registered as a charity with the Charities Commission?
- Does the organisation have an IRD number?
- Is the organisation established in New Zealand or have a very strong connection to New Zealand?
Credibility and sustainability of the organisation
The following questions help to determine whether an organisation is credible and sustainable. Organisations should have robust internal management and potential longevity.
Key questions include:
- How long has the organisation been operating?
- What are its sources of funding (if any)?
- What is the manner of operation? (for example, business plans and finances).
- Who are the recipients of the funds raised in New Zealand?
- Are the funds derived from donations in New Zealand held and used prudently? (For example, do the funds achieve the purpose that was the reason for the donation and, as much as is possible, are they used for this purpose?) Ideally, at all times, the organisation should account for funds received from donations and clearly evidence a commitment to ensuring that funds are used to support the purpose, and are not diverted into unnecessary administration and management.
- Are its founding documents (such as a constitution or trust deed) and formal documents (such as annual plans and reports) and the activities of the organisation, consistent with the Cabinet criteria?
Project management and financial systems
The following questions help to verify the adequacy of an organisation's project management and financial systems. Organisations should be aware that there are a number of risks involved when charities are operating internationally. Examples of risks include political, personal, financial loss, and regulatory compliance risks. Adequate checks and balances for its project management and financial systems are necessary so that taxpayer funds are used appropriately.
Key questions include:
- Does the decision-making body of the organisation have relevant knowledge and experience of the relevant field, and other project and financial management systems? For example, is there a process for assessing, and monitoring projects and selecting beneficiaries?
- Does the organisation give funds to non-resident organisation(s)? If so, are the activities of the non-resident recipient(s) consistent with the Cabinet criteria?
- If the organisation works with non-resident organisation(s), does it have access to regular and accurate information from these organisation(s)?
- Does the organisation have a set of financial accounts that clearly identify receipts of donations and transfers of funds, on a regular basis, to its designated charitable purposes?
- Can the organisation demonstrate that its activities are likely to be effective in the long term?
Internal controls for regulatory compliance
The following questions help to assess whether the tax relief afforded by overseas donee status is targeted appropriately, and that the associated tax benefits and entitlements are not abused.
Key questions include:
- Does the organisation have procedures to prevent funds going directly, or indirectly, to individual(s) for private pecuniary benefit?
- Does the organisation have procedures to prevent funds going directly, or indirectly, to individual(s) or organisation(s) associated with terrorism?
- Does the organisation have procedures to ensure that no support is given to any individual(s) or organisation(s) that may carry out activities that could result in conviction in New Zealand under the law, such as the Crimes Act 1961, or similar laws in the relevant country?
The Government has an expectation that organisations included in Schedule 32 of the Income Tax Act 2007 will maintain adequate systems that can produce:
- accurate information about project progress and activities;
- adequate financial reports;
- information about donations receipts that have been issued with correct details of funds received from its donors; and
- other particulars as may be required by Inland Revenue in respect of the organisation's activities, funding and finances.
(See sections 32, 58 and 89 of the Tax Administration Act 1994)