Announcements
PUBLISHED 16 October 2001

Government announces decisions on "Tax and Charities" proposals

The Government is to introduce registration, reporting and monitoring requirements for organisations claiming charitable status for tax purposes, Revenue Minister Michael Cullen announced today. Details of how the new system will work will be developed with the help of a working party comprising charity representatives. The Government will also proceed with several other proposals outlined in the discussion document "Tax and charities". They include clarifying the law relating to GST refunds for non-profit organisations, raising the maximum rebate for donations by individuals, and simplifying the rules on tax deductions for company donations. For more information see Minister's media statement.


Hon Dr Michael Cullen
Minister of Revenue

MEDIA STATEMENT

Charities package should boost donations - Cullen

The government is working with the charitable sector on a reform package the net effect of which should be to generate greater donations to charities, Revenue Minister Michael Cullen announced today.

"The law will be clarified so that non-profit organisations can claim gst refunds on all their activities, except exempt supplies.

"This move has strong sector support and will be introduced at the first opportunity," Dr Cullen said. "It will be included in the next tax bill, planned for December this year."

The rest of the package would be in later legislation, including decisions to:

  • raise the maximum rebate rate for individuals from $500 to around $600
  • simplify the company deduction rules and allow more companies to claim deductions for their donations

"These changes will apply from the 2002-03 income year. The individual rebate rate is overdue for an increase as it has not been adjusted for inflation since 1990. This long delay between adjustments is to be regretted.

"The Labour-Alliance government looks forward to implementing a programme of more frequent increases once better information is available and we can be confident that the assistance is well-targeted," Dr Cullen said.

The reforms developed out of the response to the Tax and Charities discussion document. It attracted 1682 submissions and a high level of public interest and debate.

"A decision in principle has also been taken to introduce registration, reporting and monitoring requirements for charities claiming tax-free status. This is common in overseas jurisdictions and, from the feedback we have received, is broadly accepted here.

"To ensure the new system works well and has wide acceptance, the government has agreed to consult the charitable sector on the design details - including ways to reduce the compliance costs for smaller charities.

"A working party comprising sector representatives will be appointed and asked to come back to the government with recommendations," Dr Cullen said.

A proposal to subject the profits retained by charity-owned businesses to the normal corporate tax rate had been dropped because the government considered that the problems it was designed to address would be addressed through the introduction of the new reporting and monitoring regime.

The definition of "charitable purposes" would also be retained without substantial alteration. Dr Cullen said it derived from the English Charitable Uses Act of 1601 so there was a real question about whether it was still appropriate.

However, other countries working within the English legal tradition - including Australia - were wrestling with the same problem so it made sense to wait for the results of their work.

In the meantime, the working party would be invited to comment on how the definition might be improved without altering its overall scope.

"The government has decided to remove the tax exemption applying to employee superannuation schemes run by charities as the benefit goes to the employees rather than to the general public and it seems difficult to justify why an employee should be treated differently for tax purposes because of the nature of his or her employer.

"The same reasoning applies to fringe benefits. However the sector has raised with me, both through the submission process and directly, a number of concerns about the practical implications for some charity workers of removing the FBT exemption so I have asked officials to do further work on the issue.

"This government places a high value on the contribution charities make to our society. The reforms the government is announcing today and any future changes will reflect that," Dr Cullen said.

Contact: Patricia Herbert [senior press secretary] 471-9412, 021-270-9013, [email protected]. Technical inquiries to Michelle Davie, tax advisor in Dr Cullen's office, 471-9728