Law changes to protect entity tax-free status

The government announced today that it will amend several tax Acts to ensure that state-funded tertiary education institutions, state and state integrated schools, and certain non-resident charities do not have to register with the Charities Commission to retain their tax-exempt status. The amendments will also introduce a transitional measure, to be used in limited circumstances, to protect the tax-exempt status of organisations that have difficulty in completing their registration applications before the 30 June deadline. The changes will be part of legislation to be introduced on Budget day. For more information see the media statement.

Hon Dr Michael Cullen
Minister of Finance

Hon Ruth Dyson
Minister for the Community and Voluntary Sector

Hon Peter Dunne
Minister of Revenue

Law changes to provide tax certainty for entities in lead-up to charities registration deadline

The government will introduce legislation to ensure that state-funded tertiary education institutions, state and integrated schools, and non-resident charities do not have to register with the Charities Commission to retain their tax-exempt status, Finance Minister Michael Cullen, Revenue Minister Peter Dunne and Community and Voluntary Sector Minister Ruth Dyson announced today.

The proposed legislation will also introduce a transitional measure, to be used in limited circumstances, to protect the tax-exempt status of organisations that run into difficulty with completing their registration applications before deadline.

"Under law that enters into force on 1 July, charitable entities will have to be registered with the Charities Commission to be entitled to the charity-related income tax exemption and for gifts to them to be exempt from gift duty," Dr Cullen and Mr Dunne said.

"However, a number of associated gaps and uncertainties in the law have been revealed in the lead-up to the July deadline for registration.

"For the first time, New Zealand has a formal process for registering charities, with a deadline for registering, and that has highlighted some grey areas in current law as it relates to specific entities.

"As a result, there is some uncertainty about whether tertiary education institutions and state and state integrated schools must register with the Charities Commission if they are to maintain their tax-exempt status.

"A further question has arisen about the continuing tax-exempt status in New Zealand of non-resident entities that are registered as charities in their own countries.

"Under the new law, non-resident charities may not be allowed to register with our Charities Commission, which means they would lose their tax-exempt status in New Zealand, even though they may derive income from a variety of sources here.

"The government will therefore provide legislative certainty that all these entities and organisations will continue to be tax-exempt whether or not they register with the Charities Commission. Legislation will be introduced on Budget day, to ensure early enactment of the changes," the Ministers said.

Tertiary education institutions

"The Income Tax Act and the Estate and Gift Duties Act will be amended to clarify that tertiary education institutions are exempt from income tax and from gift duty. The provision, which will have built-in safeguards to prevent private pecuniary benefit, will apply to institutions set out in the Education Act: universities, polytechnics, specialist colleges and wananga.

"Further changes will ensure that these tertiary institutions automatically have Inland Revenue-approved donee status, so that people who donate money to them will continue to qualify for tax rebates for their donations.

"This legislative clarification means that state-funded tertiary education institutions do not have to register with the Charities Commission to retain their tax-exempt status.

State and state integrated schools

"The Estate and Gift Duties Act will be amended to provide that gifts to state and state integrated schools are exempt from gift duty, subject to safeguards to prevent private pecuniary benefit. They will also have automatic IRD-approved donee status, so that people who make cash donations to them will continue to qualify for tax rebates.

"State and state integrated schools do not need to register with the Charities Commission to be exempt from income tax because they already have a specific exemption in the Education Act."

Non-resident charities

"The Income Tax Act will be amended to ensure that non-resident charities that cannot register with the Charities Commission because they are not established in New Zealand or have no strong connection with New Zealand will be able to have tax-exempt status here, subject to Inland Revenue approval.

"The Estate and Gift Duties Act will also be amended to provide that gifts to non-resident charities will be exempt from gift duty if they are unable to register with the Charities Commission.

Transitional matters

"The proposed legislation will also amend the Income Tax Act to provide a limited discretion for the Commissioner of Inland Revenue to preserve the tax-exempt status of charities that were not able to register with the Charities Commission within the deadline but can prove they began the process of preparing their application before deadline.

"That measure is to provide greater tax certainty to organisations that run into difficulty in preparing their applications, owing to circumstances that may be beyond their control. It is intended to be used on a limited basis and will not apply to organisations that merely have not got round to applying for registration before the deadline.

Contacts:
Jason Knauf, press secretary to Dr Cullen, 04 471 9869
Ted Sheehan, press secretary to Peter Dunne, 04 470 6985 or 021 638 920
Lyndon Keene, press secretary to Ruth Dyson, 04 471 9342