The Charities Commission Has Declined Our Application For Registration As A Charity – Do We Have Other Options?
By Karina Job
The answer is yes! Many organisations are now faced with the dilemma of having their applications for registration as a charitable entity declined after having previously enjoyed "tax exempt status" under the old rules administered by the Inland Revenue Department.
The good news is that the law still provides other tax relief benefits for clubs and societies for which they may still be eligible. Examples of these are summarised below.
Donee Organisations and "donee status"...
A donee organisation must:
- Ø be a NZ society, institution, association, organisation trust or fund; and
- Ø apply its funds wholly or principally to charitable, benevolent, philanthropic or cultural purposes in NZ; and
- Ø not be carried on for the private benefit of any member or an associate of any member.
This means that approval as a donee organisation could be given to entities whose purposes include advancing drama, dance or music. Also, entities whose purposes may not be "charitable" in the strict legal sense but are widely accepted as charitable, because their activities are aimed at benefiting all or a part of the public, could also obtain approval as a donee organisation.
The benefits of being a donee organisation are that:
- Ø Individuals who give cash donations of $5 or more to a donee organisation may claim a tax credit of 33.33%; and
- Ø Companies who give cash donations can claim a deduction. The maximum deduction that can be claimed is 5% of the company's net income.
Application by a club or society for "donee status" is a different process from applying to the Charities Commission for registration as a charity. The Commissioner of Inland Revenue determines whether an entity qualifies for donee status and an entity need not be registered as a charity to enjoy donee status.
Not-for-Profit organisations
A not-for-profit organisation is any society, association or organisation that:
- Ø Does not have the purpose of making a profit for any member; and
- Ø Has rules that do not allow money, property or any other benefits to be distributed to any of its members.
Not-for-profit organisations that are incorporated under the Incorporated Societies Act 1908 are taxed at the company tax rate (currently 30 cents in the dollar). Unincorporated not-for-profit organisations are taxed in a similar way to partnerships.
However, tax free income of up to $1000 per year is available to some not-for-profit organisations.
Note that the deduction is not automatic and an entity will need to apply for this exemption in writing to the Commissioner of Inland Revenue.
Amateur sports club
Income derived by any society or association established substantially or primarily for the purpose of promoting any amateur sport or game is exempt from income tax. To enjoy the benefit of this tax exemption the following must apply:
- Ø The game or sport is for the recreation or entertainment of the general public; and
- Ø No part of the income is available to be used for the private benefit of any of the members.
Again, to determine whether your club qualifies for this exemption, you will need to apply in writing to the Commissioner of Inland Revenue.
If you require further information about applying for any of the above exemptions or information about other exemptions available, contact Fitzherbert Rowe.
