Update - legislative changes affecting the sector
By Sue Barker, June 2025
Sue Barker: Charities Law
Following release of a new tax policy work programme in November 2024, which listed “reviewing elements of charities and not-for-profits” as a line item under “Integrity of the tax system”, the Finance Minister stated in December 2024 that tax changes for charities, and “closing of loopholes”, will be announced in May’s Budget. Out of concern that the first the charitable sector might hear about what was actually proposed would be on the introduction of a Bill into Parliament on Budget day, much work went on behind the scenes seeking to persuade the Government to consult with the charitable sector before any decisions were made.
Those efforts appear to have been successful: on 24 February 2025, IRD released an issues paper, Taxation and the Not-for-profit sector, which proposed to tax charities in various ways, including on “unrelated” business income. The issues paper was very light on detail and evidence, perhaps because it was prepared by IRD officials at the behest of government in just a couple of weeks. Submissions closed on 31 March, as Government wanted to make decisions ahead of the Budget.
More than 900 submissions were made (a fantastic response, particularly given the very tight consultation period at a busy time of year).
The good news is that the Government appears to have listened to submitters’ concerns. On 28 April 2025, the Finance Minister announced she would not be making changes to charities’ tax settings in the Budget, for 2 key reasons:
- firstly, there wasn’t enough tax revenue involved to justify the political fight; and
- secondly, consultation had uncovered a lot of complexity about definitions (such as when is a business “unrelated”) as well as uncertainty about how charities would react in practice.
While it would have been nice if these factors had been identified sooner, kudos to the Government for agreeing to undertake some consultation and for listening to the submissions of charities. It is amazing what the charitable sector can achieve when it works together like that.
However, the bad news is that the issues haven’t gone away. The Minister also said she is “very committed to making sure we’ve got a fair system with high integrity. We will be making changes in this space but I don’t want to rush it and get it wrong,”.
IRD are currently working through the submissions, but indications are there may be another round of consultation very soon, perhaps in the next 1-3 months, and possibly even legislation introduced into Parliament before the end of the year. Watch this space.
Fringe benefit tax
Another proposal in the issues paper was to remove charities’ exclusion from FBT. On 1 April 2025, IRD issued a separate consultation document entitled Fringe benefit tax – options for change, proposing to simplify some FBT issues, with submissions closing on 5 May. The FBT exclusion for charities is not addressed in this document, because the February 2025 issues paper had asked the following question: “if compliance costs are reduced following the current review of FBT settings, what are the likely implications of removing or reducing” the FBT exclusion for charities?”. In other words, even though the FBT exclusion is very important for many charities in terms of their ability to attract and retain staff, charities should be aware that it currently appears to be in the Government’s sights.
Club membership tax
Another proposal in the February 2025 issues paper was to tax member subscriptions and other “mutual transactions” of member-based groups. On 30 April 2025, IRD moved this proposal into an exposure draft (ED0265). While this proposal will not affect organisations, such as registered charities and amateur sports promoters, that have an exemption from income tax, it could have a significant effect on approximately 6,000 to 10,000 member-based groups, such as chartered clubs, co-operatives, trade associations, professional and regulatory bodies, residents’ associations, community clubs, trade unions, cultural societies, working men’s clubs, industry councils and associations. It could also affect mutual insurance groups, institutes, and body corporates for unit title developments. Many such organisations are small, and already struggling with increasing costs, increasing compliance, decreasing revenue and decreasing numbers of volunteers.
The Finance Minister has stated that, if applying the current legislation in line with the Commissioner’s new view would be impracticable and unworkable, then in fairness the Government would consider amending the legislation.
About the author:
Sue Barker is the director of Sue Barker Charities Law, a boutique law firm specialising in charities law and public tax law. Sue is the author of Taxation of Charities in Aotearoa New Zealand, published in April 2025, and a director of the Charity Law Association of Australia and New Zealand. More information about Sue can be found at www.charitieslaw.co and www.charitieslawreform.nz.