Anyone feeling left out after learning about the eye-watering salaries of charity executives recently can take heart - such good fortune is open to all.
Well, open to anyone who sets up a trust, buys a business and registers it as a charity. This comes with extra accounting costs of course. Also your accounts must be filed with Charities Services and will be visible on a public register. But for this inconvenience you gain the advantage that any income not funnelled back into the business is tax exempt while your competitors are required to pay tax. You will still be liable for GST and PAYE however.
Of course you must declare that you have a charitable purpose and this purpose must be in your trust deed. You could claim to be promoting religion. Sanitarium, owned by the Seventh-day Adventist Church, is the most well-known business that comes under this category but there are others like Musgroves Ltd in Christchurch, a $2.9m business that recycles building materials and “raises funds for Christian faith-based and other charitable organisations.“
Other permissible charitable purposes include advancing education, relieving poverty “or any other matter beneficial to the community.”
The benefit of not being required to pay income tax is that the business can afford to pay higher salaries and perks to its staff, in other words, you. Since charities are not required to disclose the salary or even salary bands of their executives, no one needs to know what you are paying yourself.
Failing that, perhaps you can provide a service which qualifies as charitable and is thus income tax free. For instance, Gender Dynamix offers mental health services for the trans and nonbinary community in the Bay of Plenty. Given that this community is estimated by Stats NZ in November 2022 to be 0.5 percent of the population, this cannot be a large market.
Nevertheless in the two years since Gender Dynamix was registered, its income has increased from $157,000 a year to just under $600,000 a year. They are supported by groups as diverse as the Lotteries Grant Board, Bay Trust and TECT, a local community trust. Also the Bay of Plenty DHB paid Gender Dynamix over $300,000 and they received $70k from government contracts.
Gender Dynamix offers training at $250 an hour or $1200 for the full day. They also offer hair laser removal and sell binders. Binders have been associated with skin irritation, breathing problems and back pain.
Setting aside any argument about the benefits of the services Gender Dynamix offers, there is also the issue of fairness. Should this outfit be tax exempt while a private therapeutic clinic does not qualify for this privilege?
The only political party to address this recently is ACT. They put out a press release last year supporting the closure of the tax loophole giving charities a tax advantage. In it, David Seymour notes that Britain amended this tax loophole in the 1920s.
But tax specialist Dr Michael Gousmett says we don’t need to do this. We already have the mechanism to tax charities. All we have to do is enact it. He is referring to sections DB41 and DV12 of the Income Tax Act 2007 which pertain to companies and Maori authorities.
These clauses were added by the Labour/United Future government to incentivise philantropy. It allowed those who donated to charity to receive a tax credit of roughly a third of the money donated. “The rationale was that you don’t get any more money back than you paid in tax,” says Gousmett.
Gousmett questions why the Inland Revenue department doesn’t enforce these sections. If it did, the 40 businesses owned by Ngai Tahu would each be regarded as separate legal entities. The companies would be required to declare their profits, set out how much they need to keep aside for the future and how much they intended to donate to the parent company. That figure would become a deduction in the company accounts to reduce their expenses and reduce their tax liability.
The aim of the tax system should be tax equity, says Gousmett. “It’s not fair that the guy down the road who takes tourists on a jet boat trip has to pay tax while Shotover Jet doesn’t.”
But as it stands in New Zealand allows businesses involved in industries as varied as wine making, tourism, orchards, farming, seafood, forestry, and cereal production to avoid paying income tax.
Horse and greyhound racing clubs are also tax exempt as are TABS and bloodstock breeding businesses. Also funeral trusts, not-for-profits promoting a town or an area, friendly societies, gaming machines and scientific and industrial research organisations.
Gousmett recommends that before donating to any charity people check the wealth of the charity on the charities register. “See if they need your support. Otherwise give your money to a charity which needs it.”
Or figure out a way of becoming a charity yourself.
Yvonne van Dongen is a journalist, travel writer, playwright and non-fiction author. This article was originally published by The Platform and is published here with kind permission.
Other permissible charitable purposes include advancing education, relieving poverty “or any other matter beneficial to the community.”
The benefit of not being required to pay income tax is that the business can afford to pay higher salaries and perks to its staff, in other words, you. Since charities are not required to disclose the salary or even salary bands of their executives, no one needs to know what you are paying yourself.
Failing that, perhaps you can provide a service which qualifies as charitable and is thus income tax free. For instance, Gender Dynamix offers mental health services for the trans and nonbinary community in the Bay of Plenty. Given that this community is estimated by Stats NZ in November 2022 to be 0.5 percent of the population, this cannot be a large market.
Nevertheless in the two years since Gender Dynamix was registered, its income has increased from $157,000 a year to just under $600,000 a year. They are supported by groups as diverse as the Lotteries Grant Board, Bay Trust and TECT, a local community trust. Also the Bay of Plenty DHB paid Gender Dynamix over $300,000 and they received $70k from government contracts.
Gender Dynamix offers training at $250 an hour or $1200 for the full day. They also offer hair laser removal and sell binders. Binders have been associated with skin irritation, breathing problems and back pain.
Setting aside any argument about the benefits of the services Gender Dynamix offers, there is also the issue of fairness. Should this outfit be tax exempt while a private therapeutic clinic does not qualify for this privilege?
The only political party to address this recently is ACT. They put out a press release last year supporting the closure of the tax loophole giving charities a tax advantage. In it, David Seymour notes that Britain amended this tax loophole in the 1920s.
But tax specialist Dr Michael Gousmett says we don’t need to do this. We already have the mechanism to tax charities. All we have to do is enact it. He is referring to sections DB41 and DV12 of the Income Tax Act 2007 which pertain to companies and Maori authorities.
These clauses were added by the Labour/United Future government to incentivise philantropy. It allowed those who donated to charity to receive a tax credit of roughly a third of the money donated. “The rationale was that you don’t get any more money back than you paid in tax,” says Gousmett.
Gousmett questions why the Inland Revenue department doesn’t enforce these sections. If it did, the 40 businesses owned by Ngai Tahu would each be regarded as separate legal entities. The companies would be required to declare their profits, set out how much they need to keep aside for the future and how much they intended to donate to the parent company. That figure would become a deduction in the company accounts to reduce their expenses and reduce their tax liability.
The aim of the tax system should be tax equity, says Gousmett. “It’s not fair that the guy down the road who takes tourists on a jet boat trip has to pay tax while Shotover Jet doesn’t.”
But as it stands in New Zealand allows businesses involved in industries as varied as wine making, tourism, orchards, farming, seafood, forestry, and cereal production to avoid paying income tax.
Horse and greyhound racing clubs are also tax exempt as are TABS and bloodstock breeding businesses. Also funeral trusts, not-for-profits promoting a town or an area, friendly societies, gaming machines and scientific and industrial research organisations.
Gousmett recommends that before donating to any charity people check the wealth of the charity on the charities register. “See if they need your support. Otherwise give your money to a charity which needs it.”
Or figure out a way of becoming a charity yourself.
Yvonne van Dongen is a journalist, travel writer, playwright and non-fiction author. This article was originally published by The Platform and is published here with kind permission.
3 comments:
Yeah everybody becomes a charity to take advantage of this secret squirrel stuff like Ngai Tahu has or this government immediately enacts (starting 1st April 24) sections DB41 and DV12 of the Income tax act 2007. Sorted.
So many so called charities are a scam. Even the big reputable ones are really just a mechanism to pay big salaries to their executives. Go look on the charities register and check the percentage of revenues go on “administration”. Next time you’re approached by a chugger (charity mugger) on the street ask them about that percentage…I bet they have no idea! Ask them how much of a fee they get for signing you up…
Thank you Yvonne . It really is a no brainer to instigate sections DB41 and DV12 and as David Seymour is associate Finance Minister to Nicola Willis, it behoves all ACT supporters to ensure that come budget 2024 these enactments are announced and confirmed.
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