Opposition mounts to new tax for organisations
Photo:
RNZ / Richard Tindiller
Federated Farmers and an organisation representing the country's chartered accountants have added their voices to concerns about a proposal to apply more tax to the not-for-profit sector.
Inland Revenue (IR) plans to
make some societies and associations' membership fees subject to tax
.
Under current practice, not-for-profits structured as mutual associations do not pay tax on income such as that from members' fees.
This principle, known as mutuality, is based on the idea that a group of people cannot make profit from dealing with themselves.
The update to IR's interpretation of how tax should be applied seemed to be based primarily on an Australian case from 2004, after which the Australian Government enacted legislative change to avoid the sort of changes IR is suggesting.
Federated Farmers said Revenue Minister Simon Watts should rule out the change.
It would mean Federated Farmers was charged tax on its membership for the first time.
"This is not a routine tax consultation - this is a significant new interpretation that overturns 20 years of settled practice," Federated Farmers board member Richard McIntyre said.
"This isn't a minor tweak - it's a fundamental shift in how the Inland Revenue Department interprets the law.
"It would have serious consequences for New Zealand's not-for-profit sector. This would pull the rug out from under about 9000 not-for profits, advocacy groups, professional associations, unions, community organisations, and political parties who rely on membership fees to fund their operations," McIntyre said.
"This is not just about Federated Farmers - it's sector-wide and is creating huge concern."
Chartered Accountants Australia and New Zealand (CA ANZ) tax leader John Cuthbertson said the change would "undermine New Zealand's volunteer spirit".
"New Zealand has a strong culture of people banding together to deliver not-for-profit community services and companionship. Mutual organisations are amazingly diverse - think your local sports club, community group, professional bodies and social or hobby clubs.
"They have created huge public value along the way, and we do not believe their work should be undermined through additional taxation."
He said most were operating on very small budgets and aiming to break even each year.
"As it stands, there is inconsistency of tax treatment of not-for-profits. As a result, some organisations are treating member subscriptions and levies as tax exempt, while others are not. Ultimately, tax compliance should not overburden small clubs and societies who rely on volunteers.
"Chartered Accountants ANZ believes that, because of the unique nature of the not-for-profit sector, any financial transactions made by not-for-profit organisations should not be subject to taxation.
"If there are concerns that some people or organisations might be misusing the tax-free status, for example, by disguising taxable activities as not-for-profit ones, then authorities should respond by conducting focused investigations and enforcing the rules where necessary."
He said the law should be changed to confirm the tax exempt treatment of member subscriptions and levies received.
"Thousands of chartered accountants give their time to not-for-profits for free, to enable their public good, and they are telling us they are concerned about their future viability if additional tax must be paid," he said.
Both organisations said they had made submissions outlining their concerns.
Inland Revenue has been approached for comment.
It earlier said there would be no implications for income that is subject to specific exemptions from tax such as the charitable exemption.
"The draft statement is being consulted following changes or perceived changes to the Commissioner's interpretation of the law as it relates to associations whose income is not tax exempt, the object being to test whether the legal reasoning for the interpretation is sound."
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