The government has promised changes on how charities are taxed, but data about the current situation is not clear enough, an accounting body says. Photo: RNZ
Inland Revenue's review of taxation on charities lacks data, is not clear about what issues it is trying to address, and could do more harm than good, New Zealand's Chartered Accountants' body says.
"Making charities pay tax on business activities deemed not to be connected to their charitable purpose, and then claim back a deduction when funds are transferred to the charity, would result in a significant administrative burden," Chartered Accountants NZ tax leader John Cuthbertson said.
The issue had been around for about two decades, though there had been a renewed focus as perhaps a business associated with few charities had an unfair advantage and had become enriched by their status, he said.
"We are not sure whether that perception holds true. The reality here is the data that is being looked at is not all that great."
He said any concern about a perceived issue with a few charities should be addressed through the Charities Act:
"Our suggestion is that misconduct by charities should be addressed through the Charities Act followed by consideration of whether that organisation should have charitable status."
In addition, he said creating arbitrary boundaries about what counted as unrelated income would add complexity and cost to charities with business activities.
"Another broad challenge is defining unrelated business activities. Around the world, it's proven very hard to define this."
Cuthbertson said charities often had reasons to accumulate income, for such things as building new facilities or implementing social programs.
"Insisting that charities allocate funding in the short term may create undue pressure, resulting in poor outcomes and short-sighted decisions that could undermine the charitable mission and the organisation's sustainability.
"Our preference is that we get much better data on the charities sector, before decisions are made that could compromise the huge benefit that charities deliver to many of New Zealand's most vulnerable communities."
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