Philanthrophy NZ submission on the tax and charities discussion document
The summary of Philanthropy New Zealand's submission on the tax and charities discussion document.
Philanthropy New Zealand (the New Zealand Association of Philanthropic Trusts) is an organisation that represents charitable trusts and foundations and other grant-making trusts. Most of the large grant-making trusts in New Zealand are members of Philanthropy New Zealand. Philanthropy New Zealand acts as representative of the grant making trusts, but also promotes the interests of the whole charitable and voluntary sector. That sector is a key part of the economy: it comprises not-for-profit organisations (NPOs). The sector is sometimes referred to as the "Third Sector".
Full submission at the bottom of this page.
Philanthropy New Zealand has had an interest in the promotion of a fair taxation treatment for the whole of the third sector over the past decade. Accordingly, Philanthropy New Zealand has made submissions to government and select committees in relation to taxation topics as well as formulating its own proposals for fairer tax treatment.
This submission makes some preliminary comments on the Third Sector, before making comments and submissions on the following aspects of the Discussion Document:
- Definition of charitable purpose
- Imputation credits
- Reporting requirements
- Taxation of trading income
- Individual donations rebate
- Corporate donations deductions.
The key points made by Philanthropy New Zealand in this submission are:
- The definition of "charitable purpose" ought not to be amended
- There is a need for the enactment of neutral tax treatment in relation to imputation credits received by charities (and the Supplementary Dividends proposal is an appropriate means of achieving that objective)
- Reporting requirements involving simple registration (rather than approved registration) and filing of income tax returns are supported (but views differ as to the need for mandatory publication of financial statements by charities that do not raise funds from the public)
- The proposal for the taxation of trading income of charities is opposed (and it ought not to extend to income from the investment of funds of charitable trusts)
- The proposal for an increase in the maximum level of individual rebates is welcomed but a greater level of increase is warranted
- The removal of restrictions on the deduction of donations by companies is supported, although it would be desirable to remove all the restrictions.
The Third Sector
A key facet of the Third Sector is the extent of volunteering, by which individuals provide their time and effort for no remuneration (or in some instances somewhat nominal remuneration). It is remarkable that there is only one reference to "volunteers" in the whole of the Discussion Document (at paragraph 2.6). This is peculiar given the Government's support for the United Nations International Year of Volunteers.
It appears to Philanthropy New Zealand that the Discussion Document has been prepared from a perspective that the Third Sector is the beneficiary of subsidies from Government, implying that there is a one-way flow of benefits. The reality is that the Third Sector provides significant benefits to the whole of society.
The principal reasons for government benefitting from tax exemptions and deductions (or rebates) for charitable activities are twofold.
- The first aspect is that a deduction (or rebate) is in general terms only for 33% of the amount of the charitable donation. Thus, in simple terms, a dollar of tax foregone by way of the charitable donations deduction or rebate provides $3.00 for social spending.
- The second aspect arises from the benefit of volunteer time. Government spending cannot, quite simply, compete with the value of volunteer time provided to charities. It is clear that Treasury and Inland Revenue have done little work analysing the extent of volunteer time. Philanthropy New Zealand did some analysis in its submission to Tax Review 2001. In the light of that Tax Review deferring issues relating to the charitable sector to the present review, Philanthropy New Zealand repeats some of its earlier analysis.
There is little historical statistical information about unpaid work in New Zealand. Questions about voluntary or unpaid work have only been asked in the 1991 and 1996 Censuses. The 1991 Census found that 18.8% of New Zealanders participated in unpaid voluntary work. The 1996 Census was more detailed in its examination.
The 1996 Census found that 45.7% of the working age population participated in some form of unpaid work outside the household in the four weeks prior to the 1996 Census: the number of persons involved was 1,148,682. A number of different categories were identified in that Census. They were: caring for children; household work; teaching, coaching and training; administration and policy work; and fund raising. Of these categories, the last two clearly relate to activities in the Third Sector, while the position in relation to the first three categories is less clear.
The 1996 Census identified that 484,902 persons had participated in unpaid work of the administration and policy work classification and also 205,818 people had participated in fund raising. Information about the labour force status of persons undertaking unpaid work was also identified. Although there were significant numbers of persons who were not in the labour force, there were almost 250,000 persons involved in fulltime employment that were also involved in unpaid (i.e. voluntary) administration and policy work.
The information contained in the 1996 Census indicates that there are significant numbers of hours of unpaid work done outside the household by persons in full-time employment as well as by part-time employees.
Since 1996, Statistics New Zealand has also conducted the first national Time Use Survey, the results of which were released in 1999. The Time Use Survey provides a breakdown concerning the average minutes per day spent on formal unpaid work, classified into Maori based communities and organisations, disability support and health related services, social support and assistance, education, community safety and protection, leisure and recreation, member benefit groups and other. The total average was 151 minutes per day, which equates to over 12.5 hours per week.
This information is significant in any analysis of the nature of the interaction between Government and the Third Sector. The characterisation of the relationship as being one of Government subsidisation of charities is a narrow financial approach and ignores the fuller significance of the work undertaken by the Third Sector.
Download: Philanthropy NZ submission on tax and charities (PDF 1.09 MB).
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