NZ Council of Christian Social Services submission on tax and charities
The executive summary of the New Zealand Council of Christian Social Services submission on the tax and charities discussion document.
A copy of the full submission is attached at the bottom of this page.
Executive Summary
From NZCCSS perspective the discussion document is a 'solution looking for a problem'. It presents no research or information documenting or defining specific problems with the current tax regime governing charities or evidence that the general public have problems with charities. Research and accurate problem definition should be undertaken before any 'solutions' or changes are developed.
Charities are part of a cohesive society and play an important role in any participatory democracy. However, the document is based on some inaccurate assumptions about the role of charities and the status of the tax relief provided by government. Charities are independent organisations established by concerned individuals and communities. Tax relief and the tax rebate are but one source of funding. Charities also require the gift of time, donations in kind, and grants from Trusts, to survive. If the amount of welfare work funded through these sources was to be quantified, charities would be seen to be significantly subsidising government, not the other way around.
Charities have a critical role in meeting needs created by market and government failure, and working with those who are on the edge of society. They should therefore not have to align their services with that of government and any registration of charities should be independent of government control, and subject to common law.
Furthermore, greater control by government of tax relief may not result in better targeting of this 'assistance'. People may continue to give to an organisation irrespective of its tax status. Alternatively they may simply stop giving, thereby depleting available resources rather than redirecting them.
NZCCSS supports the proposal to retain the current definition of charitable purposes and add some simple reporting and registration requirements. We consider the other options outlined in the paper, and in particular, proposal two, which would remove charitable status from churches, would result in a significant reduction in the availability of social services. It would also be impractical to implement, as charity and faith are inextricability linked within most church organisations.
NZCCSS supports the proposal (paragraphs 8.4 - 8.6) that suggests the development of a simple registration process. We acknowledge that there are a number of current processes operating that involve registration and reporting. We advocate that these be investigated to develop a clear process that avoids duplication. Any change to registration and reporting requirements should have at least a two year lead in time.
We do not support the proposal that financial reporting should be undertaken according to NZ Accounting Standards for all charities. Given the diversity of the sector, this is likely to be frustrating, impractical and expensive for many organisations to comply with. We suggest financial reporting be restricted to organisations with an annual income of over $40,000, excluding donations. We do not support the concept of charities filing a tax return. Tax exempt should mean tax exempt.
NZCCSS opposes the proposals limiting the accumulation of funds by trading entities. There may be legitimate reasons why a charity's trading entity needs to accumulate capital. For example, capital may be accumulated so that this annual sum can be the same each year, irrespective of how well the trading entity did that year or it may be invested to provide regular income, making them more independent and less reliant on government contracts and other grant making bodies. We also do not consider the tax-free status of charitable trading entities provides any significant competitive advantage.
The imposition of fringe benefit tax and the taxation of superannuation schemes will have a significant negative impact on the ability of charities to provide social services, as it will increase staff costs and reduce funds available for service delivery.
NZCCSS supports the increase in the allowable rebate for donations by individuals and companies, but consider that even this increase is low.
NZCCSS supports the proposals regarding GST as set out in paragraph 13.10.
Recommendations
In light of our comments above NZCCSS:
1. Recommends that no further decisions be made regarding changes to the tax status of charities or other non-profit organisation until government has, in consultation with the tax-exempt sector, undertaken further research to accurately identify whether there are any problems with the relationship between charities and the current taxation system. We would expect this research to be done by the Community Development Group of the Department of Internal Affairs or be part of the ongoing work of the Community/Voluntary Sector Working party under the Ministry of Social Policy. In the first instance, this means using information sources already at the government's disposal. However, we do acknowledge that there could be a need to collect information through a simple registration and reporting exercise to enable the research to take place.
2. Recommends that when the results of such research are available, Government form a joint working party with representatives of the charitable sector to evaluate the information and determine what, if any, policy response is required.
In terms of the proposal put forward in the discussion document, NZCCSS:
3. Supports the retention of the current definition of charity.
4. Supports a registration system with some reasonable reporting requirements.
5. Recommends that any increased reporting requirements be developed in consultation with the charitable sector.
6. Recommends that an existing government body is responsible for any registration of charities and reporting requirements, and that all matters relating to registration continue to be subject to the courts.
7. Supports the increased allowable rebate for donations, but suggests it should be equated to the 1972 level.
8. Recommends that the lead in time for any changes be at least two years.
9. Recommends that only organisations with an annual income over $40,000 (not including donations) be required to return annual accounts.
10. Recommends that charities should not have to file tax returns
11. Supports the proposed changes regarding GST.
12. Disagrees with the proposal to impose fringe benefit tax and a tax on charities' superannuation schemes.
Full copy of NZCCSS submission on tax and charities (PDF 736 KB)