National urged to 'be careful' over pledge to review charity tax rules

Monday, 5 October 2020

Charity groups say now is not the time to be making life harder for the struggling sector by taking away their tax benefits.

Over the weekend National’s finance spokesman Paul Goldsmith told TV1’s Q+A programme that reviewing the tax-exempt status of charity-backed business was ‘’definitely’’ something that the party needed to look at.

‘’Ultimately as that section of the business community grows, it starts to a very hard competitive impact on the businesses that aren’t tax exempt.’’

Finance Minister Grant Robertson, who was also on the show, said the charity tax break was a ‘’very challenging’’ issue that had been looked at by the Tax Working Group.

**READ MORE:

Many charities and non-profit groups put together and delivered food parcels during the pandemic.

* Family First charity decision headed to Supreme Court

* Tax cuts at a cost in Paul Goldsmith's mother of alternative budgets

* How some New Zealand business make billions and pay no tax

Paul Goldsmith, National’s finance spokesman, says his party favoured a review of charitable tax exemptions.

He said the best way to address it was through the review of the Charities Act that was underway.

In the past, the nature of some charities has courted controversy.

Critics often question the reason why large businesses like church-owned cereal business Sanitarium should continue to receive the exemption, and a number of political or lobby groups have sought charitable status in recent years.

Greenpeace recently won a long battle for charitable status and family values advocate Family First is fighting a High Court decision which ruled it did not qualify. It won on appeal and the Government is now appealing to the Supreme Court.

But Ros Rice, executive director of Community Networks Aotearoa, which represents smaller not-for-profit groups, said removing the tax exemption was a challenging issue.

‘’It’s a real deep hole and I think they need to be extremely careful about doing something that is going to adversely affect the safety net of New Zealanders.’’

Greenpeace and other advocacy groups have increasingly sought charitable status in recent years.

Gaining charitable status was often the key to getting funding from some donors, she said.

It was also a very difficult time for charities and not-for-profits, which she said were struggling to attract funding following the first lockdown, even though in many cases, their services were in great demand.

There were about 26,000 registered charities in New Zealand but many more groups were not-for-profits – about 117,000, including sports groups, universities, and charity hospitals, Rice said.

And while the issue of businesses being backed by charities was a long-standing one, she said it had to be remembered that even big charities were often ploughing substantial sums back into running their organisations.

‘’Where do you draw the line?’’ she said.

However, New Zealand Taxpayers’ Union spokesman Louis Houlbrooke welcomed Goldsmith's comment and said it would be holding him to it if he was made finance minister.

''The fact businesses like Sanitarium enjoy a tax exemption is incredibly unfair on their competitors.’’

Houlbrooke said the unfair advantage lay with the tax exemption applying on all of a charity’s earnings, not just the portion distributed to the charitable cause.

‘'There is a risk that charities may reinvest any distributed earnings from the companies they own and therefore avoid their tax obligations.”

But Parry Field lawyer Steven Moe, who specialises in the not-for-profit sector, said that with declining funds available, charities should be encouraged to be innovative.

‘’And that may increasingly involve starting sustainable businesses that also advance their mission at the same time’’.

The question was not whether charities could use a company structure, because they could run a business just as easily through a trust.

‘’The real question is whether charities should be permitted to operate a business at all with tax exemptions. It’s distracting to focus on the question of whether companies can be charitable.’’

However, he believed the registration process made charities – including companies – accountable for advancing their missions.

‘’The money goes towards purposes that we have agreed as a society benefit us all.’’

The Department of Internal Affair’s review of the Charities Act was put on hold in May due to Covid-19 but it is hoped to resume the work later this year.

Correction: An earlier version of this story incorrectly stated that Family First was appealing a High Court decision. Family First won its appeal in the Court of Appeal and the Government is now appealing to the Supreme Court.