CPA Australia opposes planned taxing of charities’ business income
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- Overseas taxation law
- Taxation

This article was current at the time of publication.
New Zealand’s charities’ tax rules are fit for purpose and should not be changed, according to a recent CPA Australia submission to the Inland Revenue (IR).
In February, IR issued an officials’ paper “to determine the effectiveness of certain tax concessions” relating to the not-for-profit sector.
The review is part of the government’s tax and social policy programme announced in November 2024.
The paper invited submissions on removing the current exemption from income tax on approximately 12,000 (among New Zealand’s 29,000) registered charities that derive income from a business activity.
It notes only a portion of these businesses are carrying on activities “unrelated to charitable purposes,” but says the exact number of unrelated businesses will be “unknown until the term is formally defined”.
As the paper notes, “most” OECD countries either restrict the commercial activities that a charitable entity can engage in or tax charity business income if the business income is “unrelated” to charitable purpose activities.
CPA Australia’s submission maintains that the current tax concessions, including income tax exemptions and donation rebates, are well-targeted to support the charitable sector without imposing undue compliance burdens.
Sections CW 41 and CW 42 of the Income Tax Act 2007 – which outline the conditions under which income earned by charities can be exempt from tax – “collectively form a robust framework that justifies the charity business income exemption.”
At issue, in the IR review, is the definition given to “primary” versus “non-primary” and “related” versus “unrelated” business activities.
The officials’ paper refers to overseas practice but gives only very brief discussion to the related/unrelated issue.
“Some tax-exempt business activities directly relate to charitable purposes, such as a charity school or charity hospital.
“Other tax-exempt business activities are unrelated to charitable purposes, such as a dairy farm or food and beverage manufacturer. It is the unrelated business activities that are the focus of this review,” the paper notes.
Secondary questions include whether there should be specific rules for donor-controlled charities, and some integrity and simplification issues.
Fishing expedition?
Angus Ogilvie FCPA, Chair of CPA Australia’s New Zealand Tax Committee, says the review has the air of “a fishing expedition”.
“If there are issues, look at the charities legislation, not the Income Tax Act. The question of what a charity can be should be examined by looking at whether it is fulfilling its Charities Act [1978] role.”
“I suspect the government has gone for the Income Tax Act because it’s easier than making judicious changes to the Charities Act or making Charities Services do its job.”
Charities Services’ role is described on its website as “a modern, responsive, risk-based regulator focused on promoting public trust and confidence in the charitable sector”.
Ogilvie says Charities Services is the appropriate body to investigate accusations aired in news media of charities diverting tax-free income to non-charitable purposes or paying above-market remuneration to executives.
Charities Services can deregister a charity under sections CW 1 and CW 2 if it finds the organisation is not conducting charitable purposes.
The 12-year legal battle Charities Services fought with Greenpeace NZ, culminating in a High Court victory for Greenpeace in 2020, might have made the regulator “a little gun-shy”, Ogilvie adds.
Ogilvie further mentions that the vagueness of the officials’ paper invites submitters to supply definitions.
“I’m not sure they’ve even formed an opinion themselves.”
The Sanitarium Effect
The most-cited example in recent media articles has been the health food company Sanitarium, owned by the Seventh Day Adventist Church. While cereal-making might appear unrelated to the church’s ministry activities, says Ogilvie, Sanitarium generates the revenue to fund those activities.
Ogilvie’s view is that any attempts at deregistering charities under “non-primary” rules will meet with “a vast amount of litigation from well-funded charities, regardless of the legislative definition”.
Many charities not associated with religious organisations could also be potentially affected, maintains Ogilvie, for example, Best Start childcare centres, Women’s Refuge NZ, or the Toi Foundation, a Taranaki community trust owning TSB Bank and 66 per cent of Fisher Funds Management.
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