Inland Revenue sets sights on taxing 9000 clubs, societies and other not-for-profits

Sports clubs could be in the firing line under an Inland Revenue proposal to change the way tax rules are interpreted. Photo / Bevan Conley

Around 9000 clubs, societies, trade associations, professional and regulatory bodies and industry councils are in line to possibly be slapped with a tax bill.

Inland Revenue has changed its interpretation of the law, and now believes the subscriptions and levies members pay to some not-for-profit organisations should be taxed.

It flagged its new view in a just-released paper on the tax treatment of charities.

It said it would release its full draft guidance for feedback once any broader policy or law changes related to charities were ironed out.

Finance Minister Nicola Willis is keen to crack down on businesses masquerading as charities to reduce their tax bills, and is expected to unveil how she intends to do so at the Budget on May 22.

In the meantime, there’s a question mark over whether Inland Revenue’s new position on the tax treatment of transactions not-for-profits have with their members will become operative.

Independent tax specialist Geof Nightingale believed it wouldn’t, and Inland Revenue would want subscriptions and levies to continue to be treated as non-taxable membership transactions.

He feared its updated position would see smaller community organisations, rather than the bigger mutuals, stung by larger tax bills and compliance costs.

If Inland Revenue adopted its new draft guidance, not-for-profits that operate under the common law would be stung, whereas ones that distribute profits on member transactions back to members as rebates, wouldn’t be.

Nightingale believed many bigger not-for-profits would’ve organised themselves in such a way that they would be in the latter camp.

Nonetheless, with Inland Revenue estimating 9000 organisations would be impacted if it adopted its new guidance, Nightingale said this would be a big deal.

He worried the admin could be more burdensome for many of the clubs, etc than the tax itself.

Inland Revenue didn’t put a figure on the amount of additional tax revenue it believed its new position would generate.

It said it wanted to keep compliance costs low for small not-for-profits and for the tax rules to be clear.

Nightingale suspected Inland Revenue might have come up with new guidance after an issue emerged from its audit or investigation team, or someone externally couldn’t figure out how to apply the law.

Members of the public have until March 31 to provide feedback on the broader charities tax review under way, which is delaying the release of Inland Revenue’s new draft guidance.

Commenting on the broader review, Willis said she wanted to support a strong charity and not-for-profit sector, while ensuring there were high levels of fairness and integrity in New Zealand’s tax rules.

“New Zealand not-for-profits make a significant contribution to the community, and the Government provides tax relief for not-for-profit organisations that meet certain requirements,” she said.

“It’s important the public has confidence they are getting value for money from these tax concessions.”

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary press gallery. She specialises in Government and Reserve Bank policymaking, economics and banking.