Charity tax crackdown: Who’s affected by proposed status and exemption changes

Finance Minister Nicola Willis has got the ball rolling on tweaking tax rules that allow businesses owned by charities a broad exemption from some tax, releasing an IRD consultation document. Photo / Oliver Rusden.

Charity giants like Sanitarium, universities, and ratepayer bodies earning hundreds of millions of dollars could all be caught in the Government’s shake-up of the tax system. Reporter Jaime Lyth looks at what businesses could risk losing their charity status if the register is reformed and asks experts if it’s a good idea.

Deeply problematic or long overdue? A sensible clawback or a cash grab affecting thousands of clubs and societies across New Zealand?

The Government’s proposed shake-up of tax rules for charities has raised a lot of questions, especially as it’s still not clear exactly who will be affected.

Finance Minister Nicola Willis has asked for public feedback on her plan to change tax exemptions for charities, donor-controlled foundations, and the not-for-profit sector in general.

The Charities Services annual report shows charities spent $25.28 billion in the 2023/2024 year against a total income of $27.34b, leaving an untaxed “profit” of $2b.

A charity lawyer has slammed the proposal describing it as “deeply problematic” and a pre-budget cash grab, but a taxation expert called the paper “long overdue” and praised its focus on big commercial activities by charities.

So which organisations might be at risk if there’s a crackdown on charities?

Crackdown 1: Commercial charity tax exemptions

Broadly speaking, the review proposes taxing business activities by charities that are unrelated to charitable purposes.

The IRD paper says the cost of not taxing charity business income is “significant” and “likely to increase” especially as that income is accumulated.

“Tax concessions for unrelated charity businesses reduce government revenue, and therefore shift the tax burden to other taxpayers.”

The paper provides pointed examples of “tax-exempt business activities [that] are unrelated to charitable purposes, such as a dairy farm or food and beverage manufacturer”.

Two charities whose tax-exemption status may be under threat are breakfast goods manufacturer Sanitarium and dairy and Kiwifruit empire Trinity Lands.

Sanitarium is owned by the Seventh Day Adventist church – a charity – making its income from its popular items such as Weet-Bix, Up & Go and Marmite tax-exempt.

Under the name New Zealand Health Association Limited, Sanitarium is listed as a charity on the basis of education, training, research, health, and religious activities.

Sanitarium is owned by the Seventh Day Adventist church – a charity – making its income from its popular breakfast foods tax-exempt. Photo / Supplied.

The annual return of the 13 charity groups (including Sanitarium) of the Seventh Day Adventist Church last year was $281,881,879 and its expenditure was $282,495,768.

The charity tax break doesn’t mean all of the income generated by the church’s local businesses is required to stay in New Zealand. A 2012 Herald investigation found the church’s New Zealand-based companies had invested roughly $13 million into three ventures in the United States since 2007.

Seventh-Day Adventist Church New Zealand said they have since “exited two of those” investments and “retain a minority interest in a third”.

“There are no current or future plans to make further offshore investments,” a church spokesperson said.

Trinity Lands is an Open Brethren-run charity made up of a farm and horticulture empire. The trust’s expenditure last year was $91,231,461 and its gross income was $123,782,092.

Trinity was set up in 2012 following the merger of three charitable trusts set up by Open Brethren members to “farm for God”.

Trinity Lands farms 7400ha of dairy land in the south Waikato and Bay of Plenty, supplying Fonterra with eight million kilograms of milk solids a season from 16,000 cows.

The trust produces three million trays of export kiwifruit a season and has a total kiwifruit canopy covering 178ha, 152ha of which are planted in Zespri’s best-selling export fruit, SunGold.

In 2019 a four-year investigation by Internal Affairs cleared Trinity Lands of misconduct after anonymous allegations of excessive payment to executives, related-party conflicts and misusing the benefits of tax-free charitable status to gain an edge over commercial rivals.

Crackdown 2: Donor-controlled charities tax exemptions

The government highlights a need to review “integrity issues” with donor-controlled charities - a charity controlled by one person, a family, or their associates.

New Zealand does not distinguish donor-controlled charities from other charitable organisations, unlike other countries overseas.

“Donors can claim donation tax credits and gift deductions, as they would if they donated to an unrelated donee organisation at arm’s length,” the consultation paper says.

Inland Revenue has previously suggested trustees may be using charities to avoid paying tax after it identified 500 instances where trust income was allocated to tax-exempt charities, but not physically paid to those charities.

Wayne Wright and the late Chloe Wright founded Kidicorp in 1996, then in 2015 sold the childcare giant to their own charity the Wright Family Foundation. Paying off this purchase saw their family trust receive $37m in tax-free earning in 2023. Photo / Norrie Montgomery

Best Start – the country’s largest childcare provider, with more than 260 facilities nationally – was controversially converted into a charity in 2015 when owners the Wright Family Trust sold the business to the Wright Family Foundation for $332m.

Last year the Herald reported that Best Start made a tax-free operating profit of $32 million, while also increasing payments to its founders to $37m.

Since the engineering behind the charitable metamorphosis of Kidicorp into BestStart was revealed by the Herald in 2020 the Wright family began appearing on the NBR’s annual rich list.

The Wright family has several other charitable organisations and commercial operations.

The family has made historical donations to the National Party, and Sean Plunket’s “anti-woke” online radio station The Platform is significantly funded by Wayne Wright Jr and the Wright Family Trust - the commercial arm of the family’s interests, which Wayne Jr told BusinessDesk is “distinct and separate” from their charitable foundation.

Crackdown 3: Not-for-profit tax exemptions

About 9000 clubs, societies, trade associations, professional and regulatory bodies and industry councils could be slapped with a tax bill, depending on how the detail of the proposal develops.

Finance Minister Nicola Willis said: “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.

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

A breakdown of 11,700 charities that reported business income in 2024. The figures are from publicly available data on the charities register, the data is self-reported and Charities Services says it cannot verify its accuracy. Photo / IRD

The subscriptions and levies members pay at many sports clubs and other societies are currently untaxed as many are not-for-profit organisations.

The consultation paper raises issues with these exemptions, most enacted in the 1950s, that “may no longer be fit for purpose” and are generally inconsistent with New Zealand’s ”low-rate tax framework”.

The paper says there are currently tax exemptions for local and regional promotional bodies, (farm animal) herd improvement bodies, bodies promoting scientific and industrial research, veterinary service bodies, and even non-resident charities with “no charitable purpose in New Zealand”.

The charity crackdown overall: ‘Deeply problematic’ or ‘long overdue?’

Auckland University of Technology taxation senior lecturer Ranjana Gupta said that there is “no doubt the current system is unfair”.

“An all-or-nothing rule [for] the whole charitable sector may no longer be fit for the purpose if it fails to take into account the very different circumstances of different non profit organisations.

“These grassroots organisations have only a tiny footprint, but other non profits are very large and they are running huge commercial enterprises.”

Gupta said the revenue from business activities by charities should be used for charitable purposes within the same year it is earned, so it should not be allowed to accumulate.

“I think companies like Sanitarium, even though they are part of Seventh-Day Adventist Church, because they are competing with Hubbards or Kellogg’s, are running their business on a totally commercial model,” she said.

Ranjana Gupta. Photo / Supplied

“Who would agree that [Trinity Lands] or Sanitarium is not making a profit? But the question is, to what extent this profit is used for public benefit and charitable purposes?”

Gupta agreed that the rules around donor-controlled charities should be reviewed to ensure directors and trustees keep an arm’s length “to ensure the fairness of transactions”.

“These people get high salaries paid, they enjoy luxury travels and all sort of benefits... and they are not taxed in the same way as normal salaries because they get a number of non-cash benefits,” Gupta said.

Charity lawyer Sue Barker called the proposals “deeply problematic” and said they lack a “clear overall vision for the sector”.

“We’ve got this frenzied mob mentality that there’s something wrong here when actually there isn’t,” Barker said.

Asked if she thought the move was just a cash grab from the government, she replied; “Absolutely”.

The document had not provided “any evidence other than just the general vibe” that tax changes were needed in the charity sector, which she said is already subject to a high degree of regulation.

“If there are concerns about particular charities that aren’t complying with the law, then why not enforce the law that already exists?”

Charities are already required by law to further their charitable purpose, so drawing a line between related business and unrelated business was a “false dichotomy”, and would only result in a transfer of wealth from the charitable sector to the professional sector, Barker argued.

“Nobody is making a private pecuniary profit out of a charitable business.”

Barker was also critical of the suggested changes to donor-controlled charities, describing them as “utterly misconceived”.

“Charity services spend far too many resources stopping good charities from accessing the register and when something actually goes wrong with a charity such as with Waipareira Trust, which is arguably flouting the charities law, Charity Services sits on its hands for years and years.”

In terms of Best Start converting from a business to a charity, Barker said “the only thing remarkable about this case is the size of the figures involved”.

“There’s literally nothing to see here except envious hostility about the fact that somebody’s made a lot of money, I don’t think one case is worth imposing blanket restrictions, tying charities in knots with these arbitrary rules.”

Barker said research indicates charities carry out services more effectively than the government, so if charity tax exemptions are removed, she thinks it may end up costing the government more.

“IRD might think they’ll be raising revenue, but they might actually be costing the government significantly more revenue because they just haven’t taken all the costs into account. It’s an own goal.”

The Wright Foundation and Trinity Lands did not respond to queries. Sanitarium said it was premature to comment on the matter while it was under review.

Public consultation closes on March 31.

Jaime Lyth is a multimedia journalist for the New Zealand Herald, focusing on crime and breaking news. Lyth began working under the NZ Herald masthead in 2021 as a reporter for the Northern Advocate in Whangārei.