New Zealanders have always had a strong tradition of people helping each other and many new settlers have set up charitable trusts to help their own people, and sustain and promote their culture.
It is a great way of providing an invaluable service to help your own community.
If you get good advice early and set your trust up according to the rules, you would not have any problems. To make it easier for you, Inland Revenue Department (IRD) has set out what you need to do.
For an organisation’s purposes, to be charitable, its activities or aims must be for public purposes and the benefit must be available to a large part of the community.
This means it must not be carried on for the benefit or profit of any individual.
Remember that any enterprise or activity intended to make a profit is classed as a business. This means if an organisation runs a business, it must pay tax on all profits after expenses. However, if a charity runs a business, it may not be liable for income tax on any profits used for charitable purposes.
A charitable organisation or a trust that carries out charitable activities or exists exclusively for charitable purposes, whether or not it is incorporated, is exempt from income tax. Individuals or companies who donate property to the charity are also given relief from gift duty.
Sometimes, words can get in the way of the doing. Check out these terms you might come across as you set up your own charitable trust.
Non-business income tax exemption: This is an exemption from income tax on non-business income. It includes interest, dividends, and rental income not earned from carrying on a business. As a charity registered under the Charities Act, you qualify for this exemption because the requirements for registration as a charity and for the non-business income tax exemption are similar.
Business income tax exemption: Income from carrying out a business, which is used for charitable purposes in New Zealand, is tax-exempt.
Donee status: Individuals who donate to your charity can claim a tax credit and companies and Maori authorities can claim a deduction. IRD must approve an organisation’s donee status. If you stated on your application when you registered as a charity that you receive donations, we will treat this as an application for donee status and contact you. If you already have donee status, we will write to you to confirm this status.
Resident Withholding Tax (RWT) Certificate of Exemption: Banks and other financial institutions that pay interest are required to deduct RWT from the interest.
Charities are eligible for exemption from RWT.
If you are eligible for income tax exemptions, you would be entitled to RWT Certificate of Exemption. If you do not already have one, complete an Application for RWT on Interest and Dividends (IR 451) Form.
You can get this from our website (www.ird.govt.nz) or by calling 0800-257773.
After we have approved your application, we will send you a Certificate of Exemption, which you must show to the interest payer. If you already have a current certificate, you do not have to reapply.
IRD Numbers: All charities registered under the Charities Act need an IRD number.
Employing Staff: if you employ staff, you must register as an employer, deduct, and pay (PAYE). For more information, visit the ‘Employing Staff’ section on our website.
Goods and Services Tax (GST): If you are carrying out a taxable activity and your turnover is more than $60,000 in a 12-month period, you must register for GST. For more information, visit our website and search ‘Factsheet on GST.’
You are required to keep business records. These include (a) Maintaining all financial records for a period of seven years (b) Keeping adequate records in English to show the sources of all donations and how you have used these funds (c) providing, when requested, a tax return showing all funds earned in any year with sufficient details of the source and application of those funds.
At some date in the future, we may select your charity for an audit. You must be able to show that you have complied with the relevant tax requirements.