TalkTax

Are you an international charity that has recently applied for listing on Schedule 32 of the Income Tax Act 2007?  Or do you have a client in this position?  If so, we would like to hear from you.

Very briefly, Schedule 32 status is afforded to a select few international charities, and with the lifting of the caps on donations credits and deductions, there has been a flood of applications to be listed.

The Government was so inundated with requests that it even published special guidelines to charities on how to make the application.  The issue is very simple, if a charity does not have its charitable purposes principally in New Zealand, then that charity cannot qualify as a donee organization unless it is listed on Schedule 32.

In addition, the whole area is currently under consideration, and the Government is likely to produce new guidelines on how to apply for this status.  If you are interested in helping influence policy in this area then please contact the author at the contact details provided under the author profile.

Don’t get tripped up by confusing IRD correspondence on donee status!

International charities, or their advisors, can easily get tripped up.  This is so because the application for donee status as part of registration with the Charities Commission is not very clear, and possibly not correct.

Briefly the problem is as follows:  the law provides that donee organizations are those organizations with their charitable purposes principally in New Zealand.  Now there is no case on this, but it is accepted that if your purposes are more than 50% in New Zealand then you will qualify.  Note that it is where your purposes are, not where you spend your money that is the important question.

Your purposes could all be overseas, and you can spend all your money in New Zealand.  For example, where you send blankets purchased in New Zealand to the poor in Romania.

When charities are applying with the Charities Commission for registration, Form 1 question 22 asks:

“What percentage of New Zealand sourced funds did you spend overseas in the last financial year? If the entity has not been operating for a year, what percentage of New Zealand sourced funds does it intend to spend overseas in the next financial year?”

The explanation of this questions attempts to clarify the point regarding where charitable purposes are, but our experience is that this question still confuses some charities.

We understand that IRD practice is to send out a “donee letter” if the charity puts down anything less than 50%.  If you are a charity that spends your money in New Zealand, but your purposes are restricted to purely overseas purposes, you may think that this letter allows you to give tax-deductible receipts.  It does not.  You need to apply to be listed on Schedule 32 before you can get donee status.  You don’t qualify under the normal provisions for donee status (but there are some other ways you can qualify not covered in this post).

For other articles relating to New Zealand charities law refer to our firm’s blog.