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Executive
Summary
The
Association is one of a number of charitable organisations frustrated
by the process used for this consultation and are concerned that
the proposals are based on very little information.
The
Association makes the following comments in our submission:
- The
Inland Revenue Department has presented the community sector with
a range of proposals to address problems that might not even exist.
- We
contend that, rather than the government subsidising charities
through tax-exemption, charities in fact subsidise the government
by meeting community need where government cannot.
- We
recommend that the current definition of charitable purpose remain.
- We
support the requirement that tax-exempt bodies provide an annual
report of accounts, providing this does not place burden on the
organisation. We suggest a threshold of $40,000 be set for this
purpose.
- We
do not support the requirement that tax-exempt bodies file tax
returns.
- We
support a simplified registration process for tax-exemption, to
be managed by the Inland Revenue Department and open to testing
in the courts.
- We
recommend that charities’ trading activities remain tax-exempt.
- We
support increasing the allowable rebate for donations by individuals
and companies, though we note the increase is only in-line with
inflation.
- We
do not support the introduction for charities of either fringe
benefit tax or tax on superannuation.
Comments
on the discussion document
Generally
the comments we make in our submission are specific to the Association
and our 88 members, as not all of the proposals will impact on us.
However, there are some proposals in the documents that we feel
will have a major negative impact on the ‘charitable’ sector. We
make brief comments on those proposals, and also endorse the submission
of the New Zealand Federation of Voluntary Welfare Organisation,
which covers those areas in more detail.
Our
comments follow the structure of the discussion document: we first
raise questions about the purpose of the review and the process
of consultation; then address the questions of the definition of
‘charitable purpose’; then address reporting and registration for
charitable organisations. We also make brief comments on the other
specific income tax issues.
Purpose
and consultation process of the discussion document
Generally
the Association was disappointed with the document. We felt that
it was not based on any detailed information, nor did it seem to
understand the nature of charities and the charitable sector.
The
document states that the Government has little information about
the scope and cost of tax exemption, so it is difficult to tell
whether problems are at the margin or more general. They may be
problems of perception only – we are concerned that this approach
is a “sledgehammer trying to crack a very small nut”.
The
document also states that tax exemption is a subsidy provided to
community organisations and groups by government. The Association
feels this is a misrepresentation of who is doing the “subsidising”,
and we contend that it is in fact the charitable sector that subsidises
the government.
Using
Citizens Advice Bureau as an example, over 50 per cent of bureaux’
581,000 annual enquiries relate to government services (e.g. income
support, tax, health care) – especially those services that government
departments no longer provide ‘face-to-face’. Sixty three per cent
of the information resources held by bureaux are produced by government
agencies.
Further,
the Association’s research has found that the dollar value of our
volunteer effort is over $10,000,000 annually. The Association
suggests that the service Citizens Advice Bureaux provide is one
of a number of charitable services that meet community need where
Government could not. The charitable sector saves Government money;
that is, we subsidise government.
In
regards to the process of consultation, the Association was very
disappointed that the Inland Revenue Department initially provided
a short 6-week period for public consultation. We were pleased
that the period was extended by 4 weeks, which allowed for the series
of meetings that took place around the country.
The
Association would like the Department to note that community and
voluntary organisations, most of which would fall under the current
charitable purpose definition, have recently completed a very intensive
and extensive discussion with the Government around relationships
between the parties. We would have hoped that the Department examined
the outcomes of those discussions when drafting the discussion paper;
it does not seem to have done this.
For
future reference we strongly recommend that the Department follow
best practice as outlined in the Consumer Affairs Ministry’s “Guidelines
For Consulting Community Organisations”.
Relevance
of the definition of “charitable purpose”
The
Association does not feel that the Department understands the full
and complex nature of the ‘charitable sector’. Charities, such
as the Citizens Advice Bureau, do not exist to provide welfare services
for the government. They grow from the grassroots to meet needs
in the community. Under the proposal of changing the definition
of charitable purpose, there might be cases where an identified
need may not come under the Government-of-the-day’s priorities,
and therefore any organisation seeking to meet the need might be
judged ‘not worthy’ of charitable tax status. The proposals could
lead to a situation where the Government is inflexible in supporting
communities to meet new and emerging needs.
The
Association would not object to engaging in a broader and more rigorous
discussion around the definition of charitable purpose. But we
do not feel that the process used in this consultation was robust
enough to allow this to occur. Indeed, the Department approached
the consultation in a very ‘top-down’ manner, and did not seek to
engage the community, nor seek to establish mutual-respect and trust.
As we mention above, the process initially was rushed and little
effort had gone into establishing appropriate dialogue with those
who would be affected by the proposals, namely the community and
community organisations.
While
the Association appreciates that there may be some cases where ‘questionable’
activities have tax-exempt status (e.g. Centrepoint Community Growth
Trust), we feel the Department’s solution to this would have great
consequence for the vast majority of organisations that clearly
provide great support in the community. Because there is potential
for ‘worthy’ causes to fail to be provided with tax exemptions the
Association does not, at this time, support changing the definition.
Rather, we favour retaining the current definition with the addition
of basic reporting requirements.
Reporting
requirements and registration
The
Association would support the requirement for tax-exempt bodies
to provide a basic report of their annual accounts, providing that
this does not present too great a burden for smaller organisations.
The
Association and its 88 member bureaux are each incorporated societies,
and are already required to file detailed annual reports and audited
accounts, which are available to the public. We feel that these
would provide enough information to Government in respect to accounting
for our activities as tax-exempt bodies. We do not support the
requirement for filing tax returns.
While
annual reporting presents no additional burden on Citizens Advice
Bureaux, as we do this already, the Association feels that there
should be an income threshold for smaller bodies. We are not convinced
that the Department fully appreciates that it takes a lot of effort,
time and resources simply to operate a charity. Management, administration,
accountability and training take considerable effort in addition
to carrying out the organisation’s core business. Much of this
work is done by volunteers.
For
example, in order for Citizens Advice Bureau to provide a high quality
and consistent service, each volunteer has to under initial and
ongoing training, will usually be involved in some way in the administration
of the bureau, and may be involved in higher level management on
top of their usual weekly rostered duty. Many bureaux face a regular
turnover of volunteers because of this extra burden placed on them.
The
Government must maintain awareness that its actions (e.g. increased
reporting requirements) can place extra burden on the community
sector and its base of volunteers. We therefore strongly recommend
that the Government limit any extra burden as a result of its proposals,
and suggest that a threshold of $40,000 (the equivalent threshold
for GST registration) be set for reporting.
The
Association also supports a simplified registration system for charities.
We do not think that a separate body should be established for this
purpose. Rather, the Inland Revenue Department should be empowered
to fulfil this role, with its decisions being subject to testing
in court.
Other
income tax issues
Taxing
trading activities
As
with proposal of changing the definition, the Association feels
that the proposal to subject charities to tax will place a huge
compliance costs across the board in an attempt to address a very
insignificant, if not non-existent, problem. Further, it might
also have the effect of chipping away charities’ reserves. The
Association strongly recommends that the status quo remain.
Tax
treatment of donations
The
Association supports the proposed increase in the allowable rebate
for donations by individuals and companies, though we feel the increase
is minimal and, for individuals, only keeps up with inflation.
Fringe
benefit and superannuation
Fringe
benefits and superannuation schemes are necessary and valuable tools
used by many charities to attract, reward and support staff. They
are used because charities are unable to offer ‘market’ salaries.
The Association strongly recommends that the status quo remain.
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