For the uninitiated, setting up a charity in New Zealand can either be straightforward or a head-scratcher. It depends on the charity’s purpose, structure, whether or not it needs legal status and, to some extent, what size it is and its reach.
For a start, two acts come into play. One or the other, or both the Charitable Trusts Act 1957 and the Charities Act 2005 can apply. The Income Tax Act 2007 can also enter the frame, especially if the charity intends to donate mostly overseas.
A charitable trust registered at Charities Services is not incorporated, so it cannot enter into contracts or own property in its own right.
If money or property is available to a charity to help people in the areas of religion, education, relief of poverty or other purposes or benefit to the community, then The Charitable Trusts Act 1957 offers a way to hold and protect these assets for charitable purposes by creating a legal entity managed by trustees – in accordance with the charity’s purpose set out in a trust deed or rules.
Whether it's a charitable trust, an incorporated society or a company, the legal entity is generally set up through a charitable trust board.
Community Law calls these structures “groups” when explaining what a charitable trust board is and outlining the right legal structure for your group.
Sometimes a charitable society also sets up a trust so that trustees appointed can then be incorporated as a charitable trust board.
In this case, the membership of the charitable trust board consists of the trustees, rather than members of the society that set up the trust.
The purpose of a charitable trust board also includes anything religious or educational, even if it wouldn’t otherwise qualify as “charitable” under NZ law.
Once it's registered and incorporated, the trustees or society members become a body corporate under the name of the charitable trust board.
This means the board takes on a separate legal identity distinct from those individuals. The board also enjoys “perpetual succession”, which means it continues to exist despite changes to its membership (until it’s wound up) and has its own common seal.
Being incorporated doesn't have any impact on the charitable tax status of the group, but some funders require groups to be incorporated.
Charities register as legal entities at the Companies Office, operated by the Ministry of Business, Innovation and Employment (MBIE).
Next step
Once the charity is registered, the trust board or company acting as a trustee registers the charity on the Charities Services website, which is run by the Department of Internal Affairs (DIA) under the Charities Act 2005.
It can then be recognised as a charity, after proving its charitable purpose and in order to become tax-exempt. This donee status gives tax benefits to people and companies who make donations to a charity by offsetting receipts against income tax.
The Charities Act doesn't decide on a charity’s legal structure. Registering at Charities Services is voluntary but if it is registered, it's publicly recognised as a charity.
Overseas giving
For a charity with more than 50% of its causes outside of NZ, the tax-exempt status is trickier under schedule 32 of the Income Tax Act.
The Inland Revenue Department (IRD) grants only select international charities (160 listed here at last count) tax-exempt status under an extensive list of criteria put before parliament once or twice a year.
These internationally-focused charities can be either managed from NZ or overseas. Think Corso, Save The Children, the Fred Hollows Foundation (NZ), the Sir Edmund Hillary Trust, Red Cross and other long-standing charities set up for global giving.
The IRD list is updated monthly and freely available to view online.
Obligations
To receive an exemption from paying tax, charities must file annual financial returns at Charities Services along with other details, including the charity’s purpose, officers, its rules and a trust deed.
These filings are publicly viewable, giving the charity visibility to operate and engendering trust.
Charities Services had 28,468 charities on its register in March.
The Companies Office has 23,000 incorporated societies – around 8000 of those are registered charities.
Not-for-profits
NZ has about 90,000 not-for-profit entities. Of those, 34,000 are tax charities registered with Charities Services (20,000 are charities and the balance are mainly schools), and 25,000 are donee organisations. according to the latest Inland Revenue statistics to December 2021.
The figures are higher than the number of charities on the Charities Services register because the IRD records branches of charities as separate entities for tax purposes.
Tax charities are generally tax-exempt unless they have business income and charitable purposes outside NZ.
Around 300 non-resident tax charities are registered with the IRD.
Donations
The IRD reported $1 billion in charitable donations in the year to March 2020, which were subject to tax rebate claims of $322m. This amount was similar to the year before.
In that tally, 364,000 individuals made donation tax credit claims, 40,000 fewer than the previous year, and of the total claimed 60% went to religious organisations, nine per cent to schools and 30% to other organisations.
