Not all not-for-profit entities are charitable; however there are some important benefits to registering as a charity with Charities Services if your entity meets the applicable criteria. 

To be registered as a charity, an entity must have a charitable purpose, such as:

  • Relieving poverty;
  • Advancing education;
  • Advancing religion; or
  • Other purposes beneficial to the community (examples include advancing health, protecting the environment, preventing or easing the suffering of animals). 

The charitable purpose must also provide a legally recognised benefit to the public.  This benefit should be available to the public generally, or at least a sufficiently large section of the public.  Sometimes a not-for-profit entity can fall down here because although it has a charitable purpose, the section of society that it benefits is too narrow.

Tax exemption

Registered charities do not have to pay tax on income they earn, because of the benefit they provide to the public.   They are also exempt from having to pay resident withholding tax on interest and dividend income. 

These tax exemptions generally occur automatically when Charities Services approves registration of a charitable entity.

Donee status

Registered charities can also apply for “donee status” with the Inland Revenue Department.  This is not automatic upon registration as a charitable entity.

Donee status means that individuals can claim tax credits for donations over $5 that are made to the entity.  Donee status is only available where the charitable organisation’s funds are applied wholly or mainly to charitable purposes in New Zealand (so they should be carrying out their aims and purposes in New Zealand, even if money is paid outside of New Zealand to achieve the purposes).   This is a considerable benefit to encourage donations to your entity.

Charities Register

When a charity is registered, its information shows on the Charities Register, which is public and searchable.  This transparency helps the public to gain trust and confidence in a charity, and can be helpful when applying for funding or seeking donations.

Each charity is given a unique registration number which proves its charitable status.

The role of Charities Services after registration

Charities Services has an ongoing role in monitoring compliance of registered charities. 

 A registered charity will have some ongoing compliance requirements, including:

  • Updating the Charities Register whenever there is a change of officers.  This is something that is quite often neglected which can mean that a charity’s information on the Charities Register is out of date.
  • Filing a new version of the governing document (such as trust deed or constitution) whenever it is amended.  In this case Charities Services will reassess the new rules to make sure that they still meet the requirements to be a registered charity, and if not further amendments may need to be made.
  • Filing annual financial returns, in accordance with the relevant tier reporting standards (there are different tiers depending on a charity’s financial position and accountability).   

Removal as a charity

A charitable organisation can ask to be removed from the Charities Register.

More commonly, Charities Services will remove or deregister a charity for one of several reasons:

  • If it has changed its purposes and activities, and no longer qualifies for charitable status because these are outside of the Charities Act 2005;
  • If it has persistently or significantly failed to meet its obligations under the Charities Act 2005 (for example by not filing annual returns) or any other legislation; or
  • If it engages in “serious wrongdoing”. 

Once de-registered, the entity will become subject to income and resident withholding tax because its tax exemption status will cease.  Sometimes this income tax liability can be backdated to when the entity became non-compliant (rather than applying from the date of de-registration), which can have serious implications in terms of any overdue tax.  It is very important to get the right advice if this situation applies to your entity.

If you are wondering whether your not-for-profit entity could register as a charity, or if you need some advice about an existing charity, talk to your legal advisor about your particular situation.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.