Many Maori organisations which manage assets or provide social services need to be aware of significant law changes which may impact on their tax-exempt status. From 1 July 2008, the benefits of being a charitable organisation such as income and gift duty tax exemption will only be available to charities that are registered with the new Charities Commission.

The register is now up and running, and you should register as soon as possible so as to avoid the “last minute rush” that will probably occur closer to the deadline.  While registration is technically voluntary, failure to do so will deny you access to any privileges associated with being a charity, therefore it is essential to take this step.

The test for whether your organisation has a “charitable purpose” is whether it has a purpose that (in addition to being of benefit to the public):

  1. Advances education
  2. Advances religion
  3. Relieves poverty; or
  4. Is otherwise beneficial to the community.

While these requirements have not changed, the establishment of a Charities Commission whose sole function is to oversee the charitable sector will result in much more vigilance as to whether they are in fact met, which means that some previously charitable organisations may no longer be considered eligible.

This tougher approach to charities stems from a need to strengthen the public’s confidence in the charitable sector by promoting transparency and accountability.  Because these organisations rely on grants and donations from the public, it is now possible for anyone to search the register and ascertain for themselves that the charity is in fact genuine before donating.

If you have registered under the Charities Act and do not now comply with it, the Commission can impose administrative penalties, and can even deregister your organisation if there have been repeated or serious failures to comply with the Act. On the other hand, if you have not registered but have held yourself out as being registered, you could be liable for a penalty of up to $30,000.

For advice as to whether your organisation will continue to meet the definition of “charitable purpose” on the more strict interpretation of the test, or assistance in the setting up of a Charitable Trust or Institution so you can avoid compliance difficulties and penalties under the new Act, please contact James Johnston.