Deregos
Let’s talk about tax.
Or more particularly let’s talk about the tax rules for deregistering charities.
It has been a big intellectual week for your correspondent. Tuesday night White Man Behind a Desk. No tax. An interesting riff on immigration that Michael Reddell clearly wasn’t the tech checker for. Wednesday night Aphra Green Harkness Fellow on US criminal justice reform coz States just ran out of money. I tried to run an argument that this was the good side of low taxes. Didn’t resonate – go figure. And Wednesday morning – Roger Douglas on turning taxes into savings coz #taxesaregross.
And it was on the lovely Roger I planning to write but on Friday was the Greens on how there were bugg@r all foreign trusts reregistering. So I thought I’d write about that and the genius decision to require disclosure rather than taxation.
And as if that wasn’t enough. Saturday morning the latest Matt Nippert on a US and charities thing. An elderly couple with no heirs wanting to transfer wealth to a charitable institution – awh lovely. So nice they chose NZ. But also Panama, low distributions and references to the IRS. Ok. Initial reaction was it looks like FATCA avoidance coz NZ charities are outside its scope of reporting to IRS. Really must get on to my ‘US citizenship is not a good thing for tax’ post. It has been in the can for longer than this blog has been running. So embarrassed.
But one thing really caught my eye. The charities had voluntarily deregistered. Mmm interesting.
Your correspondent now moves a tiny bit in the Charities NGO sector. And from time to time I hear ‘should we stay a charity? Coz need to be careful over advocacy and ActionStation isn’t a charity and it is alg for them.’
To which I try to reply in my best talking to Ministers language: ‘ That’s one option. It would mean handing over a third of your reserves in taxes or all of your reserves to another registered charity. But totes – if that is what you want.’
Strangely the conversation doesn’t continue.
Coz the law changed in 2014 to stop the rort of charities getting lots of lovely tax subsidised donations, not distributing; deregistering and then keeping all that lovely taxpayer dosh for themselves. Go Hon Todd!
Now on the face of it this should apply to our friends here very soon. Section HR 12 applies a year after deregistration and turns the reserves – less wot go to another charity – into taxable income.
Except there doesn’t seem to be anything explicit that makes it New Zealand source income. Possibly personal property or maybe indirectly sourced from New Zealand. But the source rules are kind of old school and want to bite on real stuff not deemed income. No matter how worthy of New Zealand source taxing rights it should be.
And of course none of this matters dear readers if the entity is New Zealand resident. Coz everything gets taxed! And as the trustees are a New Zealand company – high chance it will be. So alg.
Well almost.
Coz if the dosh in the charity all came completely from non-residents – the trust rules make it a foreign trust. And foreign source income aka income wot doesn’t have a New Zealand source is not taxed. So initial view – unless the source rules can bite on this deemed income or the trust isn’t a foreign one – there will be no wash up for our friends here.
Now on one level that is cool. The final tax was all about clawing back the tax benefits given on the initial donations and the charitable tax exemption on income. Here it would have been tax exempt anyway. So alg.
The other argument is that these guys intentionally registered as a New Zealand charity. Got all the good stuff like potentially non- disclosure to IRS as well as being to say they are a legit NZ charity. But now don’t get the bad stuff.
And NZ gets the bad name but not the income. What does that sound like? Oh yes the NZ Foreign Trust rules.
So glad that – according to the Greens – is coming to an end. Shame it had to be such a resource intensive way of doing it.
Andrea
All The Right Moves
Let’s talk about tax.
Or more particularly let’s talk about the charitable tax exemption given to Scientology.
For reasons that are beyond me I have seen very few of Tom Cruise’s movies. Even in the mid/late eighties when he and I were in our respective heydays. Whether it was my twice weekly Rocky Horror attendance that crowded them out or the current boyfriend didn’t want the competition – couldn’t tell you. And it wasn’t as though I was super geeky or anything. Both The Breakfast Club and Merry Christmas Mr Lawrence ‘spoke to me’ – I was young what can I say – so defo the target audience for Mr Cruise. Also have never seen An Officer and a Gentleman but I think that’s Richard Gere.
I did see All The Right Moves an early film that wasn’t too bad. And I did see one of the Mission Impossible films with my boys. Truly excreable but it was clear my offspring not me were the target audience there.
Apart from his films and rotating cast of wives, Tom Cruise is also famous for being a member of the Scientology church which became newsworthy last week. Now again for reasons that are beyond me I had always thought that the Scientology Church wasn’t a registered charity in New Zealand. But recently a former colleague told me that I was wrong. Perhaps I was thinking of the Jedi? Coz they aren’t a registered charity.
Yeah that must be it. I was thinking of the Jedi.
But just in case I am not the only one confusing them with the Jedi, I thought I might look at what is public on the Charities Register and how they could have got registered.
Mr CharityWatchNZ and Society for the Promotion of Community Standards – name which is a blast from the past Patricia Bartlett who didn’t like swearing or nudity – have both done more fulsome discussions on Mr Cruise’s religion in New Zealand which are worth a read.
Now I am sure you remember from A Plague on all your Houses that there are two ways Scientology could become registered. One through the advancement of religion where the benefit to the community is just assumed or through the catch all option of other matters beneficial to the community where there is also a public benefit test that needs to be met.
It appears to have been registered as a religious charity but its purpose statement seems to cover all bases. Arts and culture; social services; human rights as well as emergency disaster relief . All for the general public and not just members of Scientology. Lucky us. A degree of divinity is defo needed to do all that.
And from the news reports that is what they say they are doing too. Refurbed a heritage building complete with dolls and help disenfranchised youth. Your correspondent is big on help for disenfranchised youth and am sufficiently twee to enjoy a nice heritage building. So go them.
But of course being charitable they not only don’t pay tax on trading income – they also get access to the donations tax credit. You know the one where the ever tolerant taxpayers of New Zealand effectively give a charity one dollar for every two donated. And looking at their annual return this means potentially $600k in 2015 and $250k or so in 2014 and 2013. So – assuming all donations claimed the credit – over $1m in 3 years. But it is a lovely building and what about all those disenfranchised youth.
Now they apparently do other stuff. Auditing or something. And if that isn’t beneficial to the community I don’t know what is. Wonder if I can get a donations tax credit for my CAANZ registration? Don’t actually know how to audit though. I wonder if investigate is close enough?
Andrea
Unconditional – it’s what it means
Let’s (briefly) talk about tax ( and education). Again – yes I know.
The headline of today’s Dominion Post showed that in 2015 schools collected $11 million in donations more than they had previously. Now dear readers after And another thing you all know that this means that of the extra $11 million the government subsidied this by a third.
Also interesting if you follow the embedded Stuff links you see that decile 10 schools dominate the donations stakes. By about $329 million to $2.8 million. Mega yuck given this just happens automatically and doesn’t go through Parliament every year as Education budget does.
Now this we have discussed before and promise I am not interrupting your Saturday to moan again about that.
The reason for this postette is the reference to how music lessons and school camps and the like are now being reclassified as donations.
No just no.
IRD guidance is very clear that donations need to be an ‘unconditional gift’. Nothing in return. A cash version of seva although they will probs never use that analogy.
The law is very clear and any ‘reclassification’ will be very easily overturned by the department. Please apply your brain. If you get anything in return – it ain’t a donation and so no donations tax credit.
Simple. Please carry on.
Namaste
And another thing
Let’s (briefly) talk about tax (and donations to schools).
Following Monday‘s post I got to think about the other ‘advancement’ head of charity – education.
Now there is the whole controversy about whether donations that schools seek are really for extras and their role in an education system that is supposed to be free. And there is the thing about decile funding that the government gives less to higher decile schools coz they can fund raise.
But if that ‘fund raising’ comes from ‘donations’ then the government again gives one dollar for every two actually donated. So the bigger the donation and the higher level of actual payment – the more the government gives.
None of which is recorded in the education budget coz it is an off the books tax expenditure. So the schools with richer parents get more government help. Very progressive.
Probs not actually intended. More likely to just be an interface of separate policies and never actually thought through. Shame.
Now for those of you who are properly interested in the can of worms that is tax and charity stuff I’d recommend my friend CharitywatchNZ‘s blog. Not currently being updated as he has gone back inside (the bureaucracy) for a while. But still all good stuff.
Namaste
Let's Talk About Tax NZ 