As a registered charitable organisation, you are able to get access to a range of tax benefits, as such: – your charity’s income will be tax exempt;
– there’s no requirement to deduct resident withholding tax from its bank interest income;
– your charity may not need to pay fringe benefits tax on some benefits provided to its employees;
– your charity can access GST concessions;
– your donors can claim donation tax credits
– IRD will refund 1/3 of the donation back to the donor (if criteria are met).
GST
Under the current legislation, small charities are able to claim the GST costs involved in fundraising and distributing funds or providing services. Out of 19,000 not-for-profits registered for GST purpose, 7,000 are registered despite the fact that their annual turnover does not exceed the $60,000 compulsory registration threshold, that’s 37%! This means, smaller Charities are advantaged by the GST concessions.
In a nutshell, a registered charity receives income from the following income streams:
1. Receiving donations (Exempt from GST);
2. Exempt activities, for example, selling of donated goods and services (exempt from GST);
3. Taxable activities supplies (subject to GST, payback is required)
Their expenditures can be classified into the following:
1. GST can be claimed back on all activities relating to receiving donations (such as fundraising);
2. GST cannot be claimed on all expenses in relation to exempt activities;
3. GST can be claimed back on expenses in relation to taxable activities.
The Government acknowledges the input tax/output tax mismatch caused by the interpretation of taxable activity and intends to amend the GST Act.
It is proposed to 1. Treat any goods and services for which a Charity has claimed GST input to be subject to GST as part of its “taxable activity” if they are later sold by the Charity. For example, GST will have to be paid back when selling the building that is owned by the Charity, which:
– involves a taxable activity, such as renting the hall for fee income, and;
– GST has been claimed on property holding costs, such as Rates, Insurance, Repairs & Maintenance; or
– GST has been claimed on property acquisition costs.
2. Apply the same treatment if an event equivalent to a sale such as an insurance pay-out or GST deregistration occurs.
3. For Charities who may not have expected to have to pay this GST, allow a 12 month period in which the GST input tax claimed can be repaid so as to treat the asset in question as never having been part of Charity’s taxable activity.
What is not Changing?
The government will NOT waive the concession so that GST can be claimed on all expenses relating to fundraising, this means, small charities can still be advantaged by this GST mismatch that they do not have to pay back GST on any donation they receive – what a great win!
GST de-registration implication:
When considering deregistration or windup of a charitable organisation, the event is equivalent to a sale and GST has to be paid back at Market value if the property has engaged taxable activities (such as renting a church hall for fee income) and GST has been claimed on property expenses