Is being registered with Charities Services still right for your organisation?
Posted on 2 June 2017
Does your charity actually need to be registered with Charities Services?
There are obligations that come with being a registered charity, and one of these is to comply with the new reporting standards that came into effect in April 2015. All registered charities must now comply with these standards regardless of their size, activities or income.
We realise that for many small charities, in particular Tier 4 charities, the new reporting requirements may require a lot of effort from your charity, and you may not have the resources to do this.
We can’t tell you whether registration is the best decision for your charity – this is something your charity will need to discuss and agree on. Being registered is, after all, a choice – not an obligation.
What does it mean to your organisation to be a registered charity with Charities Services?
If your small charity is struggling with the new reporting requirements, stop and have a conversation about what it means to your organisation to be a registered charity. For example, why did your charity become registered in the first place? Was it for the income tax benefits? To secure funding that required registration? Or maybe you registered because your donors need receipts to claim tax back on their donations?
Read more about common reasons organisations register, and what options are available for those who no longer want to remain registered. There are also tax implications to think about before you make a decision.
Common reasons organisations become registered charities with Charities Services
- Income tax exemption is one of the main reasons organisations seek charitable status. Upon registration with us, this exemption applies, except if your charity generates business income that is used overseas.
- Donee status is another benefit of having charitable status. Donors may claim tax credits on all donations over $5. Registered charities (operating mostly in New Zealand) automatically receive donee status from Inland Revenue. This means that when people make donations to your charity, they can claim 33% tax back on their donation.
- Funders - some funders may only provide funding grants to registered charities.
- Status as a registered charity -improved public perception that comes from being a charity regulated by government and visible on the public Charities Register(external link).
Can your organisation continue doing what it’s doing without being a registered charity?
Many registered charities aren't aware they don't have to be a registered charity to receive similar benefits to those above. Your charity might be eligible for some similar benefits that registered charities are entitled to without it being registered.
Is your income low (e.g below $1,000)?
Inland Revenue doesn’t require not-for-profit organisations to pay income tax on the first $1,000 of income. So if your charity has minimal operating expenses, you may not need to be a registered charity to receive similar tax benefits.
Are you an amateur sporting organisation?
Most sports organisations can obtain income tax exempt status under the Income Tax Act whether they are a registered charity or not, as long as their purpose is mainly to promote amateur sport. Inland Revenue has guidance on their website about income tax exemption for amateur sports organisations(external link). Sports New Zealand also has great information about this on their website(external link).
You don't always need to be a registered charity to receive donee status from Inland Revenue
Donee status is generally granted automatically to registered charities operating in New Zealand, but you don't always have to be a registered charity to qualify - your organisation just needs to be established for “charitable, benevolent, philanthropic or cultural" purposes. For example, if you’re a small church with a small congregation in New Zealand, it's likely you’re eligible for donee status regardless of whether you're registered or not.
The decision about who qualifies for donee status is made by Inland Revenue and we understand Inland Revenue may require some organisations to be registered with Charities Services before they grant donee status. You can check if you’re eligible for donee status online(external link).
Not all funders require organisations to be registered charities
Only some funders will require applicants to also be registered charities. This is at the discretion of funders and the type of grant your charity is applying for. We recommend you look at the conditions of your funders to determine if you’re required to be a registered charity for funding purposes.
So, what are the consequences if your charity decides to no longer be a registered charity?
A registered charity may voluntarily deregister with Charities Services at any time. Usually charities deregister when they wind up(external link), or cease to exist. If your charity decides to deregister there are some things to consider before you do.
Tax implications of deregistration
- If your charity decides to deregister, your charity has twelve months to distribute its assets to another registered charity or give its assets to charitable purposes. Assets which have not been distributed within twelve months of deregistration will be taxed by Inland Revenue.
- A deregistered charity may also lose donee status from Inland Revenue, but as detailed above, you don't always need to be a registered charity to be eligible to receive donee status or other tax benefits.
How does your charity deregister?
It's a straight forward process to request deregistration with Charities Services. You can complete a form online by logging into your account(external link) and clicking on the “Deregister” tab on your charity’s online account. When you deregister, Inland Revenue will also get notified. If your charity holds a lot of assets, we strongly advise that you contact Inland Revenue first to discuss your tax situation and consequences if your charity is considering deregistration.
Still thinking about deregistration?
Share this blog post with your charity's trustees and committee members, start the conversation about what you see for the future of your charity. And if your charity decides that there are still benefits to remaining registered, we’re here to help you with your obligations as a registered charity. To start off with, you may want to register for our upcoming webinar in June on Annual Reporting for Tier 3 and Tier 4 charities(external link) – this is a great introduction for all those involved in your committee or board to understand what's required. The more people who understand it, the easier it will be for your charity to report correctly.
We’ve talked a lot about tax in this article, but for specific questions about income tax exemption(external link), donee status (external link)or tax implications from deregistration(external link), we recommend you contact Inland Revenue directly.