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Bruce Bernacchi: Dentons Kensington Swan Partner on the likely tax changes for charities · The SME Stream

• 0:00
  Speaker 1: Finance Minister Nicola Willis, as we've been discussing, is promising
• 0:03
  Speaker 1: tax changes ahead for charities in the closing of loopholes.
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  Speaker 1: It'll be announced in next year's budget. Join now, yes,
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  Speaker 1: my lips, God's ear, or rather Helen put in the
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  Speaker 1: call said we really need to talk to our favorite
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  Speaker 1: tax expert, Bruce Binaki about this, Denton's Kensington Swan partner
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  Speaker 1: and tax expert. He joins me, Our morning to you, Bruce.
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  Speaker 1: You weren't at the lunch, Yester.
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  Speaker 2: Good morning Kerry. No no, I was just waiting waiting
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  Speaker 2: for my invite in the mail from you, but it
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  Speaker 2: never arrived. I would have loved to have come, but
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  Speaker 2: clearly that was not a charitable and not for profit
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  Speaker 2: lunch given the prices that were being charged.
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  Speaker 1: Oh I know, well I was just staff, so I
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  Speaker 1: wasn't really invited. I was your working stiff. Basically fair enough,
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  Speaker 1: so long overdue. Everybody's been saying this isn't it having
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  Speaker 1: been it has.
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  Speaker 2: Been talked about for a while. I think you know,
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  Speaker 2: particularly some businesses that are in competition with businesses that
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  Speaker 2: are owned by charities and therefore by extension, are able
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  Speaker 2: to apply for and get charitable status and don't pay
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  Speaker 2: income tax. You know, have been getting grumpy for a
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  Speaker 2: while that you know, arguably these some of some of
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  Speaker 2: these businesses just businesses that just happen to be owned
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  Speaker 2: by charities rather than really being there too. Their only
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  Speaker 2: reason for existence is to support the charity.
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  Speaker 1: Well, yes, I mean you've got an example quoted by
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  Speaker 1: at Canterbury University Department of Accounting Chairpey who said christ College,
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  Speaker 1: you know, has an shareholder in a forestry company. The
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  Speaker 1: boys don't go and learn how to chop down trees,
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  Speaker 1: they just profit from the forestry company. So that's not
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  Speaker 1: really a charity, is it.
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  Speaker 2: Well, look, I don't know the exactly what they've been
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  Speaker 2: what they've been doing. I mean, look, I think it's
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  Speaker 2: fair to say charities are really well regulated in New Zealand,
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  Speaker 2: so we have this broader concept of non profits and
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  Speaker 2: charities are sort of like a subset of that. And
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  Speaker 2: for an organization to be a charity, you know, it's
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  Speaker 2: it's governed by the Charities Act. It has to exist
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  Speaker 2: for the relieving poverty, advancing educational religion, or benefiting the community.
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  Speaker 2: And there are uns of charities out there, and that
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  Speaker 2: there are lots. They're subject to a lot of regulations.
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  Speaker 2: So in order to benefit from the income tax exemption
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  Speaker 2: and indeed for donors to get a tax deduction when
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  Speaker 2: they donate to them, you have to register with Charity Services,
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  Speaker 2: which is run by the Department of Internal Affairs. You
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  Speaker 2: have to register all your employee, your trustees. Rather, you
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  Speaker 2: have to have a clear sort of trustee or company
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  Speaker 2: constitution that makes it clear that all the earnings of
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  Speaker 2: the charity can only be applied for charitable purposes. You
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  Speaker 2: have to file financial statements and if you are a
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  Speaker 2: certain size, you have to have those financial statements audited.
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  Speaker 2: So there's a lot of there's a lot of scrutiny
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  Speaker 2: that is involved. And I'm a trustee in a charity.
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  Speaker 2: Trust me, it's not for the it's not for the
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  Speaker 2: fainthearted to be involved in running one of these things.
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  Speaker 2: That there's a lot of work.
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  Speaker 1: I imagine there is, But if you're a charity, isn't.
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  Speaker 1: And it's good that charities make money so that they
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  Speaker 1: can then keep going, you know, so that it's having
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  Speaker 1: a charity that gives all its money away and then
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  Speaker 1: folds and disappears. But I mean, how on are the
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  Speaker 1: other people supposed to compete with charities.
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  Speaker 2: Yeah, and I think I think that's the issue. The
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  Speaker 2: government hasn't come out and said exactly, you know with
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  Speaker 2: this review what they're looking at. But I think what
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  Speaker 2: it comes down to is the issue of really is
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  Speaker 2: this income that's been exempted from tax, is it then
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  Speaker 2: being applied to support the charity or not? And so
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  Speaker 2: if you've got the business it's in any exempt income
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  Speaker 2: and divoting up or but otherwise passing up all the
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  Speaker 2: profits that it's made to the charity, and the charity
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  Speaker 2: is applying that for its charitable purposes. No issue. I
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  Speaker 2: think where the concern comes in is if you have
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  Speaker 2: these businesses owned by charities that are just that are
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  Speaker 2: not distributing out their income. I mean, any any prudent
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  Speaker 2: business will want to retain some income and invest for
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  Speaker 2: the future and grow so it can generate more income.
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  Speaker 2: But if it's not to me, if it's not distributing
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  Speaker 2: it out a significant amount of its income and so
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  Speaker 2: that that income is actually applied for charitable purposes, I
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  Speaker 2: think that's where the perceived mischief is and I think
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  Speaker 2: that will be probably the focus of the review.
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  Speaker 1: Can some charities feel brassed off that the bigger charities
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  Speaker 1: are the ones bringing the spotlight down on the sector.
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  Speaker 2: Oh look, I think the entire sector. Everybody's going to
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  Speaker 2: get a chance to make submissions on this, and I think,
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  Speaker 2: and I'll go through a full public consultation process. I mean,
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  Speaker 2: the charitable sector is so important to New Zealand. And possibly, yes,
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  Speaker 2: the smaller ones may be if it does result in
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  Speaker 2: additional scrutiny. But I think the real focus will not
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  Speaker 2: be on non business income because there are actually two
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  Speaker 2: you know, if I get technical here, there are two
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  Speaker 2: different exemptions in the Tax Act. One is for non
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  Speaker 2: business income other sources of income et cetera, donations, gifts, whatever,
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  Speaker 2: that that a charity earns. That that's not a focus.
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  Speaker 2: It's business income. And that business income can be earned
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  Speaker 2: by the charity. You know, the charitable trust for example,
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  Speaker 2: you might often have sitting up at the top of
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  Speaker 2: the structure. It owns a company that carries on a business.
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  Speaker 2: That company itself has to be registered and it's a
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  Speaker 2: registered charity. But I think and then carries on the business,
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  Speaker 2: and I think the focus will be on the business
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  Speaker 2: income and the business activities and whether that income is
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  Speaker 2: distributed and actually applied towards the ultimate charitable purposes. So
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  Speaker 2: I mean maybe, but it will just be to the
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  Speaker 2: extent of scrutiny. We don't know that yet.
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  Speaker 1: But call me old fashioned, but I would have thought
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  Speaker 1: that would have been done anyway. Like if you want
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  Speaker 1: to be a charity, you have to show in your
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  Speaker 1: books that you've given away your profit.
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  Speaker 2: Well, no, you've just got to prove that it's been
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  Speaker 2: applied for charitable purposes. So which does not necessarily mean
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  Speaker 2: all of your money has to have been distributed out
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  Speaker 2: as I say, you know, it's proved for any business
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  Speaker 2: to retain some money invest for the future so they
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  Speaker 2: can grow and earn more money. But so, but I
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  Speaker 2: just don't there's not enough sort of spec specificity in
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  Speaker 2: the Tax Act at the moment and the scrutiny of
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  Speaker 2: a charities with respect on I mean, because I'm a
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  Speaker 2: tax geek, carry I've got to act here in front
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  Speaker 2: of me, and it's got to be income derived directly
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  Speaker 2: or indirectly from a business, carried on by, or for
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  Speaker 2: or for the benefit of a essentially think tax charity.
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  Speaker 2: So it doesn't say, doesn't you know so that being
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  Speaker 2: applied for the benefit of that doesn't say it has
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  Speaker 2: to be like during the tax yet or in the
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  Speaker 2: next It doesn't. There's no sort of time frame on that.
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  Speaker 2: So you can say, well, look and I'm going to
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  Speaker 2: derive some income today and yeah I'm going to you.
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  Speaker 1: Know, I'm not eventually years I'll give it away.
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  Speaker 2: Find it right. Yeah, but but but there's no sort
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  Speaker 2: of time frames around that here.
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  Speaker 1: There should be. There's work to do, isn't there in
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  Speaker 1: terms of tightening it up.
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  Speaker 2: I think so it has been an issue that has
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  Speaker 2: been around for a while. As I say, like the
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  Speaker 2: vast bulk of charity shouldn't shouldn't be concerned at all.
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  Speaker 2: And most of them don't make very money. They're much money.
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  Speaker 2: They run on a shoe string. They're doing wonderful things
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  Speaker 2: for the community. They're important part of of of of
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  Speaker 2: the New Zealand economy and the and and being able
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  Speaker 2: to and also you know, having a support for all
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  Speaker 2: these these wonderful causes out there. I think it's just
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  Speaker 2: it's really a handful that are operating sort of significant
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  Speaker 2: businesses that were the focus might be.
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  Speaker 1: Thank you so much as always for your expertise, where
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  Speaker 1: as I really do appreciate it. And if I don't
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  Speaker 1: see you, we don't talk to you before the end
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  Speaker 1: of the year. Are very merry Christmas?
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  Speaker 2: Do you?
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  Speaker 1: News talks said be