1 Clubs and societies A tax guide for clubs, societies, non-profit bodies, associations and other groups IR 254 August 2001
2 INLAND REVENUE CLUBS AND SOCIETIES 1 Introduction If you are involved in running or setting up a sports club, social club, friendly society, district improvement society or any other type of organisation, this booklet is for you. There are a number of tax obligations involved in running an organisation. This booklet explains them to you, and tells you where to find any further information you may need. Part 1 will help you work out which taxes your organisation will have to deal with. Part 2 explains whether your organisation is exempt from income tax. Part 3 sets out different types of income and expenses, and explains whether each is liable for income tax or goods and services tax (GST). Part 4 provides information on your organisation s dealings with Inland Revenue and the support services we provide. Not all of this booklet will be relevant to your particular organisation. We suggest that you mark the parts that apply to you, so you and your organisation s members can find them quickly. Throughout the booklet you may come across terms you are not familiar with, or have meanings that are different from their everyday uses. There is a glossary on page 5 to help you with these terms. You may find it useful to go through it before you start reading the booklet, and refer to it as you need to. FOR MORE HELP If you have any questions about the information in this booklet, please phone us on Note The information in this booklet is based on current tax laws at the time of printing. However, changes to both income tax and GST are discussed in the government discussion document Tax and charities (June 2001).
3 2 CLUBS AND SOCIETIES INLAND REVENUE
4 INLAND REVENUE CLUBS AND SOCIETIES 3 Contents Introduction 1 Glossary 5 Part 1 Basic tax information 7 IRD numbers 7 Income tax 7 Goods and services tax (GST) 8 Employing staff 12 Fringe benefit tax (FBT) 13 Gaming machine duty 14 Resident withholding tax (RWT) 14 Non-resident withholding tax (NRWT) 15 Record keeping 16 Balance dates 16 Part 2 Income tax exemptions and deductions 17 Qualifying for an exemption 17 Approval for an exemption 17 Inland Revenue s criteria 18 Exemptions for specific organisations 19 Donee organisations 21 Overseas organisations 22 Part 3 Income and expenses 23 Income 23 Expenses 28 Part 4 Inland Revenue and you 33 Inland Revenue s website 33 INFOexpress 33 Customer service quality monitoring 33 Business Tax Information Service and Maori Community Officers 33 Tax Information Bulletin (TIB) 33 Audit procedures 34 If you have a complaint about our service 34 Penalties and interest 34 For more help 34
5 4 CLUBS AND SOCIETIES INLAND REVENUE
6 INLAND REVENUE CLUBS AND SOCIETIES 5 Glossary Associated persons These are: people related by blood, marriage, de facto relationship or adoption companies with mainly the same shareholders an individual and a partnership, if the individual and one of the partners are associated persons (a company may also be a partner in a partnership). Business This means any enterprise or activity intended to make profit. If an organisation runs a business it must pay tax on all profits after expenses, except those made from trading with its members. If losses are made, these can be offset against other income in current or future financial years. If a non-profit body is entitled to a tax exemption, it will be liable for tax only on profits that exceed the granted exemption. Charitable organisation This is an organisation that carries on charitable activities or exists exclusively for charitable purposes. Charitable purposes include: the relief of poverty the advancement of education the advancement of religion other activities that will benefit the community. To be charitable, the activities or aims of the organisation must be for the public good, that is, the benefit must be available to a large part of the community. Many organisations consider themselves charitable because of the work they do or because they are registered under the Charitable Trusts Act As a result they think they are automatically tax-exempt. However, exempt status for income tax, and certain other revenues, only occurs when particular criteria have been met. Exemptions do not apply to GST, PAYE deductions, FBT, RWT and gaming machine duty. Circle of membership This means the members of an organisation who can influence or affect the activities of the organisation. Persons may have to pay a fee or subscription, undergo an initiation ceremony, or have certain qualifications to become a member. Commissioner This means the Commissioner of Inland Revenue, who delegates their power of approving tax exemptions to certain authorised people within Inland Revenue. Incorporated organisations Those registered with the Companies Office of the Ministry of Economic Development (such as under the Incorporated Societies Act 1908 or the Companies Act 1993) are classed as incorporated organisations. If you would like more information about becoming incorporated, you can get the free pamphlet A guide to the Incorporated Societies Act 1908 from the Ministry of Economic Development. Non-profit body A non-profit body is defined as an association or organisation (whether incorporated or not): that is not carried on for the profit or gain of any member, and whose rules do not allow money, property or any other benefits to be distributed to any of its members. A non-profit body must have written rules to get an income tax exemption. Written rules give an organisation a set direction and purpose, and if it does not have rules, its funds may be used in ways that are not in line with its aims. Organisation In this booklet, this term is used in its widest sense it includes all clubs, societies, associations and non-profit bodies.
7 6 CLUBS AND SOCIETIES INLAND REVENUE Principle of mutuality Inland Revenue s policy is that non-profit bodies do not pay tax on any transactions with their members (this is the principle of mutuality). In practice, some transactions with non-members will also be exempt. This will happen if: the transactions take place at premises that are controlled by the non-profit body, and the transactions with non-members cannot be separated from those with members, and the main purpose of the activities is for members enjoyment, and the non-members are guests, members of similar clubs or potential members. This policy does not extend to those transactions with non-members that can clearly be distinguished from transactions with members. Public authority This includes all government departments, agencies and corporations, but not: the Governor-General members of the Executive Council ministers of the Crown or members of Parliament. Residual income tax This the amount of tax payable for the year after deducting any tax credits, but before deducting any provisional tax paid. Taxable activity A taxable activity is any activity carried on continuously or regularly that supplies (or intends to supply) goods and services to others for some form of payment (but not necessarily for a profit). Businesses, trades, manufacturers, professions, associations or clubs can be or run a taxable activity. Turnover Turnover is the total gross value of all goods and services supplied, excluding GST. It includes: goods and services sold or provided in New Zealand exported goods services supplied overseas grants, subsidies and barter arrangements. Turnover does not include: the sale of stock and assets because of winding down or ceasing business the sale of plant or assets being replaced GST-exempt goods and services unconditional gifts. Unconditional gift This means a donation or payment made: voluntarily to any non-profit body for the non-profit body to use where there is no identifiable direct benefit to the giver, or the family of the giver. Examples of some unconditional gifts are: donations receipts from door-to-door appeals and street collections bequests voluntary school fees (but not school activity fees). Subscriptions, income from trading activities and payments made by the Crown or other public authorities are not unconditional gifts for GST purposes. Setting up in business is part of the taxable activity, as is the closing down and sale of a business. Taxable activities do not include: employment as a salary or wage earner hobby activities the occasional sale of domestic or private assets making GST-exempt supplies.
8 INLAND REVENUE CLUBS AND SOCIETIES 7 Part 1 Basic tax information Whatever type of organisation you are running or setting up, you will generally have some tax obligations. These may include: Making tax payments each year. Some of these may be for your organisation s own tax liability, others may be on behalf of its employees. Filing various return forms during the year. These may be for income tax, goods and services tax (GST), PAYE deductions, fringe benefit tax (FBT) and gaming machine duty (GMD). Paying ACC residual claims levy on business income, and/or paying ACC residual claims levy on employees earnings. Calculating the profit from any business, so you can work out how much tax is due. This is explained in Part 3 of this booklet and in the booklet Smart business (IR 320) you can view a copy on our website or order one through INFOexpress (see page 33). Keeping business records. See page 16 for more information on this. Part 1 explains all these obligations, and gives you other general tax information you will need. IRD numbers No matter what type of organisation you are running, you will need an IRD number. Even if your organisation is exempt from income tax, it will probably need an IRD number for GST, PAYE, FBT, GMD, or resident withholding tax (RWT) purposes. Most organisations will already have an IRD number. To get an IRD number, phone us on and request an IRD number application non-individual (IR 596). If your organisation is incorporated, you will need to provide a copy of the certificate of incorporation. A trust must supply a copy of its trust deed. If you are applying for an IRD number for an unincorporated organisation, you must supply a list of the names and IRD numbers of the executive office holders. You may wish to be considered for an income tax exemption at the same time. In this case, you should send us the information specified on page 17 of this booklet, with your IR 596 form. Income tax These organisations are liable for income tax on their taxable income: those operating without written rules or a constitution those operating under a set of rules or a constitution that does not meet the requirements for exemption (see page 17) those non-profit bodies entitled to the $1,000 deduction (see pages 19 and 21) but whose income after expenses is more than $1,000. Exemptions from income tax Apart from friendly societies, there are two main conditions that an organisation has to meet to qualify for an exemption. 1. The organisation s main aims and activities must meet the requirements of the particular exemption it is applying for. 2. None of the organisation s income or funds may be used (or be available for use) to benefit any of its members or associated persons of members (defined in the Glossary on page 5). Part 2 of this booklet gives more detail on these main conditions. It also contains a full list of all the exemptions available, and the specific conditions that an organisation must meet to get any particular exemption. Remember that these exemptions are for income tax only. Your organisation may still be liable for other taxes, such as GST, PAYE deductions, FBT and RWT. If your organisation is liable for income tax, Part 3 of this booklet will help you work out what types of income are taxable. Rates of income tax If an organisation is incorporated under a particular Act (such as the Incorporated Societies Act 1908 or the Companies Act 1993), it is considered to be a company for income tax purposes. If it does not qualify for a tax exemption, its income is taxed at the company rate currently 33 cents in the dollar.
9 8 CLUBS AND SOCIETIES INLAND REVENUE Unincorporated organisations not entitled to an exemption are assessed for tax at the same rate as individual taxpayers, but they do not qualify for any of the rebates allowed to individual taxpayers. The current tax rates for individuals are: 19.5 cents in the dollar for the first $38, cents in the dollar between $38,001 and $60,000 (inclusive) 39 cents in the dollar over $60,000. If a non-exempt organisation s residual income tax for the year is more than $2,500, it will have to pay provisional tax. The due dates for the three instalments of provisional tax depend on when the organisation s accounting year ends (the balance date). For a 31 March balance date, the due dates are 7 July, 7 November and 7 March. For more information on provisional tax, see our Provisional tax (IR 289) booklet you can view a copy on our website or order one through INFOexpress (see page 33). Filing income tax returns Most organisations must file a tax return each year. You don t need to file an income tax return, unless we request one, if your organisation is: fully exempt from income tax, or a non-profit body and its total net income (gross income less deductions, including the $1,000 non-profit deduction) is nil, and we have confirmed a return is not required. If your organisation is fully tax exempt, it will still need to keep accurate records (see page 16). If your organisation runs a business (trading operations with non-members), you must include a copy of the accounts with the tax return. Instead of accounts, you may use our Schedule of business income (IR 3B) form or Rental income (IR 3R) form to work out the gross income and allowable deductions for these activities. We also provide an Accounts information (IR 10) form, which you can use instead of sending us a set of accounts. Using an IR 10 will speed up the processing of the organisation s tax return. Clubs and societies file an IR 9 tax return, while trusts complete an IR 6. If your organisation doesn t receive a taxpack, phone INFOexpress (see page 33 for details) for the forms you need. If your organisation has a 31 March balance date, you must send the tax return to us by 7 July. For other approved balance dates (see page 16), the return should be filed by the seventh day of the fourth month after your balance date. If a tax agent completes the return, it may be filed later. This is because many agents have extensions of time for filing their clients tax returns. Goods and services tax (GST) GST is a tax on the consumption of most goods and services in New Zealand. It is charged and accounted for, at a rate of 12.5%, by GST-registered businesses. They then calculate the amount of GST they have charged and pay it to us. They are also able to claim back the GST they incur as part of their business. Registering for GST If your organisation runs a taxable activity with an annual turnover (total income before expenses) of $40,000 or more, it must register for GST. Below this threshold, registration is optional. To work out turnover, only include income that is liable for GST (see the table on page 23), for example: membership fees, subscriptions, magazine sales fund raising, for example, raffles, bingo nights, gaming machines, social evenings, dances, fairs, school work days government, local body or Lottery Board grants admission fees, such as tournament fees, films, entrance fees affiliation fees or subscriptions from branches advertising or sponsorship income income from commercial activities (including member transactions), such as bar sales, hall hire, sale of goods (T-shirts, club magazines, emblems) fees for services.
10 INLAND REVENUE CLUBS AND SOCIETIES 9 When working out the total turnover, do not include income that is not liable for GST or exempt from GST, such as: bequests donations (unconditional gifts) receipts from the sale of goods that have been donated to the non-profit body (for example, home-made food, used clothing) interest and dividends from investments or bank accounts rent received from residential properties. At the end of any month, if the organisation s turnover for the past 12 months was more than $40,000, it will need to register. Also, if at any time you think the organisation s turnover for the next 12 months will be over $40,000, it will need to register. To register for GST, you will need to complete a GST registration (IR 360) form, which you can get from our website or by phoning INFOexpress (see page 33 for details). The form is also printed at the back of our booklet GST do you need to register? (IR 365), which will give you more information about GST registration. Separate registration of divisions If your organisation operates different branches or divisions of the same organisation you may register these separately for GST. To work out whether your organisation needs to register overall, add together the turnover of all branches and divisions. If the total is over $40,000, the organisation must register. There is a special concession for GST registration of non-profit bodies. They may apply in writing to Inland Revenue to treat each branch or division separately, and only register those with a turnover of more than $40,000 (branches with a turnover less than $40,000 may still register voluntarily see the next column). To be separately registered, each branch or division must: have its own independent accounting system, and be in a separate location or carry out different activities. Voluntary registration You are not obliged to register your organisation for GST if the annual turnover is less than $40,000, but you may register if you want to. The following are some of the advantages of voluntary registration. If your organisation purchases goods and services from a GST-registered person, you will be able to claim back the GST that you will be charged. If you are not registered you cannot claim the GST charged. Your organisation can claim GST on the purchase of secondhand goods that were used in a non-registered person s business activity. Your organisation may be entitled to a refund of GST. This can happen when a non-profit body runs a taxable activity and receives income liable for GST but also donations or koha (unconditional gifts) not liable for GST. Subject to certain limits the non-profit body can claim a GST credit for most of its expenses, but it only pays GST on liable income. However, non-profit bodies need to be aware of these possible disadvantages of voluntary registration. GST must be paid on any assets kept after ceasing to be registered. Accounting for GST becomes difficult if non-liable income is involved or some assets are used for exempt purposes, and others for business purposes. If someone within the non-profit body completes the GST returns, there may be problems if that person s services become unavailable and the experience is lost. FOR MORE HELP If you would like more information on registering for GST, get a copy of the booklet GST do you need to register? (IR 365) either from our website or by phoning INFOexpress (see page 33).
11 10 CLUBS AND SOCIETIES INLAND REVENUE Worksheet The following worksheet may help you see whether or not your organisation needs to register for GST. It may also help you determine whether it is beneficial to register voluntarily. The worksheet can be used for any period of operation (1, 6 or 12 months) using the actual or projected income and expenditure figures. Income Show the total income for the period 1 From this total, deduct any income received: That was GST-exempt (see page 23) That was not liable for GST (see page 23) 2A 2B Add Boxes 2A and 2B. Print the answer in Box 3. Subtract Box 3 from Box 1. Print your answer in Box 4. This is the total income liable for GST for the period. Expenses Show the total expenses for the period From this total, deduct: Bank charges Wages paid Loan repayments Expenses directly relating to income included in Box 2A, for example, residential accommodation 6A 6B 6C 6D Add Boxes 6A to 6D and print the total in Box 7. 7 Subtract Box 7 from Box 5. Print your answer in Box 8. This is the total expenses liable for GST for the period. 8 Print the difference between Box 8 and Box 4 in Box 9. 9 If Box 4 is more than $40,000, your organisation must register for GST. If Box 8 is greater than Box 4, the non-profit body will generally be entitled to a refund of GST when it files a return. To work out the amount of the refund, divide Box 9 by nine (the GST portion). What you have to do If your organisation is GST-registered you must account to Inland Revenue regularly for GST. All the income the organisation receives will be: liable for GST, or not liable for GST, or exempt from GST (see the table on page 23). One-ninth of any income that is liable for GST (such as grants or subsidies) must be accounted for to Inland Revenue. Your organisation must add 12.5% (GST) to the price of all liable goods and services it supplies (such as bar sales), and to the sale of business assets. You claim the GST that is included in any expenses or purchases against the GST on the organisation s income. See Part 3 of this booklet for more information on the GST treatment of different types of income.
12 INLAND REVENUE CLUBS AND SOCIETIES 11 If you register for GST on the invoice basis, you account for GST on your sales and expenses when you issue or receive tax invoices. If you account for GST when the invoices are actually paid, this is called the payments basis. There is another accounting basis, called hybrid, which is a combination of the other two methods. The GST guide (IR 375) explains how to account for GST using each of these methods you can get a copy from our website or order one through INFOexpress (see page 33). Tax invoices If you are registered for GST, you must generally give a tax invoice for any supplies you make to other GST-registered persons. A tax invoice must have the following details on it: the words tax invoice in a prominent place your name and GST registration number the date the tax invoice was issued a description of the goods and/or services supplied the total amount payable either the words GST-inclusive or the GST content shown separately if the value of the goods (including GST) is over $1,000 also include: the name and address of the recipient the quantity or volume of goods and/or services supplied. For your organisation to claim a GST tax credit for any expenses over $50, you must hold a tax invoice with the supplier s details as above. For items below that value you don t need a tax invoice, but keep any invoices, cash sale dockets and till receipts for these smaller purchases. If no documentary evidence is received note the cost and date of purchase on the cheque butt or in a cashbook. GST returns Most organisations registered for GST must file a GST return every two months. You add up the GST you have charged, then deduct from this total the amount of GST you have paid. If you ve collected more GST than you ve paid, the difference is payable to Inland Revenue. If you have paid out more in GST than you have charged, the difference is refunded by Inland Revenue. It is important that you give yourself enough time to fill in your organisation s GST returns before the due date for payment. Penalties are charged on any late payments of GST. Taxable periods Instead of two-monthly GST returns, an organisation can choose to make monthly returns. This is sensible if the organisation is likely to be receiving GST refunds regularly, or if you find it easier to deal with the GST return every month. Alternatively, if the annual turnover (total income before expenses) is $250,000 or less, you may wish to reduce the paperwork by taking the option of making GST returns every six months. This may be timed to coincide with the half-yearly and yearly balance dates. However, working out six months worth of GST at once can be a major administrative task. You can apply to Inland Revenue to have the GST taxable periods changed to line up with your organisation s annual income tax balance date. You must keep all invoices and documents relating to GST for seven years (see page 16). Most GST-registered persons have standard tax invoices they use for all sales, whatever the value. If your organisation uses a trading name on its tax invoices, you must let Inland Revenue know this name. FOR MORE HELP For more information on tax invoices, see the GST guide (IR 375). We send a copy to everyone who registers for GST.
13 12 CLUBS AND SOCIETIES INLAND REVENUE Employing staff If your organisation employs staff, you must register with us as an employer. If you have not already done this, you will need to fill in an Employer registration (IR 334) form. We will then give you all the information you need about the tax obligations of an employer. These are the main things you will have to do as an employer. Make sure new employees fill in a Tax code declaration (IR 330), which will tell you the tax code to use and the rate of tax to take out of their wages. If any employees don t fill in an IR 330, you must deduct tax from their wages at a higher rate (called the no-declaration rate). Deduct PAYE from your employees wages, and pay it to us either once or twice a month, depending on the total amount of wages paid. PAYE includes the ACC earner premium, to cover the cost of employees non-work injuries. Complete an Employer deductions (IR 345) or (IR 346) form and send it with your payment by the due date. If you re unsure whether to use an IR 345 or an IR 346 phone us on Complete an Employer monthly schedule (IR 348) with the details of each employees deductions. Pay ACC residual claims levy on your employees wages and complete an ACC residual claims levy statement (IR 68A) each year. Pay fringe benefit tax on any fringe benefits (perks) you give to your employees (see page 13). Deduct child support payments from employees wages if required. Deduct student loan repayments from employees wages if required. FOR MORE HELP For more information on employer obligations get a copy of the First-time employer s guide (IR 333) from our website or by phoning INFOexpress (see page 33 for details). Employees and contractors If any members of the organisation work for it, such as at the bar, they are treated as employees. PAYE must be deducted from any payments they receive. If any employees are provided board and lodging rather than money for their work, you must work out the gross value of the benefit given to them, calculate PAYE based on this amount and pay it to us. Other benefits paid to replace wages may be liable for fringe benefit tax see page 13. PAYE deducted from your employees wages is actually your employees tax and you are responsible for passing it on to us. This does not mean you need to keep it apart from all other funds in a separate bank account. However, the PAYE must not be used for anything other than payment to us. If you hire a self-employed contractor to do a job for the organisation, this does not generally make the organisation an employer. However, if the job done is one of those listed on the back of the Tax code declaration (IR 330), you must deduct withholding tax at the flat rate shown, and pay this to us. If the contractor shows you a current Certificate of exemption (IR 331) or is a company, you do not have to deduct withholding tax. If the type of work done is not listed on the IR 330, you don t need to deduct any tax or complete an IR 330 form. In these cases, the contractor is responsible for paying the tax. The contractor is also liable to pay ACC earner account levy and residual claims levy on the income. As an employer it is very important you are sure whether the people who work for you are employees or self-employed. If your organisation has control over the work done, and how and where it is done, the worker is almost certainly an employee and is liable to have PAYE deducted. It is illegal to treat a true employee as self-employed to avoid deducting tax. FOR MORE HELP If you are not sure whether a worker is a true employee, see our leaflet Self-employed or an employee? (IR 336). You can get a copy of this from our website or by phoning INFOexpress (see page 33 for details).
14 INLAND REVENUE CLUBS AND SOCIETIES 13 Penalties can apply if the organisation does not deduct or account for PAYE or withholding tax when the law requires it to do so. If you are unsure how to tax someone who works for the organisation, phone us on Superannuation fund contributions A specified superannuation contribution is any contribution to a superannuation fund that an employer makes for their employees benefit. If your employees ask you to make deductions from their wages and pay them to a superannuation scheme, these are not specified superannuation contributions. Any contribution an employer makes to a superannuation fund for the benefit of an employee is liable for tax. The contribution is either: subject to specified superannuation contribution withholding tax (SSCWT) at a flat rate of 33 cents in the dollar, or, where the employee and the employer elect, 39 cents in the dollar (only employees who earn over $60,000 a year are likely to use this option), or treated as salary or wages of the employee and taxed at the employee s personal tax rate (if the employer and the employee agree). A superannuation fund is a scheme that has been registered under the Superannuation Schemes Act For more detailed information about superannuation fund contributions, refer to the Employer s guide (IR 335). Annual ACC residual claims levy statement As an employer, you will be required to pay an ACC residual claims levy. This levy is charged on the total liable earnings of wages paid to the employees up to 31 March each year, at a rate that varies according to the industrial activity of your organisation. The actual levy is calculated on the ACC residual claims levy statement (IR 68A). It is due to be paid by 31 May each year, or the 15 th of the second month after you cease trading as a business. For more information about ACC levies and actual rates see the Residual Claims Levy (ACC 450) booklet. To order a copy, phone INFOexpress (see page 33 for details). Fringe benefit tax (FBT) If your organisation provides fringe benefits (perks) to any employees, it must pay FBT. Some things that are liable for FBT include: private use of an employer-supplied car low-interest loans subsidised transport goods or services supplied below market cost (there is an exemption available for this see below) employer contributions to sick, accident and death benefit funds. When calculating your FBT to pay, you have a choice of FBT rates to use. You can choose to work out the FBT to pay using the multi-rate calculation process or you can apply the flat rate of 64%. FBT exemption There is an FBT exemption for goods and services supplied below market cost. This is a $75 exemption per employee per quarter up to a maximum of $450 per quarter for all employees. However, if the value of the fringe benefits to any one employee goes over $75 for a quarter, then the full value of fringe benefits given to that employee is liable for FBT without first deducting the $75 exemption. Similarly, if the total of the fringe benefits paid to all employees goes over the maximum of $450 for any quarter, the organisation must pay FBT on all fringe benefits it provides in that quarter again without first deducting any exemption. Filing FBT returns If your organisation is providing benefits to staff, it will have to file FBT returns. If your organisation does not (and does not intend to) provide fringe benefits, you can apply for nil status by completing a Fringe benefit tax election (IR 414) form. Once your organisation has been granted nil status it will not have to file FBT returns unless it starts providing benefits in the future. If you need an IR 414 you can order a copy by phoning INFOexpress (see page 33 for details).
15 14 CLUBS AND SOCIETIES INLAND REVENUE FBT return periods Due dates 1 April to 30 June 20 July 1 July to 30 September 20 October 1 October to 31 December 20 January 1 January to 31 March 31 May Filing FBT returns annually Employers who provide fringe benefits and have less than $100,000 of annual PAYE and SSCWT deductions can file FBT returns once a year. The due date is 31 May immediately following the end of the financial year. FBT and income tax When you work out the organisation s profit for income tax purposes, you can deduct any FBT the organisation has paid. However, any additional tax resulting from a late payment is not deductible. GST on fringe benefits GST is payable on the value of any fringe benefits supplied. This is explained fully in the Fringe benefit tax guide (IR 409) and the GST guide (IR 375). You can get either of these guides from our website or by phoning INFOexpress (see page 33 for details). FBT and charitable organisations For FBT purposes a charitable organisation is any society, institution, association, organisation, trust or fund (both public and private) that is not carried on for the private gain of any person and whose funds are used principally for charitable, benevolent, philanthropic or cultural purposes. Charitable organisations are exempt from paying FBT on any benefits provided to employees while they are doing work for the organisation. This exemption does not apply to any benefits provided to employees who work in any business activity run by the organisation. For example, if an employee has the use of a car while carrying out general duties for the organisation, this is not subject to FBT. But if the car is used privately by the employee, FBT will be charged. For more information on this FBT exemption refer to the binding ruling BR Pub 00/08 contained in the Tax Information Bulletin (TIB) Vol 12, No 9 (September 2000). FOR MORE HELP For more help, phone us on When your organisation registers as an employer, we will send you the Fringe benefit tax guide (IR 409), which gives more information that you will need if your organisation is providing fringe benefits. Gaming machine duty Any machine used for a game of chance, instant game, lottery or prize competition is a gaming machine. Organisations must pay a duty of 20% each month on gaming machine profits (machine income minus total value of wins) for all gaming machines. Gaming machine profits are calculated by reading the soft meters found on each machine. FOR MORE HELP Our booklet Gaming machine duty (IR 680A) explains what your organisation must do if it operates a gaming machine. Included in it is a form for you to register for gaming machine duty. You can get a copy from our website or by phoning INFOexpress (see page 33 for details). Resident withholding tax (RWT) If your organisation has money deposited in a bank or other financial institution, resident withholding tax may be deducted from the interest before it is paid. Financial institutions deduct this tax at either 19.5%, 33% or 39% on all interest paid to account holders who have supplied their IRD numbers. If the financial institution does not have a client s IRD number, it will deduct RWT at 39%. An organisation can claim the RWT deducted from its interest as a credit against tax payable in its tax return at the end of the year. If your organisation is fully exempt from income tax, it will generally be eligible for a Certificate of exemption from RWT on interest and dividends (IR 15C). To get an IR 15C you need to apply on an Application for exemption from resident withholding tax on interest and dividends (IR 15E). Phone INFOexpress to order an IR 15E (see page 33 for details). After you have received the certificate and presented it to the institution paying the interest, RWT will not be deducted from any interest paid to your organisation.
16 INLAND REVENUE CLUBS AND SOCIETIES 15 Organisations can claim a refund if too much RWT is deducted, such as if RWT deductions were made before getting a certificate. If the organisation doesn t have to file tax returns, it can get the refund by completing a Resident withholding tax refund request (IR 15F) form. If anyone other than a bank or financial institution has money invested in your organisation, and the organisation pays interest of more than $5,000 a year to these investors, it may need to register as a payer for RWT and deduct RWT from the interest paid. FOR MORE HELP The booklet RWT on interest payer s guide (IR 283) has the information you will need if you pay interest and deduct RWT. You can get this from our website or by phoning INFOexpress (see page 33). There is also a leaflet called Resident withholding tax on investments (IR 279) that is a general guide about tax deducted from both interest and dividends. You can get this through INFOexpress (see page 33 for details). Dividends and imputation If your organisation receives dividends from a company, the dividends will probably have imputation credits attached and/or RWT deducted. The organisation claims these credits in its end-ofyear tax return. If your organisation has an IR 15C you will need to show it to any companies who pay dividends to the organisation. The companies will then stop deducting RWT. Non-resident withholding tax (NRWT) If your organisation pays interest, dividends or royalties to a non-resident, you must deduct NRWT, not RWT. NRWT is paid to the Non-resident Centre in our Dunedin office. If you would like to know more about the New Zealand tax residence rules, or about deducting and paying NRWT, contact: Non-resident Centre Inland Revenue Department Private Bag 1932 Dunedin New Zealand Phone (03) Fax (03) FOR MORE HELP These information booklets will help if you have questions about residency or NRWT: New Zealand tax residence (IR 292) Non-resident withholding tax payer s guide (IR 291) Visitor s tax guide (IR 294). You can get these from our website or by phoning INFOexpress (see page 33 for details). If you are running your organisation as a limited company, you will have to deduct RWT from any dividends you pay to your shareholders. RWT is deducted from dividends at the rate of 33% from any part of the dividend that doesn t have imputation credits attached. You will also have some obligations under the imputation laws. Imputation means that shareholders receiving dividends are credited with a certain amount of the tax that the company has already paid on its profits, so the company profits are not taxed twice. FOR MORE HELP For more information, get the booklets Resident withholding tax on dividends (IR 284) and Imputation (IR 274) from our website or by phoning INFOexpress (see page 33 for details).
17 16 CLUBS AND SOCIETIES INLAND REVENUE Record keeping You have to keep enough records to be able to calculate the income, expenses and GST liability of your organisation, and to enable us to confirm your accounts, if required. Some records you must keep are: books of account to record receipts and payments bank statements, cheque butts and deposit slips invoices (including tax invoices) receipts any other documents that are necessary to confirm entries in your accounts stocktake figures for the end of the financial year wage records for all employees, including SSCWT records interest and dividend payment records. Note For GST you do not need to hold a tax invoice for items costing less than $50, but you do need to maintain a record of such payments (see page 11). For income tax, you should have invoices for all expenses, whatever the amount. If we ask, such an organisation must be able to fill in a tax return and identify the source and end use of all its funds. It is important to keep all this information, as we routinely audit people s records. FOR MORE HELP For more help see our booklet Smart business (IR 320). You can get a copy from our website or by phoning INFOexpress (see page 33 for details). Balance dates For most taxpayers, the accounting year ends on 31 March this is the balance date. If you want a balance date other than 31 March for your organisation, you must apply to us in writing, stating the reasons for the change. We will usually only approve a change if there are sound business reasons for doing so, or if your business activity is in an industry where there is a recognised balance date other than 31 March. If you have a tax agent who sends your tax returns to us electronically, you must keep a paper copy of the return, and supporting records, for seven years. You must hold all records for seven years, even if you cease operating (except for incorporated organisations that have been wound up and dissolved). We can extend the period for which you must keep records if we intend to audit or investigate your organisation. In this case, we will write to you to tell you what records to keep. All records must be kept in English, unless you have written approval from us to use another language. A tax-exempt non-profit body that holds an IR 15C must keep a record of: the sources of any donations made to it, and how its funds have been used, whether within New Zealand or overseas.
18 INLAND REVENUE CLUBS AND SOCIETIES 17 Part 2 Income tax exemptions and deductions Qualifying for an exemption The Income Tax Act 1994 (referred to in this section as the Act ) sets out a number of income tax exemptions for non-profit bodies and other organisations. Apart from friendly societies (which have to be registered under a specific act), there are two main conditions that an organisation has to meet if it is to qualify for any of these exemptions. 1. Aims The main aims and activities of the organisation should meet the specific requirements of the section of the Act under which the exemption is requested. 2. Private use of funds No part of the organisation s income or other funds is to be used or available for use privately by any member or any associated person of a member (see page 5 in the Glossary). An exempt organisation may make some types of payments to members, as long as the member receiving the benefit cannot influence the amount of the payment by using a position held in the organisation. Some acceptable payments are: a general benefit paid to members, such as a subsidy or a return of subscriptions reasonable payment for services, or repayment of costs incurred on behalf of the organisation interest on money lent to the organisation, as long as the loan is at the normal rate that would be used in a commercial transaction. Members may also receive benefits such as newsletters, voting rights to appoint officers of the organisation, and any benefit that is also available to the general public. Example A subsidy paid out by a firm s social club to members attending the Christmas function would not disqualify the club from being a non-profit body. The subsidy is a general benefit, available to all, and is an indirect return of fees and profits to the members. On the other hand, if the management committee of the same social club decided to pay themselves a fixed weekly sum, without the approval of the club s membership, this would disqualify the club from any exemption. Approval for an exemption For an organisation to be given certain tax exemptions, Inland Revenue must approve its application. This means that the organisation needs to send us these items: an up-to-date, signed copy of its rules, constitution or founding documents (please advise us if these are only a draft) a copy of its certificate of incorporation (if it is incorporated) a letter stating the type of exemption requested details of how it has been (or will be) operating. Note An organisation without rules or a constitution will not qualify for any exemption, because there is nothing in writing to bind members to a particular course of action, or to prevent them from using the organisation s funds for themselves. FOR MORE HELP If you re setting up an organisation, and you can t tell from this booklet if it will qualify for an exemption, phone us on If you give us a draft copy of the organisation s rules, we can tell you if it will qualify for an exemption that requires the Commissioner s approval. We can also tell you the rule changes you ll need to make to get an exemption. If appropriate, in most cases we can give general approval to the rules before you sign the founding documents or register them with the Ministry of Economic Development. Amending the rules to qualify for an exemption is more difficult once they ve been registered.
19 18 CLUBS AND SOCIETIES INLAND REVENUE Inland Revenue s criteria When we receive an application for exemption that requires the Commissioner s approval, we look at these four main criteria. Aims The aims written in the organisation s rules, constitution or other founding documents must meet the requirements of the section of the Act for which exemption is requested. The activities to date must fit the written aims. Payments to members Except for the friendly society exemption, the Act requires that a non-profit body s income or funds cannot be used for the personal benefit of members. If there is a clause in the organisation s rules or constitution that allows for payments to members, it should be worded so that members cannot influence the amount of any payments they may receive. This is sometimes covered by another rule that requires members to declare any beneficial interest they may have in any matter the organisation is considering. If the clause allowing payment to members is not restricted, we recommend the following wording be used: No member of the organisation or any person associated with a member shall participate in or materially influence any decision made by the organisation in respect of the payment to or on behalf of that member or associated person of any income, benefit, or advantage whatsoever. Any such income paid shall be reasonable and relative to that which would be paid in an arm s length transaction (being the open market value). The provisions and effect of this clause shall not be removed from this document, and shall be included and implied into any document replacing this document. Winding up If the constitution or rules of the organisation allow for it to be wound up, members may be able to receive personal benefits. We recommend that an organisation s rules contain a clause to prevent members from participating in any surplus on winding up. We will not approve an exemption if the organisation s rules or constitution do not have a winding-up clause. A clause similar to the following may be used: If upon the winding up or dissolution of the organisation there remains after the satisfaction of all its debts and liabilities any property whatsoever the same shall not be paid to or distributed among the members of the organisation but shall be given or transferred to some other organisation or body having objects similar to the objects of the first organisation, or to some other charitable organisation or purpose, within New Zealand. Altering the rules An organisation s constitution or rules may allow for the rules to be altered. If this is the case, it could be possible for the rules to be altered so that they do not meet the exemption requirements. Therefore it is in the organisation s interest to have a rule stating that the clauses dealing with the aims, payments to members and winding up cannot be changed. We will only approve an exemption if the organisation s rules have a clause preventing the alteration of rules. We recommend that one of the following clauses be used: No addition to or alteration or recession of the rules shall be approved if it affects the non-profit aims, personal benefit clause or the winding-up clause. or No addition to or alteration of the non-profit aims, personal benefit clause or the winding-up clause shall be approved without the approval of Inland Revenue. and The provisions and effect of this clause shall not be removed from this document and shall be included and implied into any document replacing this document. If an organisation s rules do not allow it to alter the rules or constitution, this extra restriction is not needed.
20 INLAND REVENUE CLUBS AND SOCIETIES 19 What happens next If we are not satisfied with the organisation s rules, we will send a letter explaining the amendments needed before an exemption can be approved. If an organisation amends its rules, we will need to see evidence of the changes before giving approval for an exemption. The evidence needed: for incorporated organisations, is a copy of the amendments stamped by the Ministry of Economic Development s Companies Office for unincorporated organisations, is a copy of the amendments, signed by the organisation s office holders. If we do not get the evidence, the organisation will not be given an exemption. Each organisation must prove that it meets the requirements of the section(s) of the Act that allow it to be tax-exempt or gain the non-profit body deduction. The information on pages 19 to 21 outlines the criteria to be met for the various exemptions. We will not approve an exemption if an organisation does not meet the criteria. Such an organisation would be liable for income tax on all its income. A tax-exempt organisation or non-profit body entitled to the deduction must comply with its own rules in order to keep its exempt status. If it does not, we may withdraw the exemption. If we give approval, we will tell you formally in writing, stating the exemption that has been granted to the organisation. Keep your copy of this letter in a safe place, as it is a valuable document. Exemptions for specific organisations The following approved organisations are allowed tax exemptions under section CB 4 of the Income Tax Act 1994: amateur game or sport promoters district improvement promoters friendly societies herd improvement promoters racing clubs scientific or industrial research promoters veterinary services promoters. This part of the booklet looks at some of these exemptions, particularly those that apply to nonprofit bodies or similar types of organisations. It explains many of the exemptions available, and the conditions that must be met to get a particular exemption. Organisations that have their own specific, full exemptions (such as sports clubs, researchers or district improvers, but not friendly societies) also fit the definition of a non-profit body. This is why we call all these different types of organisations (whether fully or partially exempt) non-profit bodies throughout this part. Amateur game or sport promoters The income of any society or association established mainly to promote any amateur game or sport, for the recreation or entertainment of the general public, is exempt from income tax. The amusement provided by the game or sport must be available to any member of the public, not just a limited few. It makes no difference if a fee is paid, as long as anyone who wants to take part can do so. Most pastimes will qualify providing all the conditions listed above are met. Amateur wrestling and boxing associations, and clubs and associations promoting amateur cricket, tennis, golf, rugby, rugby league and association football, all qualify. Some less obvious examples of qualifying organisations are dance clubs, cultural clubs, animal breeding or showing clubs, country music clubs, chess clubs, car clubs, gun clubs, art and craft clubs. Activities such as stamp or coin collecting by individuals are hobbies rather than games or sports. The exemption does not apply because there is generally no public benefit. A club that also has professional activities could still qualify for the exemption, as long as we are satisfied that the club is promoting amateur games or sport and the club s share of any professional event is used for promoting amateur games or sport. Non-profit organisations are also allowed a $1,000 tax deduction each year under section DJ 17 of the Act.