You're listening to the Kerry Wood of Morning's podcast from News Talk sed B.

You're listening to the Kerry Wood of Morning's podcast from News Talk sed B.

Finance Minister Nicola Willis as we've been discussing as promising tax changes ahead for charities in the closing of loopholes. It'll be announced in next year's budget. Join now, yes, my lips, God's ear, or rather Helen put in the call said we really need to talk to our favorite tax expert, Bruce Binaki about this. Denton's Kensington Swan partner and tax expert. He joins me Our morning to you, Bruce. You weren't at the lunch, Yes to.

Finance Minister Nicola Willis as we've been discussing as promising tax changes ahead for charities in the closing of loopholes. It'll be announced in next year's budget. Join now, yes, my lips, God's ear, or rather Helen put in the call said we really need to talk to our favorite tax expert, Bruce Binaki about this. Denton's Kensington Swan partner and tax expert. He joins me Our morning to you, Bruce. You weren't at the lunch, Yes to.

Good morning Kerry. No, no, I was just working waiting for my invite in the mail from you, but it never arrived. I would have loved to have come, but clearly that was not a charitable and not for profit lunch given the prices that were being charged.

Good morning Kerry. No, no, I was just working waiting for my invite in the mail from you, but it never arrived. I would have loved to have come, but clearly that was not a charitable and not for profit lunch given the prices that were being charged.

Oh I know, well, I was just staff, so I wasn't really invited.

Oh I know, well, I was just staff, so I wasn't really invited.

I was.

I was.

I was your working stiff. Basically fair enough, so long overdue. Everybody's been saying this, isn't it having that it.

I was your working stiff. Basically fair enough, so long overdue. Everybody's been saying this, isn't it having that it.

Has been talked about for a while. I think, you know, particularly some businesses that are in competition with businesses that are owned by charities and therefore, by extension, are able to apply for and get charitable status and don't pay income tax. You know, have been getting grumpy for a while that you know, arguably these some of some of these businesses just businesses that just happen to be owned by charities rather than really being there too. Their only reason for existence is to support the charity.

Has been talked about for a while. I think, you know, particularly some businesses that are in competition with businesses that are owned by charities and therefore, by extension, are able to apply for and get charitable status and don't pay income tax. You know, have been getting grumpy for a while that you know, arguably these some of some of these businesses just businesses that just happen to be owned by charities rather than really being there too. Their only reason for existence is to support the charity.

Well, yes, I mean you've got an example quoted by at Canterbury University Department of Accounting Chairpey who said christ College, you know, has an shareholder in a forestry company. The boys don't go and learn how to chop down trees, they just profit from the forestry company. So that's not really a charity, is it.

Well, yes, I mean you've got an example quoted by at Canterbury University Department of Accounting Chairpey who said christ College, you know, has an shareholder in a forestry company. The boys don't go and learn how to chop down trees, they just profit from the forestry company. So that's not really a charity, is it.

Well, look, I don't know the exact dances, what they've been what they've been doing. I mean, look, I think it's fair to say charities are really well regulated in New Zealand. So we have this broader concept of non profits and charities are sort of like a subset of that. And for an organization to be a charity, you know, it's governed by the Charities Act. It has to exist. For the Relieving Poverty, Advancing Educational religion or benefiting the community. And there are tons of charities out there, and that there are lots, they're subject to a lot of regulations. So in order to benefit from the income tax exemption and indeed for donors to get a tax deduction when they donate to them, you have to register with Charity Services, which is run by the Department of Internal Affairs. You have to register all your employee, your trustees. Rather, you have to have a clear sort of trustee or company constitution that makes it clear that all the earnings of the charity can only be applied for charitable purposes. You have to file financial statements and if you are a certain size, you have to have those financial statements audited. So there's a lot of there's a lot of scrutiny that is involved. And I'm a trustee in a charity. Trust me, it's not for the it's not for the fainthearted to be involved in running one of these things. That there's a lot of work.

Well, look, I don't know the exact dances, what they've been what they've been doing. I mean, look, I think it's fair to say charities are really well regulated in New Zealand. So we have this broader concept of non profits and charities are sort of like a subset of that. And for an organization to be a charity, you know, it's governed by the Charities Act. It has to exist. For the Relieving Poverty, Advancing Educational religion or benefiting the community. And there are tons of charities out there, and that there are lots, they're subject to a lot of regulations. So in order to benefit from the income tax exemption and indeed for donors to get a tax deduction when they donate to them, you have to register with Charity Services, which is run by the Department of Internal Affairs. You have to register all your employee, your trustees. Rather, you have to have a clear sort of trustee or company constitution that makes it clear that all the earnings of the charity can only be applied for charitable purposes. You have to file financial statements and if you are a certain size, you have to have those financial statements audited. So there's a lot of there's a lot of scrutiny that is involved. And I'm a trustee in a charity. Trust me, it's not for the it's not for the fainthearted to be involved in running one of these things. That there's a lot of work.

I imagine there is, but if you're a charihan isn't. And it's good that charities make money so that they can then keep going, you know, so that it's us having a charity that gives all its money away and then folds and disappears. But I mean, how on are the other people supposed to compete with charities?

I imagine there is, but if you're a charihan isn't. And it's good that charities make money so that they can then keep going, you know, so that it's us having a charity that gives all its money away and then folds and disappears. But I mean, how on are the other people supposed to compete with charities?

Yeah, and I think I think that's the issue. The government hasn't come out and said exactly, you know with this review what they're looking at. But I think what it comes down to is the issue of really, is this income that's been exempted from tax, is it then being applied to support the charity or not? And so if you've got the business it's any exempt income and divoting up or but otherwise passing up all the profits that it's made to the charity, and the charity is applying that for its charitable purposes. No issue. I think where the concern comes in is if you have these businesses owned by charities that are just that are not distributing out their income. I mean, any prudent business will want to retain some income and invest for the future and grow so it can generate more income. But if it's not to me, if it's not distributing it out a significant amount of its income, and so that that income is actually applied for charitable purposes. I think that's where the perceived mischief is and I think that will be probably the focus of the review.

Yeah, and I think I think that's the issue. The government hasn't come out and said exactly, you know with this review what they're looking at. But I think what it comes down to is the issue of really, is this income that's been exempted from tax, is it then being applied to support the charity or not? And so if you've got the business it's any exempt income and divoting up or but otherwise passing up all the profits that it's made to the charity, and the charity is applying that for its charitable purposes. No issue. I think where the concern comes in is if you have these businesses owned by charities that are just that are not distributing out their income. I mean, any prudent business will want to retain some income and invest for the future and grow so it can generate more income. But if it's not to me, if it's not distributing it out a significant amount of its income, and so that that income is actually applied for charitable purposes. I think that's where the perceived mischief is and I think that will be probably the focus of the review.

Can some charities feel brassed off that the bigger charities are the ones bringing the spot light down on the sector?

Can some charities feel brassed off that the bigger charities are the ones bringing the spot light down on the sector?

Oh look, I think the entire sector, everybody's going to get a chance to make submissions on this, and I think, and we'll go through a full public consultation process. I mean, the charitable sector is so important to New Zealand. And possibly, yes, the smaller ones may be if it does result in additional scrutiny. But I think the real focus will not be on non business income because they're actually two you know, if I get technical here, there are two different exemptions in the Tax Act. One is for non business income other sources of income et cetera, donations, gifts, whatever, that a charity earns. That that's not a focus. It's business income. And that business income can be earned by the charity. You know, the charitable trust, for example, you might often have sitting up at the top of the structure. It owns a company that carries on a business. That company itself has to be registered and a registered charity. But I think and then carries on the business, and I think the focus will be on the business income and the business activities and whether that income is distributed and actually applied towards the ultimate charitable purposes. So I mean maybe, but it will just be to the extent of scrutiny. We don't know that yet.

Oh look, I think the entire sector, everybody's going to get a chance to make submissions on this, and I think, and we'll go through a full public consultation process. I mean, the charitable sector is so important to New Zealand. And possibly, yes, the smaller ones may be if it does result in additional scrutiny. But I think the real focus will not be on non business income because they're actually two you know, if I get technical here, there are two different exemptions in the Tax Act. One is for non business income other sources of income et cetera, donations, gifts, whatever, that a charity earns. That that's not a focus. It's business income. And that business income can be earned by the charity. You know, the charitable trust, for example, you might often have sitting up at the top of the structure. It owns a company that carries on a business. That company itself has to be registered and a registered charity. But I think and then carries on the business, and I think the focus will be on the business income and the business activities and whether that income is distributed and actually applied towards the ultimate charitable purposes. So I mean maybe, but it will just be to the extent of scrutiny. We don't know that yet.

But call me old fashioned, but I would have thought that would have been done anyway. Like if you want to be a charity, you have to show in your books that you've given away your profit.

But call me old fashioned, but I would have thought that would have been done anyway. Like if you want to be a charity, you have to show in your books that you've given away your profit.

Or no, you've just got to prove that it's been applied for charitable purposes. So which does not necessarily mean all of your money has to have been distributed out as I say, you know, it's proved for any business to retain some money and invest for the future so they can grow and earn more money. But so but I just don't there's not enough sort of spec specificity in the tax Act at the moment and the scrutiny of a charities with respect on I mean, because I'm a tax gik carry, I've got to act here in front of me, and it's got to be income derived directly or indirectly from a business, carried on by, or for or for the benefit of a essentially thinkers tax charity. So it doesn't say doesn't you know, so that being applied for the benefit of that doesn't say it has to be like during the tax year or in the next. It doesn't. There's no sort of time frame on that. So you can say, well, look and I'm going to derive some income today and yeah, I'm going to you know, I'm not eventually years I'll give it away. You find it way, yeah, but but but there's no sort of time frames around that.

Or no, you've just got to prove that it's been applied for charitable purposes. So which does not necessarily mean all of your money has to have been distributed out as I say, you know, it's proved for any business to retain some money and invest for the future so they can grow and earn more money. But so but I just don't there's not enough sort of spec specificity in the tax Act at the moment and the scrutiny of a charities with respect on I mean, because I'm a tax gik carry, I've got to act here in front of me, and it's got to be income derived directly or indirectly from a business, carried on by, or for or for the benefit of a essentially thinkers tax charity. So it doesn't say doesn't you know, so that being applied for the benefit of that doesn't say it has to be like during the tax year or in the next. It doesn't. There's no sort of time frame on that. So you can say, well, look and I'm going to derive some income today and yeah, I'm going to you know, I'm not eventually years I'll give it away. You find it way, yeah, but but but there's no sort of time frames around that.

There should be. There's work to do, isn't there in terms of tightening it up.

There should be. There's work to do, isn't there in terms of tightening it up.

I think so. It has been an issue that has been around for a while. As I say, like the vast bulk of charities shouldn't shouldn't be concerned at all. Most of them don't make very money. They're much money, They run on a shoe string. They're doing wonderful things for the community. They're important part of of of the New Zealand economy and the and being able to and also you know, having a support for all these these wonderful causes out there. I think it's just it's really a handful that are operating sort of significant businesses that were the focus might.

I think so. It has been an issue that has been around for a while. As I say, like the vast bulk of charities shouldn't shouldn't be concerned at all. Most of them don't make very money. They're much money, They run on a shoe string. They're doing wonderful things for the community. They're important part of of of the New Zealand economy and the and being able to and also you know, having a support for all these these wonderful causes out there. I think it's just it's really a handful that are operating sort of significant businesses that were the focus might.

Be thank you so much as always for your expertise where as I really do appreciate it and if I don't see you, we don't talk to you before the end of the year. Are very Merry Christmas to you. News Talks Said

Be thank you so much as always for your expertise where as I really do appreciate it and if I don't see you, we don't talk to you before the end of the year. Are very Merry Christmas to you. News Talks Said

Be For more from Kerry Wood and Mornings, Listen live to News Talks Said Be from nine am weekdays, or follow the podcast on iHeartRadio.

Be For more from Kerry Wood and Mornings, Listen live to News Talks Said Be from nine am weekdays, or follow the podcast on iHeartRadio.