The Role of Charities Under the Law

The structure of charities

Most charities in Aotearoa are trusts, societies or companies, but there are other forms charities can take. Within the Methodist Church, parishes and synods are unincorporated societies. If you are unsure of your charity’s legal structure, and you want to check whether you are an incorporated society, an incorporated charitable trust or a company, you can check your rules document on the Charities Register, search the Incorporated Societies Register, search the Charitable Trusts Register and search the Companies Register. You need to be very specific with your search name. Searching for an entity with simply “Methodist” may lead to many results with some having no affiliation with our Church.

Some charities, like parishes and synods, are unincorporated groups or trusts. Others are formed from a gift in a will, and some are formed from legislation (Wellington Methodist Charitable and Educational Trust is incorporated under the Wellington Methodist Charitable and Educational Trusts Act 1916). There is no specific register in New Zealand for these types of structures, however if they are registered with Charities Services, they will be on the Charities Register.

Being a registered charity

An officer needs to be familiar with the duties under the Charities Act 2005 (the Act). The most important duty is to act in the best interest of their charity, making sure it remains focused on its purpose and the benefit it provides to the public. You have a duty to look after your charity's money. You must also make sure that there is no private financial benefit or profit to an individual (pecuniary profit).

Taxation

Charities may need an IRD number depending on their interaction with the IRD. Many parts of the Church do not have an IRD number allocated to them and use the IRD of the Board of Administration for issuing tax donation receipts, sending GST invoices, etc. In some cases they do have their own IRD numbers to manage their tax obligations. For example if you employ people, you have obligations under the Income Tax Act as an employer. Inland Revenue oversees charitable tax benefits like an exemption on income tax and donee status (which allows people to claim tax credits on donations). Most charities qualify for these benefits, but some do not. All charity financial records must be kept for at least seven years.

Inland Revenue will automatically be informed whenever a charity is registered or deregistered. If your charity is deregistered, you may have tax obligations with Inland Revenue. You can read more about the tax obligations of deregistering on Inland Revenue’s website. It is very important for the reputation of the Church that you are NOT deregistered as this will mean that your supporters will not be able to claim tax rebates on donations made. Additionally, for unincorporated entities such as parishes, individual officers may be liable for any deregistration tax payable.

Reporting

All charities need to report annually to Charities Services using the reporting standards set by the External Reporting Board. Charities with over $550,000 operating expenditure must have their accounts audited or reviewed, and charities with over $1.1 million must have their accounts audited.

The Methodist Church Team Treasurers site has up-to-date information on the financial reporting obligations of Methodist entities. Accountants at the Connexional Office have a good understanding of these and can provide advice.

Fraud and theft

Like any other organisation or person, charities and their officers should watch out for fraud and theft. Cyber-crime, SCAMs and other electronic fraud is on the increase. Good planning, policies and processes are the best way to ensure this does not occur. Understanding what fake invoices look like, what to look for and taking time to check any suspicious activity or documentation are good starting points. Changes to bank account numbers for long standing creditors should be checked. Fraud by an Officer of a Charity, or failure to address fraud, can be evidence of serious wrongdoing by the Officer, and result in criminal sanctions and removal from the Charities Register. If you suspect theft or fraud within your charity, report it to the police and Charities Services.

Employees and volunteers

Almost five percent of the New Zealand workforce is employed by a charity. Charities need to know their obligations when they employ people, and when they use volunteers. The Connexional Office can provide guidance and support via the Connexional Payroll, a free Methodist payroll bureau service. Charities operational costs can include health and safety, contract law, workplace policies and tax responsibilities.

For more information go to the Inland Review website or https://www.charities.govt.nz/im-a-registered-charity/running-your-charity/charities-obligations-under-the-law/

Government Review

The Government wants to see everyone paying their fair share of tax. The Minister of Finance, Nicola Willis, recently said, "We're conscious that, for some time, there have been questions about those churches that have a business arm - where the business is a pretty profitable entity - and they're paying a different rate of tax than other businesses because of their church status." She further said that while it wasn't something the Government immediately prioritised, she confirmed the Coalition would look at it. The Minister also said it was "really important" the Government received advice before making any moves. The Prime Minister has also made similar comments within the context of the current coalition Government.

The Government would need assurances such changes would improve the fairness of New Zealand's tax system. Nicola Willis said. "[I don't] doubt that there are many churches who are putting huge amounts back into our community; who are doing great work for vulnerable people, creating great services but, at the same time, I think for fairness' sake we need to do an evaluation to make sure there aren't churches who are taking advantage of their tax status - and that's why I want to look more carefully at this."

What are your thoughts on the government's proposal - should the business arm of churches pay taxes?

We welcome your views and comments to the editor of Touchstone.