Taxation and the not-for-profit sector

New Zealand has long adopted a policy of providing tax concessions to charities and not-for-profits (NFPs) to support organisations that provide public benefit.

Today, the support provided to NFPs through the tax system includes income tax deductions and exemptions, tax concessions to some donors for donations made, goods and services tax (GST) concessions, and fringe benefit tax (FBT) concessions for certain employees.

Registered charities generally receive the most tax benefits, which reflects the public benefits they provide. Other NFPs receive limited income tax concessions because they do not have such a formal public benefit requirement.

Every tax concession has a “cost”, that is, it reduces government revenue and therefore shifts the tax burden to other taxpayers.

This officials’ issues paper is part of a review to determine the effectiveness of certain tax concessions, both in meeting their objectives, and relative to alternative methods of providing assistance. The review will consider a range of integrity measures as well as what improvements and simplifications can be made to some of the existing rules.

The Government’s tax and social policy work programme, announced in November 2024, includes reviewing elements of charities and NFPs. The work programme’s objectives include simplifying tax rules, reducing compliance costs, and addressing integrity risks.