In a controversial move, the New Zealand Government is considering implementing a charity tax to strip business operations of their current tax-exempt status. This proposal, aimed at finding new revenue sources, has sparked fears among charities, legal experts, and community leaders about its potentially devastating impact on essential services.
Finance Minister Nicola Willis hinted in December that “tweaks to the charity tax regime” might be unveiled in the upcoming budget. While specific details remain unclear, ministers have acknowledged reviewing measures to ensure fairness and address loopholes in tax rules for charities.
Legal experts and charity leaders argue that introducing a charity tax could inadvertently harm the communities it aims to support. A prominent charity law expert, Sue Barker, warns that taxing business operations could force charities to scale back or cease services, leaving the government to pick up the slack.
“What we could do is stop charities from raising funds or carrying out activities altogether,” Barker says. “These essential services would likely fall to the Government to provide, but research shows charities deliver these services more efficiently and effectively.”
The SPCA, one of New Zealand’s most prominent charities, exemplifies the potential fallout. With 90 op shops generating $20 million annually—$7 million of which funds animal care—a 28% corporate tax could wipe out profits and deepen existing deficits.
The SPCA, already forecasting a $2 million loss for 2025, faces tough decisions on programs like community de-sexing and temporary animal housing.SPCA Chief Executive Todd Westwood highlights the stakes: “It would force us to make very challenging decisions that we don’t want to make; it would have a devastating impact on our business.”
Global competitiveness and community outcomes at risk of charity tax
Critics also point out that taxing charities could drive organizations out of New Zealand, diminishing global competitiveness. Australia, the United Kingdom, and Canada maintain tax exemptions for charitable income for community benefits, making New Zealand an exception if the proposal is enacted.
Sanitarium, a well-known charity that funds community projects like the KickStart Breakfast Program and the Weet-Bix Kids TRY events, operates under the charitable purpose requirement. A spokesperson for Sanitarium noted that all profits are reinvested in philanthropic activities and that the charity complies with transparency laws.
Barker asks, “Why would you stay here if you’re going to be taxed on your charitable funds when you know the same activity in Australia would not be taxed?” The potential charity tax coincides with heightened sector scrutiny amid growing concerns.
Te Whānau O Waipareira Trust has been involved in a four-year regulatory battle and is set to lose its charity status over governance concerns. While unrelated to the proposed tax, the case spotlighted the significance of upholding transparency and integrity in the sector.
Charity tax need for dialogue and strategic solutions
Barker emphasizes the need for constructive dialogue: “The legal framework to ensure charities operate fairly and with integrity is already there—we just need to use it.”As the debate continues, charities, legal experts, and policymakers must weigh the broader consequences of this proposal.
Finding ways to make money while protecting vital public services helps keep New Zealand’s communities strong and prosperous.