6.1 This chapter summarises the reporting requirements and other arrangements that can currently apply, in law or in practice, to certain charities.

Accounting

6.2 No specific accounting standard applies to the preparation of accounts of charities or non-profit organisations in New Zealand. Nevertheless, any member of the Institute of Chartered Accountants of New Zealand preparing or auditing accounts for a charity is required to comply with generally accepted accounting principles. The Institute has issued a research bulletin on Financial Reporting by Voluntary Sector Entities (R-120, January 1999), setting out reporting guidelines for voluntary sector entities.

Tax

6.3 As a matter of practice, most entities seeking charitable status will submit their founding documents to Inland Revenue for its view as to whether or not the entity is charitable at law. It should be noted, however, that this is neither required, nor is the Inland Revenue view binding, except when a binding ruling is obtained. Whether an entity is a charity for tax purposes is ultimately a matter for the courts. Thus it is possible for a charitable entity to exist and derive untaxed income without the government being aware of this.

6.4 If an organisation has donee status, those who make donations to it may claim rebates or tax deductions for them. Again, in practice, many organisations seek confirmation of this from Inland Revenue. The definition of "donee organisation" (in section KC 5 of the Income Tax Act 1994) is wider than that of a charity and includes any organisation,

"the funds of which are applied wholly or principally for any charitable, benevolent, philanthropic or cultural purposes in New Zealand."

6.5 Because donee status is limited to purposes within New Zealand, organisations with purposes outside New Zealand must seek and obtain specific legislative approval (see section KC 5(1)(ae) to (bv)).

6.6 Several provisions in the Tax Administration Act 1994 potentially apply to charities:

• Section 32 requires all gift-exempt bodies²⁴ to keep sufficiently accurate records, in English, to enable the Commissioner of Inland Revenue to determine both the sources of donations made to them and the application of those funds.
• The Commissioner has the power under section 58 to require gift-exempt bodies to furnish a return showing the source and application of their funds (whether derived or actually received).
• There is a general power in section 80 for the Commissioner to require any person, whether a taxpayer or not, to furnish any return the Commissioner considers necessary for the purposes of the Tax Administration Act or the Income Tax Act.
• Under section 89, if the Commissioner has reason to believe that the funds of a gift-exempt body are being applied for a purpose that is not charitable, benevolent, philanthropic or cultural, the Commissioner will inform the Minister.

Charitable Trusts Act

6.7 The trustees of a charitable trust can, if they wish, incorporate as a board under the Charitable Trusts Act 1957. The big advantage of doing so is perpetual succession in that property is held in the name of the board and does not have to be transferred to new trustees when the membership of the board changes. Complaints about charities can be made to the Attorney-General, who has the power under section 58 of that Act to inquire into the management and administration of any charity, whether or not the trustees are a corporate body. Under section 60 of the Act, any member of the public can sue to enforce the charitable purposes of the trust.

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