Proposed changes to charity tax exemptions will cost taxpayers

Presbyterian Support Northern (PSN) has come out strongly against the government’s review of tax concessions for charities, claiming any changes will negatively impact its level of service to clients and ultimately the taxpayer.

Submissions to Inland Revenue’s Taxation and the not-for-profit sector paper closed on Monday (31 March 2025). The paper requests submissions on proposals to change tax exemptions as they apply to charities and not-for-profit organisations.

One of the questions asked in the paper is whether a charity’s business income unrelated to the charitable purpose should be taxed. Currently, it is tax-exempt.

As a charity, we make no distributions of our profits, and reuse our profits to support our sustainability. Any potential to tax our revenues from any source, will reduce our available funding and jeopardise our ability to maintain the level of services we provide.

As a very large charity in New Zealand, we can confirm that the level of financial income from government contracts does not keep up with the annual increase in the direct costs of running these contracts. We have seen a consistent year on year reduction in government funding in real terms, and each year this reduction in support impacts the level of services we can undertake for our clients.

PSN relies on its investment returns to prop up loss-making government contracts. Without the income from these other sources, we would not be able to continue to contract with Government to deliver services to the community.

Government has consistently demonstrated policy to reduce costs year on year.  We already run operating losses delivering government contracts, which we supplement with passive income. Adding a new tax burden to charity-run operations will worsen this loss.

Tax exemptions recognise the positive contribution charities make to the community. Charities provide cost-effective services to vulnerable New Zealanders that, if not provided, could fall on the Government to provide. Typically, when provided by the Government these services are at a much higher price point. Charities need to be innovative in how they accumulate sufficient resources to deliver their services. The use of “business” income is one of the ways this is achieved. Removing tax exemptions from this income will ultimately reduce the effort that charities can deliver, thus putting more demand on Government.

We believe that these proposals fail to deliver on the IRD objectives of “simplifying tax rules, reducing compliance costs, and addressing integrity issues.” Removing tax exemptions results in increased compliance costs to charities, without improving integrity.

View PSN’s full submission here.