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Registration for charities - six months left
More than 1000 New Zealand organisations have registered with the Charities Commission since new provisions for tax exemption came into effect earlier this year. With the deadline not far off it's a good time for those yet to act to consider their position.
Under the new Charities Act, entities wanting to confirm their charitable status and preserve their income tax exemption must register with the Charities Commission before 1 July 2008.
If a charitable entity is not registered by then, it will lose the exemption for income tax currently afforded to all charities under the Income Tax Act 2004. This applies to all charities irrespective of their objects and credentials. And forgetting won't pass as an excuse!
Before joining the stampede to register, it is prudent for charities to use the window of opportunity between now and 1 July 2008 to their benefit. There are two issues to consider in the timing of applications to the Commission.
Annual returns
Once registered with the Commission, the charity must file an annual return including a balance sheet and financial statements.
The returns are due six months after the charity's balance date.
However, if a charity registers immediately after its balance date (but before 1 July 2008), its first annual return is not due until after the end of that year.
For example, assume a charity has a 31 March balance date. If it registers with the Commission between 1 April 2007 and 31 March 2008, its first annual return will be due by 1 October 2008. But if that charity delayed its registration until after 1 April 2008 (but before the 1 July 2008 cut-off), its first annual return will not be due until 1 October 2009.
This extra year may prove useful if it is necessary to implement new systems to ensure that all financial reporting is up to scratch - particularly given that the charity that registered after 1 April 2008 (but before 1 July 2008) does not have its tax status jeopardised by this later registration.
Personnel changes
Every time an officer (for example, a trustee of a trust) changes, the new officer is required to complete a form providing their details to the Commission.
The "original" officers are similarly required to provide their details at the time of the initial application with the Commission.
As a result, if the charity is one that is likely to have a change of officers at an AGM, or at any other set time of year, it may be preferable to delay registration in order to avoid unnecessary paper work. This will allow the charity to register with the Commission at a time where it envisages that its group of officer holders will be relatively stable.
Group registration
Two or more entities that are closely related and have similar charitable purposes may apply to be registered together as a group. Each member of a group must qualify to be registered under the Charities Act in its own right. A main advantage of group registration is administrative convenience.
A "parent" organisation must be selected to oversee the group registration process and to work with the Commission. The "parent" has the role of gathering and sending registration information to the Commission and may be responsible for keeping the Commission informed of changes within the individual entities going forward.
The application process for a group is a two-stage one - a submission to the Commission and then a formal application.
A submission (in the form of a written request) is made asking for the organisations to be treated as a group - a single entity. In the submission, the "parent" may suggest a name for the group and a way for the group members to notify changes and file annual returns after they are registered. The "parent" then works with the Commission to set the terms and conditions for the group. Once the submission process is complete, and the terms and conditions for the group have been agreed, the "parent' must complete an application form (Form 5) to register the group as a single entity. An example of where group registration may be useful is where an entity often receives bequests in wills that are not outright gifts to it but create separate trusts. In most cases, monies left to charitable organisations under a will are gifts that may be applied by that organisation as it sees fit in accordance with its charitable objects.
However, in some cases the words used in the will create a new trust. A check on the wording of the will to see if a new trust has been created will be needed. Technically, these trusts created under wills must be registered with the Commission. It may be administratively easier to group register these trusts rather than deal with each individually. It should be remembered, however, that each of the trusts must be entitled to register with the Commission in its own right before group registration can occur.
Registration generally
A fundamental requirement for registration is the lodging of the founding documents (for example, the trust deed for charitable trusts or the constitution of charitable societies or companies).
If a charity's founding documents have been misplaced, or they may need to be amended or updated before registration, it should be addressed now.
If there is no difficulty filing the first annual return by 1 October 2008, organisations would be well-advised to start the registration process soon. The Charities Commission has indicated that processing of applications is taking approximately 14 weeks and there is a backlog of about 2000 applications.
For assistance with foundation documents or the application process, please contact us.
For further information, please contact your usual Bell Gully advisor or:
David Simcock
Partner, Firm Chairman
Summer Deverell
Senior Solicitor
Monique Mackie
Senior Solicitor
Disclaimer
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
