Geof Nightingale: Tax Expert on the tax rules for charities remaining unchanged in this year's budget

Charities have been spared from tax changes in this year's Budget. 

Finance Minister Nicola Willis has been proposing revisions to tax rules that could see charities taxed on their business activities. 

But she says there are still complex issues that need to be worked through before any rules are updated. 

Tax expert Geof Nightingale told Mike Hosking it's likely too hard. 

He says there's been several goes at this over the last 20 years, with not enough tax revenue being the main problem. 

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Episode Transcript

Speaker 1 (00:00):
Interesting developments around tax treatment of charities. Last year, the
Finance Minister made no secret of the fact that they
were in her sights and change was coming. Now it's
not no change coming in the budget next month. Former
PwC partner and independent tax expert Jeff Nightingale as with
us Jeff morning, Good morning Mite. Are there complexities here
that you could have seen and warned her about or
is this come as a shock.

Speaker 2 (00:22):
No, I think the complexities were always there. I think
this is a sensible decision not to rush it because
I think the government's looked at nine hundred submissions that
they got, even though the Ernie gave a very short
time for submissions, they got nine hundred apparently, and those
have pointed out a whole lot of problems coupled really
big problems at least that they need more time to consider.

Speaker 1 (00:42):
In considering them, can they do something that will allow
them to get access to charity money or is this
going to be ultimately too hard?

Speaker 2 (00:52):
My guess would be it's mainly ultimately too hard. We've
had several goes at this over the last twenty years.
I mean, the main problem I think they've identified is
there's not the tax revenue there that they thought there was.
And the issue is is that, you know, charities don't
do a lot of tax structuring, and because they don't
have to, because they tax exement, and if you then
started to tax them, there would be a lot of

(01:13):
tax structuring between their charitable enterprise and their business enterprise,
which means the tax revenue that you might think is
there will evaporate. So that's the main problem. The other
issue is really just the complexity of the definitions.

Speaker 1 (01:25):
What about all the headline stuff that we hear that
are they're not really a charity, they shouldn't be a charity,
Destini's Church, Sanitarium, Marie authorities. Is it that simple or not? Really?

Speaker 2 (01:36):
There is still an issue there that needs to be
addressed and I think they'll still be working on that.
And there's two issues there. One is where this religions
should generally get charitable relief, and that's a very competitive, complex,
values driven thing. The other issue is whether or not
businesses operated by charities get a competitive advantage because they
don't pay tax, and there are two schools of thought

(01:58):
on that, and there's more work to be done there.
I think what.

Speaker 1 (02:00):
About the Mario authorities and is that too political?

Speaker 2 (02:04):
I think that was probably a bigger issue than they anticipated.
Many of the Maria authorities use charities in their group
structures to hold some of their settlement assets, and that's
quite a political can of worms to rip the top
off that.

Speaker 1 (02:19):
So what have we got there? Is it politics that's
defeated her, or complexity that could be fixed if she
wanted to really have a go. Or I had a
look anyway, and there's a handful of change and it's
not worth my time.

Speaker 2 (02:33):
I think it's a combination of all three. Mike. I
think there's not enough tax revenue to justify the political fight.
And secondly, I think that the changes are harder than
they might have first anticipated. What Minister Finance did say
that there is still change coming, whether it'll becoming at
a more considered pace. They'll do a lot more work

(02:55):
and it'll probably be a lot narrower focused change.

Speaker 1 (02:59):
Reputation. Has she been damaged at all by this in
your view? I mean she was gun ho and decem
but she was going to get the money and it
was all on. Now it's on. Whoops. I didn't realize
it was going to be this hard.

Speaker 2 (03:09):
Yeah, look, I don't think she has I think this
is New Zealand's We have this world leading generic tax
policy process which is the way we do tax, and
that involves various stages of consultation, and it involves real
consultation with the government putting out ideas and listening to
experts and the community and the affected parties. And I
think in this case, they put out a proposal that

(03:30):
was you know, it's a valid thing to think about.
They've listened to feedback and they've slowed it down, so
at least from my perspective, I don't I think this
is the way the system works.

Speaker 1 (03:38):
I was enjoying a company. JEF appreciate it very much.
Jeff Nightingale form a PwC partner independent tax expert. These Days.
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