Kerre Woodham: High time the charity loophole was closed

Finance Minister Nicola Willis is promising tax changes ahead for charities and the closing of loopholes, and the details of that will be announced in next year's budget. And not before time, you'd have to say.  

There's about $2 billion, it's estimated, in untaxed profit in the charitable sector, and politicians of varying hues have been eyeing up that revenue potential for some time. I think both Christopher Luxon and Chris Hipkins have said on this show that the charities loophole is something they want to look at. There's also the issue of fairness. A number of charities, operators, businesses —think high profile ones like Sanitarium and Best Start— compete with non-charitable businesses that do not have tax exemptions. The tax working group estimated that about 30% of charities were likely to have some sort of trading activity.  

So when is a charity, not a charity? Michael Gousmett, from the University of Canterbury, says look at Christ College in Christchurch. He says they're shareholders in a forestry company, and he says if they're sending young men up to the North Island to teach them how to grow straight pine trees, how to mill timber, how to market it and so on, that would be advancing their education under charity law. The fact is they don't. Those boys wouldn't know a pine tree if it fell on them. It was a purely commercial operation, same as the chap down the road growing straight pine trees. The difference is one pays tax, one doesn't, and where's the fairness in that?  

I think we need to tighten it up. It's not so much a loophole as what Michael Gousmett, describes as “a failure of fiscal policy”. The fact is, there's provision in the Income Tax Act for exemption for charities – he would argue that it's too broad. And you'd have to agree with him, and a number of people have said much the same thing when they have rung in when the topic has come up, and when we've had the leaders of the parties in for a chat. You've got Ngāi Tahu and their seafood businesses. Michael Gousmett said seafood production is not the same thing as advancing the purposes of iwi.  

I mean, while you can get away with it, go for it. I mean, there are plenty of people who are setting up trusts to avoid paying the maximum amount of tax. They try to minimise their tax return, and that's legal at the moment as the way the law is written, but I think Nicola Willis is casting a gimlet eye over the law and looking to tighten it up. We're all agreed, aren't we, that the sooner that happens, the better? We've been going on like pork chops about Sanitarium and some of the iwi who are operating very, very successful businesses. All well and good to have a charity, set up your scholarships to send kids off to school and grants for housing and health and what have you – great, fabulous. But when the loophole exists, you know it exists, it's been pointed out people can see it, politicians of all shades have said this is a nonsense when we need every last bit of cash. Couldn't we do with Grant Robertson’s $600 million down the back of the couch right now? We need every last bit we've got.  

High time the loophole was closed. I'm just sorry it's going to be next year's budget, and it couldn't happen with a stroke of a pen today.   

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:06):
You're listening to the carry wood of morning's podcast from
News Talk sad B.

Speaker 2 (00:12):
Finance Minister Nikola Willis is promising tax changes ahead for
charities in the closing of loopholes, and the details of
that will be announced in next year's budget and not
before time. You'd have to say, there's about two billion
dollars it's estimated an untaxed profit in the charitable sector
and politicians of varying hues have been eyeing up that

(00:34):
revenue potential for some time. I think both Christopher lux
And and Chris Hipkins have set on this show that the
charity's loophole is something they want to look at. There's
also the issue of fairness. A number of charities operators businesses,
think high profile ones like Sanitarium and Best Start, and

(00:54):
they compete with non charitable, non charitable businesses that do
not have tax exemptions. The Tax Working Group estimated that
about thirty percent of charities were likely to have some
sort of trading activity. So when is a charity not
a charity? Michael Goozmee from the University of Canterbury says,

(01:17):
look at christ College and Christ Church. He says, their
shareholders in a forestry company. And he says, if they're
sending young men up to the North Island to teach
them how to grow straight pine trees, how to mill timber,
how to market it and so on, that would be
advancing their education under charity law. Fact as they don't.

(01:40):
Those boys wouldn't know a pine tree if it fell
on them. Was a purely commercial operation, same as the
chap down the road growing straight pine trees. The differences
one pays tax, one doesn't, And where's the fairness in that?
I think we need to tighten it up. It's not
so much a loophole as what Michael Goosemay describes as

(02:00):
a failure of for school policy. The fact is there's
provision in the income tax for exemption for charities. He
would argue that it's too broad and you'd have to
agree with him, and a number of people have said
much the same thing when they have rung in when
the topics come up, and when we've had the leaders
of the parties in for a chat. You've got Nahoo

(02:22):
and their seafood businesses. Michael Gooseme said seafood production is
not the same thing as advancing the purposes of EWI
I mean, while you can get away with it, go
for it. I mean, there are plenty of people who
are setting up trusts to avoid paying, you know, the
maximum amount of tax. They try to minimize their tax return.

(02:46):
And that's legal at the moment as the way the
law is written. But I think Nicola Willis is casting
a gimlet eye over the law and looking to tighten
it up. We're all agreed, aren't we that the sooner
that happens, the better. We've been going on like pork

(03:07):
chops about sanitarium and you know, some of the e
wei who are operating very very successful businesses, all well
and good to have a charity, you know, set up
your scholarships to send kids off to school, and you know,
grants for housing and health and what have you. Great, fabulous,

(03:33):
But when the loophole exists, you know it exists. It's
been pointed out, people can see it. Politicians of all
shades have said, this is a nonsense. When we need
every last bit of cash, couldn't we do with Grant
Robertson six hundred million down the back of the couch
right now? We need every last bit we've got. High

(03:56):
time the loopholes closed. I'm just sorry. It's going to
be next year's budget and it couldn't happen with a
stroke of a pen Today.

Speaker 1 (04:04):
For more from Kerrywood and Morning, listen live to News
Talks at B from nine am weekdays, or follow the
podcast on iHeartRadio