NEW ZEALAND Law and Practice Contributed by: Violet Yu, Jonathon Russell and Sandy Chen, Cone Marshall Limited
10. Charitable Planning 10.1 Charitable Giving
Charitable trusts, governed by the Trusts Act 2019, are popular for their simplicity and flexibility. Customis - able trust deeds can support goals like education or welfare, with amendment powers (used cautiously to preserve charitable purposes). Registered charities (including charitable trusts) are exempt from income tax and resident withholding tax on non-business income and, once donee status is active, enable 33.33% donor tax credits. However, trustees face personal liability for breaches, and the Charities Act 2005 compliance can be rigorous. Scal - ability is limited by reliance on donations, small trus - tee groups and restricted commercial activities, which must directly serve charitable goals. Incorporated societies, distinct entities under the Incorporated Societies Act 2022, may register as char - ities if pursuing charitable purposes. They offer limited liability, democratic governance suited for community initiatives, and tax exemptions if registered. However, complex rules, mandatory meetings and member - ship management demand time and resources. If the society participates in non-charitable activities, it risks deregistration. Charitable companies, formed under the Companies Act 1993 and registered as charities, suit larger opera - tions. They provide limited liability, commercial flexibil - ity to fund charitable purposes, and tax exemptions. However, dual compliance with the Companies Act 1993 (Section 131) and Charities Act 2005 increases costs. Commercial activities may attract scrutiny, deterring donors, and winding up can be complex due to the requirement to transfer assets to a charity with similar purposes.
New Zealand promotes charitable giving through tax incentives under the Income Tax Act 2007, which is based around “donee status” for approved charities or entities (eg, registered charities, schools). Donations to a charitable entity with donee status allow donors to receive a 33.33% tax credit for cash donations of NZD5 or more (up to the amount of the donor’s taxable income). Companies and Māori authorities may deduct dona - tions to donee organisations from their taxable income, generally up to the level of their net income. New Zealand does not have estate or inheritance taxes, so charitable bequests in a will are not subject to estate tax. 10.2 Common Charitable Structures New Zealand’s charitable planning primarily utilises c haritable trusts , incorporated societies and charita- ble companies , which become “registered charities” when they register under the Charities Act 2005 and, in that capacity, can obtain donee status and associ - ated tax benefits from Inland Revenue. In order to qualify as a charity, the structure must align with one of the four charitable purposes: • relief of poverty; • advancement of education; • religion; or • community benefit.
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