Navigating the ever-changing Not-for-Profit landscape

New Zealand’s Not-for Profit (NFP) sector is going through several major changes. While reporting requirements for all registered charities are changing, Inland Revenue is also looking at the various tax exemptions and concessions afforded to NFPs to determine whether these remain appropriate. The introduction of the Incorporated Societies Act 2022 also imposes further compliance requirements on all Incorporated Societies.
 

Reporting changes

New standards are in place for NFPs reporting under Tier 3 and Tier 4 standards for periods beginning on or after 1 April 2024. Tier 3 applies to entities with no public accountability and total expenses of less than $5 million, while Tier 4 applies to entities with no public accountability and total operating payments of under $140,000.

For Tier 3 entities, the key changes can be summarised as follows:

• Property, plant and equipment, investment property and publicly traded investments can be revalued without opting up to Tier 2 standards.
• New disclosure requirements are in place for reserves, with a requirement to provide a description of the purpose of each reserve, the entity’s plans for applying the reserve and when it’s expected that the reserve will be applied to advance the entity’s objectives.
• A new model for recognising revenue based on “documented expectations” has been introduced, with the previous revenue recognition model of “use or return” being removed. Effectively this means that revenue with an expectation around its use (set by resource providers, evidenced in writing and specific enough to reliably track when the expectation has been satisfied) may be recognised over time as that expectation is satisfied.
• Categories for revenue and expenses have been more clearly defined.
• Further guidance/clarification has been provided around service performance reporting.

For Tier 4 entities, the reporting requirements have been simplified, no longer requiring a Statement of Resources and Commitments. They can also complete a “Combined Tier 4 Annual Return”. This reduces compliance for smaller entities in that it includes all the information which would normally be provided in a Performance Report. 

Registered charities that choose to prepare this no longer need to file a separate Performance Report with Charities Services.
 

Taxation and the not-for-profit sector

In November 2024, the Government announced their latest tax and social policy work program, designed to simplify tax, reduce compliance costs, address integrity risks and improve fiscal sustainability. One of the focus areas of the program was undertaking a review of the taxation of charities and NFPs. As a result, Inland Revenue has produced an issues paper on the matter asking for public feedback by 31 March 2025 for officials to consider. 

The main areas covered in the issues paper are:   

• Business income tax exemption – where registered charities carry out business activities unrelated to the charitable purpose, the profits from those activities are currently exempt from income tax.  This applies to the extent the charitable purpose is in New Zealand. The issues paper discusses whether this exemption should be removed so “unrelated business activities” (a term that would need formal definition) are taxed, while business activities related to the charitable purpose of the charity carried out in New Zealand remain exempt,
• Donor-controlled charities – donors who donate money to charities are able to claim a donation tax credit.  This applies whether the donor controls the entity or not. The issues paper discusses whether restrictions should be placed on donor-controlled charities (again, a term that would need formal definition) to enforce minimum distributions from their accumulated funds each year and/or to avoid arrangements that result in tax avoidance.
• Charity FBT exemptions –registered charities are exempt from FBT on most fringe benefits they provide to employees while they are carrying out the charitable purpose. The issues paper explores whether this exemption should be removed.

The issues paper also covers tax simplification for volunteers and the framework applicable to NFPs that are not charities. This paper gives charities and not-for-profits a vital opportunity to make their voices heard on these key issues. 

With a short window, we recommend swift action on your submissions.  
 

Incorporated Societies Act 2022

Finally, the Incorporated Societies Act 2022 imposes new requirements on all Incorporated Societies, with particularly important steps required for those Incorporated Societies that were registered before 5 October 2023.

For Incorporated Societies that existed pre-5 October 2023, they must remain compliant with the Incorporated Societies Act 1908 until they register under the 2022 Act. Note that they must register with the Companies Office, regardless of whether they have registered in the past. In order to register, the following is required:

• Providing a constitution compliant with the Incorporated Societies Act 2022. Section 26 of the Act includes all the information the constitution must contain.
• Inclusion of the appropriate dispute resolution procedures in the constitution
  A committee responsible for management of the operation and affairs of the society. This is a change from the 1908 Act where no committee was required.
• At least 10 members (down from 15 under the 1908 Act)
• Providing contact details of at least one person.

Note that Incorporated Societies that fail to re-register before 5 April 2026 will effectively cease to exist. Their assets could potentially be distributed by the Registrar while members can be held personally liable for the liabilities of the incorporated society. 

Incorporated Societies that were registered post-5 October 2023 should have incorporated under the new 2022 Act so will not need to do anything further.

The 2022 Act also imposes some other major changes, including, but not limited to:

• Requiring financial statements to be prepared in line with XRB standards for all incorporated societies, other than those defined as “small societies”.
• Defining what an officer of the society is and their duties.
• Setting out specific criminal offences for improper conduct in relation to incorporated societies
• Requiring an incorporated society’s annual general meeting (AGM) to take place no later than 6 months after the society’s balance date
• Financial statements of the society must be filed with the Registrar within 6 months of the society’s balance date.
• An annual return must be filed when the financial statements are filed (note that registered charities aren’t required to file financial statements or an annual return with the Companies Office since their documentation will be filed with the Charities Services instead)

The increased regulatory focus on Not-for-Profits means that the compliance landscape is constantly changing. It is important for those charged with governance to be aware of any changes that may be relevant to them. 

If you have any questions or need further guidance on how these changes may impact your organisation, feel free to get in touch. 

Let's talk changes

Vincent Hockenhull is a Principal in RSM New Zealand’s Business Advisory practice. 
Feel free to contact him directly or use the form below to discuss further.