Update on taxation issues

Part of the solution officials arrived at for addressing the potential tax liabilities faced by community housing providers, in the wake of the Queenstown Lakes Community Housing Trust decision and the new income tax exemption of “Community Housing Entities”, was for Charities Services to complete a review of all community housing providers who are registered charities by 31 March, 2015. The purpose of the review was for Charities Services to deregister entities that did not have a charitable purpose before the commencement of new tax rules. Deregistration will result in possible tax on the net assets of a deregistered organisation. The commencement date of these new rules is currently 1 April 2015

The deregistration project by Charities was meant to work alongside the introduction of the new income tax exemption for “Community Housing Entities” and was intended to provide some reassurance for the sector and certainty for organisations about their own tax status. However, delays in finalising the regulations that would allow organisations to determine whether they could apply the new Community Housing Entity income tax exemption has resulted in frustration and further uncertainty within the sector. To date there have been no regulations published that would allow organisations to determine what actions, if any, need to be taken in relation to their tax affairs.

To overcome the problems caused by the delay in publishing the regulations, officials have included a clause in the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill 2015 to defer the application of the new tax on net assets for deregistered charities who provide housing as their main or primary purpose. The new date will be 1 April 2017. Officials have stated

“This deferral is needed to provide more time for officials to finalise the eligibility requirements for the new tax exemption for community housing entities and for Charities Services to complete its review of the charitable status of community housing providers.”

The closing date for submissions on the Bill is Thursday, 30 April 2015. We would be happy to help anyone who wants to make a submission on the Bill. By way of example, those community housing providers who are registered charities and have other objectives outside of housing may have issues if the legislation as drafted is enacted.

CHA is grateful to Steve Thompson, Partner, Deloitte for preparing this tax update – please contact scott at [email protected] if you are interested in making an individual submission from your organisation. CHA will coordinate with Deloitte in preparing a draft submission by the next fortnightly newsletter (April 9).