By Hayes Knight – 29 May 2009

The not-for-profit sector has gone through a raft of changes, none more notable than the introduction of the Charities Commission with recent introduction of the Charities Act 2005. Another Act that has equal importance for our not for profit sector is the Income Tax Act 2007.

It is important because this Act stipulates what types of income are exempt from the long arm of the IRD. We note that these changes have not yet been updated in the income tax policy note in many not-for-profit entities financial statements with the majority having incorrect or now out of date tax references in them. The following are the up-to-date tax references, depending upon your entity type and tax status.

Incorporated Societies

Sporting Body

Charitable Entity

ITA 1994 reference

ITA 2007 reference

ITA 1994 reference

ITA 2007 reference

ITA 1994 reference

ITA 2007

reference

CB4(1)(h)

CB4(1)(c),(e),(3)

CW41 and CW42

Note: ITA refers to the relevant version of the Income Tax Act.

Health warning:  These exemptions are not automatically given because your organisation is considered to be not for profit and each organisation may have a different approved tax status by the IRD.  It is therefore important that you check to ensure you have disclosed the correct approved tax exemption status in your financial statements. Remember for those entities that consider themselves a charity you will need to ensure that you are registered on the Charities Commission Register to continue taking advantage of the above exemptions come 1 July 2008. So if you haven’t already done so, get on to it now so you don’t miss out. 

If you would like to discuss this article further contact Phil Barlow or your Hayes Knight adviser.