This article covers a raft of proposed changes affecting charities and not-for-profits (NFPs) in the new omnibus tax bill that had its first reading in Parliament on 15 September 2026.^[1]

Snapshot of proposed changes

• Donation tax credits - The $100,000 annual gifting cap from 1 April 2027 is affirmed, and further proposed changes would enable donors to claim refunds during the year and to transfer refunds directly to donee organisations.

• Taxable NFPs - The non-taxable treatment of membership subscriptions/levies would be confirmed and the maximum concessionary tax deduction for NFPs would increase from $1,000 to $10,000, but that deduction would not be available at all if an NFP’s net income exceeds $10,000.

• Tax data collection - Taxable NFPs sheltered from tax by the concessionary tax deduction would not need to file income tax returns, but banks would need to report investment income information for RWT-exempt entities to IRD.

• Trust distributions - Any income distribution to a tax-exempt beneficiary that is not paid out to the beneficiary’s bank account in a timely manner would be subject to 39% tax.

• Tax NFP status - All incorporated societies would be confirmed as NFPs for income tax and GST purposes.

• Honoraria payments - Charities and NFPs would have the option to deal with honoraria paid to volunteers as if they were salary/wages for tax purposes.

• Non-resident charities - The charity non-business income tax exemption for non-resident charities that are IRD-approved but not Charities Act-registered would be removed.

Affected charities and NFPs should consider the potential impact of the changes on their funding and operations, and take the opportunity to make submissions to oppose, support or shape the design of the proposed changes.

Who is affected?

A charity or other NFP may be affected by the proposed changes, and submissions on the tax bill may be warranted, if the charity or NFP is any one or more of the following:

• Donee organisations - An IRD-approved “donee organisation” (eg most Charities Act 2005 registered charities, and some other NFPs as well) that receives, or could receive, gifts of money from individuals who qualify for donation tax credits.

• Taxable NFPs - A taxable charity or other NFP that receives membership subscriptions/levies and/or has a reasonably low level of net income each year.

• Trust beneficaries - A tax-exempt charity or other NFP that receives “beneficiary income” distributions from any non-exempt trust.

• Incorporated societies - An Incorporated Societies Act 2022 society or other form of NFP that is uncertain about whether it meets the “distribution prohibition” requirement to qualify for NFP status for income tax and GST purposes.

• Honoraria payers - A charity or other NFP that pays “honoraria” to any of its volunteer board members or other personnel.

• Non-resident charities - A non-resident charity currently relying upon IRD-approved “tax charity” status for its non-business income from New Zealand to be tax-exempt.

If your charity or NFP falls, or might fall, into any one or more of those categories, you should assess whether and to what extent the tax bill will potentially affect your funding and operations.

Donation tax credits - $100,000 annual gifting cap affirmed, but other proposed changes are positive

The tax bill includes changes affirming that, from 1 April 2027, the overall cap on the amount of monetary gifts to donee organisations for which donation tax credits can be claimed by an individual each tax year will be the lesser of the individual’s taxable income for the relevant year and $100,000.

That change was enacted earlier this year in Budget 2026 tax legislation, with no opportunity for submissions. The tax bill provides a potential opportunity for submissions on the issue.

The tax bill also proposes other, positive changes benefitting charities and other NFPs that qualify as donee organisations that can receive tax-incentivised donations, from 1 April 2028.

The proposed changes would enable individual donors to do both of the following:

• Claim their donation tax credits during the tax year, rather than just at year-end, for gifts up to the amount of their reportable income (eg, salary/wages subject to PAYE) at the relevant time (but subject to the overall cap noted above). “In-year” claims would need to filed online using MyIR, supported by donation receipts from the recipient donee organisations.

• Transfer their donation tax credit refund for a gift directly to the donee organisation that received the gift - but with no further donation tax credit for the transfer of the refund.

Those changes should be supported by charities and other donee organisations, but some refinements to the details of the changes may be warranted. There should also be an added tax incentive for a donor to transfer their donation tax credit refund directly to a donee organisation.

Taxable NFPs - non-taxable membership subscriptions/levies and a $10,000 concessionary deduction

If a charity or other NFP is taxable, ie it is not eligible for an existing exemption from income tax (eg, as a charity registered under the Charities Act 2005, an amateur sports body, a local/regional promotion body, or a community housing entity), the following two matters may be relevant to the taxable NFP’s income tax position:

• The mutuality principle, which is, in broad terms, the principle that “mutual” receipts from the members of an organisation are not “income” of the organisation for tax purposes (subject to “mutual association” provisions under the Income Tax Act 2007 that tax receipts from specified member transactions and allow deductions for member rebates).

• The concessionary deduction provision for NFPs under the Income Tax Act 2007, which currently permits a taxable NFP claim a tax deduction each year for the lesser of $1,000 and the NFP’s net income (calculated without the concessionary deduction) for the year.

The tax bill proposes significant changes affecting both of those matters, for the 2027/2028 and subsequent income years:

• A new exempt income provision would be introduced for amounts derived by NFPs (including all incorporated societies) from their members, which is intended to cover member subscriptions/levies (not “trading” receipts from members) and remove uncertainty about the scope of application of the mutuality principle created by Australian case law.

• The maximum amount of the concessionary deduction that can be claimed by a taxable NFP each year would become the lesser of $10,000 and the NFP’s net income (calculated without the concessionary deduction) for the year – but if the NFP’s net income exceeds $10,000, even by $1, the NFP would not be able to claim any concessionary deduction.

Those proposed changes in the tax bill warrant submissions. For example:

• The design of the exempt income provision for NFPs’ non-trading receipts from members is not as clear as it should be, and it may also inappropriately affect the tax deductibility of a taxable NFP’s expenditure.

• The long overdue increase to the maximum amount of the concessionary deduction for taxable NFPs is welcome. However, the “cliff edge” approach to the availability of the deduction if an NFP’s net income exceeds $10,000 in any year, and also the suggested aggregation of associated NFPs/branches for determining eligibility for the deduction noted in IRD's commentary on the tax bill, may give rise to complexity and inequity.

• The interrelationship of the concessionary deduction for NFPs with the concessionary deduction for corporate gifts to donee organisations, and the relationship between both of those provisions and the general limitations on deductions, should also be clarified.

In relation to the mutuality principle, another important point to note is that IRD does not intend to revisit taxable NFPs’ past application of that principle, despite the alleged uncertainty regarding the scope of application of the principle created by Australian case law. This is expected to be confirmed in a proposed IRD operational statement that IRD will issue in draft for consultation shortly.

Tax data collection - NFP tax return relief, but banks will need to report RWT-exempt entity data

A further proposed change in the tax bill for taxable NFPs, for the 2027/2028 and subsequent income years, would give a taxable NFP the option of not filing an income tax return if its net income does not exceed $10,000 (before using the concessionary deduction for NFPs noted above), unless IRD requests a return.

The tax bill also proposes that, in lieu of getting data via income tax returns for tax-exempt entities and taxable NFPs that are not required to file such returns, from 1 April 2028 banks and other financial institutions would need to provide to IRD investment income information for customers who are exempt from resident withholding tax (“RWT”).

Tax-exempt entities (including tax-exempt charities and various other entities) and taxable NFPs that are not required to file income tax returns will generally be RWT-exempt customers covered by the proposed reporting to IRD.

Trust “beneficiary income” distributions to tax-exempt entities - timely pay-out requirement

Under the trust rules in the Income Tax Act 2007, currently income derived by the trustee(s) of a trust can be distributed to a charity or other tax-exempt beneficiary as tax-exempt “beneficiary income” by allocating the income to the beneficiary within a prescribed timeframe, without paying the amount out to the tax-exempt beneficiary.

For example, the amount may be credited to the account of the tax-exempt beneficiary in the trust’s beneficiary accounts, as an amount owed to the beneficiary.

The tax bill proposes to change this, for the 2028/2029 and subsequent income years, by requiring such an amount to be paid out to the tax-exempt beneficiary’s account with a bank or other financial institution within a prescribed timeframe. If that timely pay-out requirement is not met, the amount would not be tax-exempt; it would instead be treated as trustee income subject to the 39% trustee income tax rate.

The change would apply to trust income distributions to a range of tax-exempt entities, not just tax-exempt charities, and there would be no apparent leeway for non-compliance with the timely pay-out requirement.

NFP status for income tax and GST purposes - clarification that incorporated societies qualify

Currently the Income Tax Act 2007 has a “non-profit organisation” definition for the concessionary deduction for NFPs and for other income tax purposes, and the GST Act 1985 has a “non-profit body” definition for a concessionary GST input tax deduction for NFPs and for other GST purposes.

The key, common feature of the two definitions is that, to fall within the definitions, an organisation or body must not have a purpose of making profit for, and it must be subject to a prohibition on distributions to, any proprietor, member or shareholder.

The tax bill proposes that both Acts will instead have broadly similar “not-for-profit organisation” and “not-for-profit body” definitions, and that each definition will specifically include all societies incorporated under the Incorporated Societies Act 2022, with a degree of retroactive effect.

The specific clarification of the status of incorporated societies is welcome, but there are aspects of the drafting (including differences between the proposed new definitions) that are unclear. The definitions arguably should also extend to tax-exempt entities, not just incorporated societies, that are NFPs but technically might not meet the “distribution prohibition” requirement.

Honoraria payments to volunteers - option to treat as salary/wages

In relation to honoraria and other payments by charities and other NFPs to board members and other personnel, including volunteers, who are not employees, a charity or NFP may be required to deduct a flat 33% “schedular payment” withholding tax from the payment and the payment recipient may be required to file a tax return and also separately deal with ACC levies.

The tax bill proposes changes that would give a charity or other NFP the option of treating honoraria payments to volunteers as if they were salary or wages, subject to PAYE withholding tax that incorporates ACC levies, from 1 April 2028.

This proposed option for charities and NFPs is a welcome compliance simplification measure, although arguably the scope of availability of the option should be broadened.

Non-resident charities - proposed removal of tax-exempt status

Non-resident charities carrying out their charitable purposes outside New Zealand and with insufficient presence in New Zealand to register under the Charities Act 2005 can currently get IRD approval of “tax charity” status so that their non-business income from New Zealand is tax-exempt.

The tax bill proposes to remove that form of tax-exempt status, from 1 April 2028.

While a non-resident charity affected by this change could make submissions on the change, we expect that reviewing and potentially restructuring the charity’s New Zealand non-business income generation and other fundraising (eg, establishing a tax-effective New Zealand presence, entity or fund) is more likely to be appropriate.

A non-resident charity’s approach to its New Zealand income tax position may depend upon the nature and extent of its New Zealand revenue and also the availability and extent of any double tax treaty or other relief from New Zealand tax on that revenue.

Notably, this change affecting a small number of non-resident charities is the only change in the tax bill to remove or narrow existing income tax exemptions. The charity business income exemption and exemptions for local/regional promotion bodies and other NFPs are untouched.

Backdating Charities Act registration for charities established by gift

The tax bill proposes to finally remove the Estate and Gift Duties Act 1968 from the statute book. Consequential changes include a Charities Act 2005 change that would ostensibly allow greater flexibility for a charity’s registration under the Act to backdated, to the date of any gift creating or establishing the charity.

This is potentially helpful (eg for a charitable trust established by gift), although the drafting of the change is unclear. Arguably, more substantive changes should be made to provide even greater flexibility, and certainty, in relation to the backdating of registrations.

Status of the tax bill and submissions

The tax bill had its first reading in Parliament and was referred to Parliament’s Finance and Expenditure Committee (FEC) on 15 September 2026. The due date for the FEC to report back to Parliament on the bill is 15 March 2027.

Although the tax bill’s progress will be interrupted by the general election, it is expected to be amongst the bills reinstated by Parliament following the election (regardless of the election result).

Charities, NFPs and their stakeholders who wish to oppose, support and/or shape the design of the proposed changes in the tax bill should take the opportunity to make or contribute to a submission to the FEC.

The FEC has called for submissions on the tax bill. The FEC has not set a closing date for submissions due to the election, but has suggested that submissions be made by 1 December 2026.

Get in touch

If your charity or NFP will, or might, be affected by any of the proposed changes in the tax bill and interested in making or contributing to a submission on any of the changes, get in touch with one of the charity and NFP experts in Simpson Grierson’s tax team.

Special thanks to Angela Liu for assisting with this article.