Kerre Woodham: High time the charity loophole was closed

Finance Minister Nicola Willis is promising tax changes ahead for charities and the closing of loopholes, and the details of that will be announced in next year's budget. And not before time, you'd have to say.  

There's about $2 billion, it's estimated, in untaxed profit in the charitable sector, and politicians of varying hues have been eyeing up that revenue potential for some time. I think both Christopher Luxon and Chris Hipkins have said on this show that the charities loophole is something they want to look at. There's also the issue of fairness. A number of charities, operators, businesses —think high profile ones like Sanitarium and Best Start— compete with non-charitable businesses that do not have tax exemptions. The tax working group estimated that about 30% of charities were likely to have some sort of trading activity.  

So when is a charity, not a charity? Michael Gousmett, from the University of Canterbury, says look at Christ College in Christchurch. He says they're shareholders in a forestry company, and he says if they're sending young men up to the North Island to teach them how to grow straight pine trees, how to mill timber, how to market it and so on, that would be advancing their education under charity law. The fact is they don't. Those boys wouldn't know a pine tree if it fell on them. It was a purely commercial operation, same as the chap down the road growing straight pine trees. The difference is one pays tax, one doesn't, and where's the fairness in that?  

I think we need to tighten it up. It's not so much a loophole as what Michael Gousmett, describes as “a failure of fiscal policy”. The fact is, there's provision in the Income Tax Act for exemption for charities – he would argue that it's too broad. And you'd have to agree with him, and a number of people have said much the same thing when they have rung in when the topic has come up, and when we've had the leaders of the parties in for a chat. You've got Ngāi Tahu and their seafood businesses. Michael Gousmett said seafood production is not the same thing as advancing the purposes of iwi.  

I mean, while you can get away with it, go for it. I mean, there are plenty of people who are setting up trusts to avoid paying the maximum amount of tax. They try to minimise their tax return, and that's legal at the moment as the way the law is written, but I think Nicola Willis is casting a gimlet eye over the law and looking to tighten it up. We're all agreed, aren't we, that the sooner that happens, the better? We've been going on like pork chops about Sanitarium and some of the iwi who are operating very, very successful businesses. All well and good to have a charity, set up your scholarships to send kids off to school and grants for housing and health and what have you – great, fabulous. But when the loophole exists, you know it exists, it's been pointed out people can see it, politicians of all shades have said this is a nonsense when we need every last bit of cash. Couldn't we do with Grant Robertson’s $600 million down the back of the couch right now? We need every last bit we've got.  

High time the loophole was closed. I'm just sorry it's going to be next year's budget, and it couldn't happen with a stroke of a pen today.   

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