It is common practice for many Donee organisations to apply some of their funds to offshore charitable purposes.
One of the most common ways to qualify as a Donee organisation, is to meet the criteria under section LD(3)(2)(a), which requires the funds of the entity to be applied “wholly or mainly” to charitable, benevolent, philanthropic, or cultural purposes within New Zealand.
The Commissioner’s current practice is to accept that an organisation could apply up to 49% of its funds for other purposes, with a simple majority of more than 50% able to satisfy the “wholly or mainly” test.
In mid-2016 IRD turned their attention on Donee organisations, and released an Issues paper (IRRUIP9) proposing that the “wholly or mainly” test should require that 90% of their funds are used for the specified purposes within NZ. This was a dramatic increase from its current application, and likely to affect a large number of current Donee Organisations who have international affiliations.
The IRD have issued a draft Interpretation Statement PUB00295 for consultation, which now proposes that the Commissioner will expect no less than 75% of a Donee organisation’s funds should be applied to specified purposes within New Zealand. The statement then goes on to outline the Commissioners interpretation of “funds” and “applied”, and it is also worth noting that the requirement is that the “specified purposes” need to be “within New Zealand” rather than where the money is actually spent.
Organisations who consider that they might be affected should certainly review the Draft Interpretation Statement to consider its impact and potential changes which might need to be made as other options could be available. The deadline for comments is 30 November 2017.