Not-for-profit Organisation

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A not-for-profit organisation (NPO), also known as a non-business entity, non-profit organisation, or not-for-profit institution, is an organisation traditionally dedicated to furthering a particular social cause or advocating a shared point of view. Its operation is not to generate benefits.

The organisation’s operations are not aimed at benefiting any of its members financially. Its regulations also prohibit the distribution of any benefits, such as money, property, or equivalent, to its members, instead focusing on social benefit. This is commonly recognised as the primary characteristic of this type of organisation. Additionally, they also possess key traits including non-profit, non-governmental, autonomous, voluntary, non-political, and non-religious. Examples of non-profit organisations include churches, public schools, charities, public hospitals or clinics, voluntary service organisations, clubs, and societies.

The main difference between non-profit organisations and charities lies in tax management. The New Zealand Tax Office has approved that charities do not need to pay any compensation, including income tax, since they’re entitled to tax exemption. However, these NPOs need to be supplemented. Donee Organisations primarily operate for charitable or cultural purposes. All donated funds and goods received will be used to assist the wider society, such as aiding impoverished families and serving the community.

Some Types of Non-profits in New Zealand

● Unincorporated groups
● Incorporated societies
● Charitable trust
● Non-profit companies
● Industrial and provident society

Unincorporated groups

An unincorporated group can be any group of people that gets together for some purpose, whether it is to change something in the community, provide some service, work on a project or simply to socialise. 

The unincorporated groups are non-profit organisations and can be incorporated or not. Unincorporated non-profit organisations usually have no formal and highly organised structure. It has no separate legal identity or legal status, neither has legal standing to enter into contracts, own property, or borrow money.

Incorporated Societies

Corporate legal person organisations are the second most popular organisational structure for non-profit organisations in NZ, accounting for almost a quarter of all groups. 

Association organisations were established under the Incorporated Societies Act 1908 by filing the necessary documents. Once established, it means that a society can legally handle its own affairs as if it were a person.

Charitable Trust

Charitable trusts are one of the main legal structures that community groups can consider. 15% of New Zealand non-profit organisations are charitable trusts.

There are three main types of charitable trusts:

  1. Unincorporated Charitable Trust:-This method can be used when someone sets up a trust to provide funds for specific reasons. Like any unincorporated group, this type of trust has limitations and is not recommended for continued community groups.
  2. Registered charitable trust (based on trust):-In this model, two or more trustees can set up a trust for charitable purposes. This is useful if the original trustee wishes to retain control of the organisation, including appointing other trustees.
  3. Registered charitable trust (based on society):-Under this model, an established group (or at least five people) can register a society as a charitable trust committee under the Charitable Trusts Act of 1957 as long as it meets the charity requirements. After the establishment of the company, the members of the society become members of the board of directors.

Difference Between Non-Profit Organisations and Charities

A non-profit organisation can be a society, associate, or group that may or may not be incorporated. The operation of the organisation is not carried out for the profits of any members. The rules of the organisation also do not allow any benefit (includes money, property, or any other equivalent) to be distributed to any of its members.

Charity organisations are organisations that are engaged in charitable activities or exist for charitable purposes. Charities in New Zealand are required to register on the government’s official charity website. Therefore, the information of charities in New Zealand is public, and the information of registered charities can be found on the official website of government charities, such as the establishment time of the charity, contact information, charity activities, industry, and benefits People, etc.

Non-profit organisations’ legal structure may vary depending upon a number of factors, and in some cases, a non-profit organisation does not even need to have a formal legal structure.

How to apply for tax credits or tax deductions in NZ?

The Tax Office stipulates that when a donation reaches $5 or more to apply for a tax credit, the charitable organisation you donate must be a Donee Organisation recognised by the Inland Revenue Department, which is a charitable organisation registered on the official charity website. Donation receipts issued by certified charities can be used to apply for tax credits.

More details:  Understanding Donation Tax Credits and How They Work

Guidelines and Considerations for Non-Profit Registration

All types of incorporated non-profit entities need to be registered at the Companies Office. Following the guides provided by the Companies Office, founders need to submit the relevant registration documents and application. After successful registration, the organisation will receive a certificate from the Companies Office. To maintain the organisation’s registration, it will need to file the required documents regularly with the Incorporated Societies Register, as outlined in the organisation’s bylaws. The required documents may vary depending on the type of entity.

Before the establishment of a non-profit organisation, organisational structures should be determined, in which a number of factors should be considered.

Factors need to make clear including:

  • How many people are in the group and if there will be any limit.
  • Culture and values of the organisation.
  • What activities does the organisation intend to undertake?
  • How much flexibility the organisation may need as it develops.
  • Who makes decisions on whether to separate management, governance, and ownership?
  • How much the funds are needed and where it comes from.
  • How the organisation’s financial performance will be measured and monitored.
  • Who will be responsible for the organisation‘s management, governance, and operations?
  • Who will be responsible if things go wrong?

Apart from incorporated society and charitable trust, for some organisations, registering as a company may be a better option. Companies that have a commercial aspect may choose to incorporate as a company, for example, a community-owned business.

All NZ-compliant charities must be entities registered on the official website of Charity Services. From 1 Apr 2020, all entities with charitable purposes that qualify for registration under the Charities Act are required to be registered with the Department of Internal Affairs (DIA) Charitable Service in order to get or maintain their donee tax status. Entities with donee tax status allow organisations to tax benefits, such as tax credits or tax deductions. When the charity is successfully registered on the official website of the Ministry of the Interior, the charity will also be recognised by the Tax Office as a Donee Organisation in New Zealand. Because all donations received by the recipient organisation will be used for charitable causes, the tax bureau will grant the charitable organisation a tax exemption declaration.

According to the Inland Revenue, if a non-profit organisation is incorporated and registered, it will be taxed at the company tax rate of 28%; if not incorporated, it will pay tax based on the individual tax rate, which is determined by the organisation’s income for the tax year. Registering with Charities Services is a critical step for non-profit organisations in NZ, as it allows them to qualify for donee tax status and receive tax benefits. This registration is required for entities that qualify under the Charities Act, and it is an important factor to consider when choosing a legal structure for your firm.

How can we help you?

Many customers have a habit of donating to specific charitable organisations, knowing that their donations are eligible for tax deductions.  At Premium Accounting Solution, our experienced and certified public accountants will assist you in evaluating the amount and organisation of donations to confirm their eligibility for tax credits.

All types of the incorporated non-profit entity need to be registered at Companies Office. Following the guides provided by Companies Office, founders need to submit the relevant registration documents and application. After successful registration, the organisation will receive a certificate from Companies Office. To maintain organisations’ registration, it will need to file required documents regularly with Incorporated Societies Register. The required documents may vary depending on the type of entity.

Before the establishment of a non-profit organisation, organisational structures should be determined, in which a number of factors should be considered.

Factors need to make clear Including:

● how many people in the group and if there will be any limit.
● Culture and values of the organisation.
● What activities the organisation intends to undertake.
● How much flexibility the organisation may need as it develops.
● Who makes decisions, whether to separate management, governance, and ownership.
● How much the funds need and where it comes from.
● How the organisation’s financial performance will be measured and monitored.
● Who will be responsible for the organisation management, governance, and operations.
● Who will be responsible if things go wrong.

Apart from incorporated society and charitable trust, for some organisations, registering as a company may be a better option. Organisations that have a commercial aspect may choose to incorporate as a company, for example, a community-owned business.

All New Zealand compliant charities must be entities registered on the official website of Charity Services. From 1 Apr 2020, all entities with charitable purposes that qualify for registration under the Charities Act are required to be registered with the Department of Internal Affairs (DIA) Charitable Service, in order to get or maintain their donee tax status. Entities with donee tax status allow organisation for tax benefits, such as tax credit or tax deduction. When the charity is successfully registered on the official website of the Ministry of the Interior, the charity will also be recognized by the Tax Office as Donee Organisations in New Zealand. Because all donations received by the recipient organisation will be used for charitable causes, the tax bureau will grant the charitable organisation a tax exemption declaration. According to the Inland Revenue, if a non-profit organisation is incorporated and registered, it will be taxed at the company tax rate for 28%; if not incorporated, it will pay tax based on the individual tax rate, which is determined by the organisation’s income for the tax year.

Why Choose us

Different organisations require different legal structures tailored to their size, nature, and objectives.  

The requirements for the establishment and registration of non-profit organisations may vary depending on their legal structure. The legal structure of the organisation determines the supervision and restriction of the organisation. It may operate under what legislation and it should comply with what operational and accounting requirements, decision-making rights, the liability of members or trustees, requirement for disposal of assets on liquidation, reporting and disclosure requirements, etc.

According to the regulations of the IRD, non-profit organisations must register for GST if their turnover exceeds $60,000 in the past or the next 12 months. However, if it is less than $60,000, voluntary registration can be used. In other words, if you exceed 60,000, the IRD will force you to register for GST.

 

At Premium Accounting Solution, our team members are the top industry accounting experts, including experienced senior certified accountants and approachable customer service representatives. 

Operating under strict management protocols and advanced IT systems, we leverage data-driven insights to ensure our customers receive exceptional professional services. Our processes are tailored to select optimal solutions, provide timely updates, and deliver the highest level of customer satisfaction. 

Have questions? Contact our elite team today!

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