Inland Revenue has just released a draft operational statement (ED0265) about
the income tax treatment of transactions between not-for-profit associations
(Mutual Associations) and their members. This statement is currently open for
consultation and will significantly impact the tax obligations of a wide range
of not-for-profit associations, including clubs, societies, cooperatives, and
professional bodies.
- Historically, associations may not have paid tax on surpluses, but
this is very likely to change going forward for most.
Our view is this clarification represents a tax on organisations
that are not registered charities or otherwise exempt under specific sections
of the Income Tax Act.
This is not a change in law but a clarification of IRD’s view. The
statement aims to clarify the tax rules for amounts received by associations
from transactions with their members. This is an area that has previously been
unclear with varying treatment across different organisations.
While there is a lot to consider in this document, our initial
review has highlighted concerns about membership subscriptions, fees, and
levies becoming taxable, particularly for associations prohibited from
distributing funds to members.
The new Incorporated Societies Act 2022 requires that re
registered incorporated societies do not allow distributions
to members – meaning that those entities are highly exposed.
One positive in the operational statement is it will apply
prospectively from the date of publication, meaning Inland Revenue will not
adjust past assessments.
Inland Revenue is seeking feedback on the interpretative approach
and operational proposals in this statement. Comments are welcome until 25 June
2025. We will likely be making a submission and encourage you to provide
feedback to Inland Revenue if you have any concerns or suggestions.
We will be considering this operational statement and how it works
in practice along with some illustrative examples, so watch this space.
For more information, contact:
Barry Baker
Partner
Grant Thornton New Zealand
M 021 797 221
grantthornton.co.nz
