Income Tax Act 2007

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CW 42 Charities: business income
  • Exempt income

    (1) Income derived directly or indirectly from a business carried on by, or for, or for the benefit of a trust, society, or institution of a kind referred to in section CW 41(1) is exempt income if—

    • (a) the trust, society, or institution carries out its charitable purposes in New Zealand; and

    • (b) the trustee or trustees of the trust, the society, or the institution is or are, at the time that the income is derived, a tax charity; and

    • (c) no person with some control over the business is able to direct or divert, to their own benefit or advantage, an amount derived from the business. Subsections (3) to (8) expand on this subsection.

    Exclusion

    (2) This section does not apply to an amount of income derived by—

    • (a) a council-controlled organisation, other than a council-controlled organisation operating a hospital as a charitable activity:

    • (b) a local authority from a council-controlled organisation, other than from a council-controlled organisation operating a hospital as a charitable activity on behalf of the local authority.

    Carrying on a business: trustee

    (3) For the purposes of subsection (1), a trustee is treated as carrying on a business if—

    • (a) the trustee derives rents, fines, premiums, or other revenues from an asset of the trust; and

    • (b) the asset was disposed of to the trust by a person of a kind described in subsection (5)(b);

    • (c) and either—

      • (i) the person retains or reserves an interest in the asset; or

      • (ii) the asset will revert to the person.

    Charitable purposes in New Zealand and overseas

    (4) For the purposes of subsection (1)(a), if the charitable purposes of the trust, society, or institution are not limited to New Zealand, income derived from the business in a tax year is apportioned reasonably between those purposes in New Zealand and those outside New Zealand. Only the part apportioned to the New Zealand purposes is exempt income.

    Control over business

    (5) For the purposes of subsection (1)(c) for an income year, a person is treated as having some control over the business, and as being able to direct or divert amounts from the business to their own benefit or advantage if, in the tax year,—

    • (a) they are, in any way, whether directly or indirectly, able to determine, or materially influence the determination of,—

      • (i) the nature or extent of a relevant benefit or advantage; or

      • (ii) the circumstances in which a relevant benefit or advantage is, or is to be, given or received; and

    • (b) their ability to determine or influence the benefit or advantage arises because they are—

      • (i) a settlor or trustee of the trust by which the business is carried on; or

      • (ii) a shareholder or director of the company by which the business is carried on; or

      • (iii) a settlor or trustee of a trust that is a shareholder of the company by which the business is carried on; or

      • (iv) a person associated with a settlor, trustee, shareholder, or director referred to in any of subparagraphs (i) to (iii).

    Control: settlor asset disposed of to trust

    (6) For the purposes of subsection (5), a person is treated as a settlor of a trust, and as gaining a benefit or advantage in the carrying on of a business of the trust, if—

    • (a) they have disposed of an asset to the trust, and the asset is used by the trust in the carrying on of the business; and

    • (b) they retain or reserve an interest in the asset, or the asset will revert to them.

    No control

    (7) For the purposes of subsection (1)(c), a person is not treated as having some control over the business merely because—

    • (a) they provide professional services to the trust or company by which the business is carried on; and

    • (b) their ability to determine, or materially influence the determination of, the nature or extent of a relevent benefit or advantage arises because they—

      • (i) provide the services in the course of and as part of carrying on, as a business, a professional public practice; or

      • (ii) are a statutory trustee company; or

      • (iii) are Public Trust; or

      • (iv) are the Maori Trustee.

    Benefit or advantage

    (8) For the purposes of subsection (1)(c), a benefit or advantage to a person—

    • (a) may or may not be something that is convertible into money:

    • (b) unless excluded under paragraph (d), includes deriving an amount that would be income of the person under 1 or more of the following provisions:

      • (ii)  sections CB 1 to CB 23 (which relate to income from business or trade-like activities):

      • (iv)  sections CC 1 (Land), CC 3 to CC 8 (which relate to income from financial instruments), and CC 9 (Royalties):

      • (vi)  sections CE 1 (Amounts derived in connection with employment) and CE 8 (Attributed income from personal services):

      • (vii)  section CF 1 (Benefits, pensions, compensation, and government grants):

      • (ix)  sections CQ 1 (Attributed controlled foreign company income) and CQ 4 (Foreign investment fund income):

    • (c) includes retaining or reserving an interest in an asset in the case described in subsection (3), if the person has disposed of the asset to the trust or the asset will revert to them:

    • (d) does not include earning interest on money lent, if the interest is payable at no more than the current commercial rate, given the nature and term of the loan.

    Non-exempt business income

    (9) If an amount derived from the carrying on of a business by or for a trust is not exempt income because of a failure to comply with subsection (1)(c), the amount is trustee income.

    Defined in this Act: amount, associated person, business, charitable purpose, company, council-controlled organisation, director, exempt income, income, income year, interest, local authority, money lent, New Zealand, pay, shareholder, statutory trustee company, tax charity, trustee, trustee income

    Compare: 2004 No 35 s CW 35

    Section CW 42(1)(b): amended, on 1 July 2008, by section 21(1) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).

    Section CW 42(2): substituted, on 1 April 2008, by section 332 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

    Section CW 42(5): amended (with effect on 1 April 2008), on 6 October 2009, by section 48 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

    Section CW 42(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 48 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

    Section CW 42(8): amended (with effect on 1 April 2008), on 6 October 2009, by section 48 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

    Section CW 42(9): amended (with effect on 1 April 2008), on 6 October 2009, by section 48 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

    Section CW 42 list of defined terms tax charity: inserted, on 1 July 2008, by section 21(2) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).