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CW 42: Charities: business income
or “Tax rules for charities running businesses”
You could also call this:

“Tax rules for community housing organisations that help people with housing”

If you’re involved with a community housing trust or company, you should know that any income they earn is tax-free. This applies to organisations that provide housing or help people with housing.

To be considered a community housing entity, the organisation must be registered under the Public and Community Housing Management Act 1992. They can’t operate to make money for individuals, and all profits must be kept by the organisation or given to similar entities, their beneficiaries, charities, or used for charitable purposes.

No one in control of the organisation can use the money for their own benefit, except for the organisation’s purposes or for charity. There are some rules about who can be helped by these entities. If more than 15% of the people they help after 14 April 2014 have income or assets above a certain level, the organisation might not qualify for this tax exemption.

The law also sets out who is considered to have control over these entities and what counts as a benefit. If you want to know more about these specifics, you can look at section CW 42 of the Income Tax Act.

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Next up: CW 43: Charitable bequests

or “Money from charitable gifts in wills may be tax-free”
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Part C Income
Exempt income

CW 42BCommunity housing trusts and companies

  1. An amount of income derived by a community housing entity is exempt income.

  2. In this section and section LD 3 (Meaning of charitable or other public benefit gift), community housing entity means a trustee or company (the entity) whose activities involve the provision of housing or housing assistance (the activities), and—

  3. the entity is a registered community housing provider under the Public and Community Housing Management Act 1992; and
    1. the activities are not carried on for the private pecuniary profit of any individual; and
      1. all profit is retained by the entity, or distributed or applied to—
        1. community housing entities that meet the requirements to derive exempt income under this section:
          1. beneficiaries or clients of the entity:
            1. tax charities:
              1. persons to whom distributions would be in accordance with charitable purposes; and
              2. no person with some control over the activities is able to direct or divert an amount derived from the activities to the benefit or advantage of,—
                1. if subparagraph (ii) does not apply, a person other than the entity except for a purpose of the entity or a charitable purpose:
                  1. if the entity (the operating entity) is carrying on the activities for or for the benefit of a community housing entity or charity (the controlling entity), a person other than the operating entity or the controlling entity except for a purpose of the operating entity or the controlling entity or for a charitable purpose.

                  2. Despite subsection (2), community housing entity does not include a trustee or company (the entity) if—

                  3. more than 15% of the people who become beneficiaries or clients of the entity on a date that is or is after 14 April 2014 have, on that date, income or assets exceeding a value (the entry threshold) set out in schedule 34 (Community housing trusts and companies: income and assets of beneficiaries and clients) that is relevant to the beneficiary or client:
                    1. the provision of housing or housing assistance to a beneficiary or client who has income and assets not exceeding the entry thresholds is substantially different from the provision of housing or housing assistance to a beneficiary or client who has income or assets exceeding an entry threshold.

                      1. For the purposes of subsection (2)(c), for an income year, a person is treated as having some control over the activities, and as being able to direct or divert amounts from the activities if, in the tax year, they are described in section CW 42(5)(a) and (b) and (6) (Charities: business income).

                      2. For the purposes of subsection (2)(c), a person described in section CW 42(7)(a) and (b) is not treated as having some control merely because of the factors in section CW 42(7)(a) and (b).

                      3. For the purposes of subsection (2)(c), a benefit or advantage to a person includes a benefit or advantage included under section CW 42(8).

                      Notes
                      • Section CW 42B: inserted (with effect on 14 April 2014), on , by section 32(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                      • Section CW 42B(2): amended (with effect on 14 April 2014), on , by section 85(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                      • Section CW 42B(2)(aa): inserted (with effect on 14 April 2014), on , by section 32(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39) (as amended by the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016).
                      • Section CW 42B(2)(aa): amended, on , by section 33 of the Kāinga Ora–Homes and Communities Act 2019 (2019 No 50).
                      • Section CW 42B(2)(c): replaced (with effect on 14 April 2014), on , by section 85(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                      • Section CW 42B(3): amended (with effect on 14 April 2014), on , by section 85(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                      • Section CW 42B(3)(a): replaced (with effect on 14 April 2014), on , by section 85(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                      • Section CW 42B(3)(b): replaced (with effect on 14 April 2014), on , by section 85(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                      • Section CW 42B(4): amended (with effect on 14 April 2014), on , by section 85(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).