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Income Tax Act 2007

Taxation of certain entities - Other entities

HR 12: Non-exempt charities: treatment of tax-exempt accumulations

You could also call this:

“What happens to a charity's money when it's no longer exempt from paying tax”

If you are a charity that is no longer exempt from tax, this section applies to you. You must have been registered as a charity under the Charities Act 2005 and got exempt income under section CW 41 or CW 42 while you were registered. You are no longer registered as a charity.

This section does not apply if you get re-registered as a charity within a year of stopping being a charity. It also does not apply if you stopped being a charity because a company you are part of was sold, and the sale was for a fair price. Another reason it might not apply is if you would have $10,000 or less income under this section when you stopped being a charity.

When you stop being a charity, you have to work out how much money you have. You do this by adding up the value of all your assets and subtracting the value of all your liabilities. But you ignore some assets, like ones you gave to another charity or got from the government to settle a Treaty of Waitangi claim. You also ignore assets that were given to you as gifts when you were a charity, and land that is set apart for a marae or meeting place under Te Ture Whenua Maori Act 1993.

If the amount of money you have is negative, you treat it as zero. Assets and liabilities are the things you own or owe, like money, property, or debts. The value of these assets and liabilities is what they are worth on the day you stop being a charity. If you are not sure what they are worth, you can use their market value or the value given by section HR 11.

The end date is the day you stop being a charity. The current market value of something is what it is worth now, or its fair value if you use a certain accounting standard.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM6200551.

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Part H Taxation of certain entities
Other entities

HR 12Non-exempt charities: treatment of tax-exempt accumulations

  1. This section applies to—

  2. a person who—
    1. is registered on the register of charitable entities under the Charities Act 2005 for a period; and
      1. derives exempt income under section CW 41 or CW 42 (which relate to charities) in the same period; and
        1. is deregistered as a charitable entity on the end date:

          1. This section does not apply if—

          2. the person is re-registered on the register of charitable entities within 1 year of the end date:
            1. the person’s end date arises because they are a company and shares in them are disposed of, and the disposal is for market value consideration:
              1. the person would, but for this paragraph, have $10,000 or less income under this section on their end date.

                1. The person has an amount of income derived on the day that is 1 year after the end date that is equal to the current market value, on the end date, of assets that the person has on the end date less the current market value, on the end date, of liabilities that the person has on the end date, but ignoring:

                2. assets that are disposed of or transferred for charitable purposes within 1 year of the end date, together with any rights and obligations, to—
                  1. a tax charity, other than a tax charity as defined in paragraph (c) of the definition of tax charity:
                    1. a New Zealand resident person, other than a natural person, that derives exempt income under any of sections CW 38 to CW 52, CW 55BA, and CW 64 (which relate to exempt income of certain entities):
                    2. assets received from the Crown—
                      1. to settle a Treaty of Waitangi claim:
                        1. in accordance with the Maori Fisheries Act 2004:
                        2. assets that are not money and are gifted or bequeathed to the person when they met the requirements to derive exempt income under section CW 41 or CW 42:
                          1. assets that are land set apart in a Maori reservation for the purposes of a marae or meeting place under Part 17 of Te Ture Whenua Maori Act 1993:
                            1. assets that are shares in companies, if this section applies to the companies and their end dates are the same as the person’s end date.

                              1. Repealed

                              2. For the purposes of the calculation in subsection (3), if the amount is negative, it is treated as zero.

                              3. In this section, references to assets and liabilities, as applicable,—

                              4. mean the assets and liabilities owned, controlled, or held, wholly or in part, immediately before the end date; and
                                1. include—
                                  1. all assets of any kind; and
                                    1. all liabilities, including debts, charges, duties, contracts, or other obligations, whether present, future, actual, contingent, payable, or to be observed or performed in New Zealand or elsewhere.

                                    2. In this section,—

                                      end date means, for a person, the day of final decision

                                        current market value means—

                                        1. for an asset or liability for which section HR 11 gives a value for the purposes of this Act, that value:
                                          1. for an asset or liability for which section HR 11 does not give a value for the purposes of this Act,—
                                            1. the market value of the asset or liability; but
                                              1. if the person uses the Public Benefit Entity International Not-for-Profit Accounting Standard 17 (the standard), the fair value of the asset or liability under the standard.

                                            Notes
                                            • Section HR 12: replaced, on (with effect on 6 April 2016), by section 137 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                            • Section HR 12(1)(a): amended, on , by section 226(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                            • Section HR 12(1)(b): repealed, on , by section 226(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                            • Section HR 12(2) heading: replaced, on , by section 226(3) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                            • Section HR 12(2): replaced, on , by section 226(3) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                            • Section HR 12(3): amended, on , by section 226(4) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                            • Section HR 12(3)(a): replaced, on , by section 103(1) (and see section 103(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                                            • Section HR 12(3)(a)(ii): amended (with effect on 1 April 2024), on , by section 95(1) (and see section 95(2) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
                                            • Section HR 12(3)(c): amended, on , by section 226(6) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                            • Section HR 12(3)(d): inserted (with effect on 14 April 2014), on , by section 226(7) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                            • Section HR 12(3)(d): amended, on , by section 82 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                            • Section HR 12(3)(e): inserted, on , by section 226(8) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                            • Section HR 12(4) heading: repealed, on , pursuant to section 226(9) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                            • Section HR 12(4): repealed, on , by section 226(9) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                            • Section HR 12(7) heading: replaced, on , by section 226(10) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                            • Section HR 12(7): replaced, on , by section 226(10) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                            • Section HR 12 list of defined terms current market value: inserted, on , by section 226(11) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).