Bow Down to the Tax Man: Is It Time Charity-Owned Businesses Started Paying Income Tax?
By Tulsi Khanna
Under New Zealand law, despite our secular society, registered charities and churches are exempt from paying income tax because they have a charitable purpose - the advancement of religion. This charitable status means churches, even big rich ones, do not have to pay a cent in income tax. Now this may be acceptable in and of itself, that is until these churches are the owners of million dollar businesses. It is not the donations given to charities or churches that is the point of contention here, but the heavily profitable businesses owned by them that may be a cause for concern. Many Kiwis may be unaware that their favourite breakfast cereal, Weetbix, is owned by a church. The breakfast staple Weetbix is owned by Sanitarium Health and Wellbeing Company, which was created by the Seventh-day Adventist Church in 1898 to promote religion and produce plant-based health foods and made more than $10 million of profits in 2018. The company said this was based on the church's belief that plant-based diets are “designated by God for the health of the human race”. Ngai Tahu is another example of an incredibly wealthy business owned by charity and pays no taxes. In the year to 30 June 2016, Ngāi Tahu Holdings Corporation Limited made a net profit of $210 million, but only distributed $44m to the trust. How is it then, that these charities get away with paying no taxes just because they claim to do good deeds? As the infamous Mike Hosking states on this issue, “being a nice guy doing good deeds is not a free pass, if it was we'd all be lined up.”
Under New Zealand’s Charities Act 2005 and Income Tax Act 2007, registered charities are exempt from paying any income tax so long as their purpose is the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community. Alice Snedden’s investigation into this issue revealed that these criteria came from times where there was no welfare state, so churches looked after the poor and those in similarly unfortunate circumstances. It could be argued then that this law was fit for its time where economic movement through the ladders of society was not so fluid, and it was not so easy for businesses to multiply their wealth. The most influential state for New Zealand’s legal and constitutional system, the United Kingdom, abolished this same law in the 1920’s, despite being a state with a national religion. In contrast, New Zealand’s increasingly secular society still upholds it. Arguably, it's time for it to go.
It is a known fact that charities and churches are highly valued and important sectors of our society, thus the problem here is not concerning the goodwill and generosity of these organisations. Instead, it is about the confusion this bizarre piece of legislation brings about. If breakfast cereal tycoon Sanitarium is exempt from paying income tax and does not put as much back into its churches for the advancement of religion, this creates an uneven playing field for all other businesses entering the same industry. In 2018, the total income of faith-based charities was more than $970 million. It is a complex project to try and take on how much of this could have been given in tax, and how much was truly used for its charitable purpose. Leader of the ACT party, David Seymour, has called for change on this issue - arguing that "people should be able to get a tax exemption for donating to charity, but when you’ve got those companies that are kind of like charity, kind of like a business, then it would make sense to split them." If this was implemented, then the business side would be able to donate to the charity side.
Churches claim that they do things for the society which the Government is simply unable or unwilling to do, and that the tax exemption gives them the freedom to carry out their acts of kindness. However, this is an issue that ought to go beyond reasonable doubt. University of Canterbury charities researcher Dr Michael Gousmett has been researching New Zealand charitable trusts for more than a decade, and has identified the clear fiscal advantage that charity owned businesses can have over other businesses competing in the same industry who have had to pay income tax. Furthermore, he claims that proving that profits are being used for charitable purposes is becoming increasingly tricky.
Whether it is by unpacking contentious legislation around the perks of being a church or charity or by confronting an economic monopoly in the world of breakfast cereals, perhaps it is time for New Zealand to lay the law of charitable purposes on the table and see who it really serves. Does a law that originated centuries ago still have a place in our modern society, and is it achieving its purpose? Is it time charity owned businesses starting paying income tax?
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