22 Jan 2015

Charities risk deregistration

6:37 am on 22 January 2015

Hundreds of charities have been threatened with being thrown off the official register after going for years without filing annual returns.

And a charity expert says that leaves the system open to abuse.

The Charities Services is in process of deregistering charities who have not filed an annual return for at least two years.

Despite it being a legal requirement to file every year, some have not submitted returns since 2010.

Thousands of charities have been threatened with being thrown off the official register.

Some 2000 charities were sent warning letters late last year and since then officials have removed 140 from the register. Photo: 123RF

Of the roughly 27,500 charities in New Zealand, letters were sent to 2000 late last year, warning them that if they did not file their returns soon, they would be taken off the register.

This means they would lose their tax breaks, and their right to be able to call themselves charities.

Jules Matika, who ran the River of Life Ministries Trust, at Ngaruawahia near Hamilton, which was de-registered just before Christmas, blames a lack of stewardship.

"We had our secretary or treasurer back in 2011. When she left, no one really took up the mantle to carry on that side of things. Things just got too busy and slipped away."

Marion Norton helped set up a charity in memory of her sister and brother-in-law who were killed in a plane crash in 1978.

Radio New Zealand spoke to Mrs Norton, just hours before the Hugh and Alison Taylor Memorial Trust was de-registered.

At the time, she said action like that would be harsh.

"I think that's fairly tough for the kinds of organisations we are. We've done everything by the book otherwise.

"It was quite a big effort when we first got ourselves registered, we had to have the books done for the couple of years we applied for grants too.

"We operated at such a low level, $20,000 to $30,000 in a year, we never got over $30,000 I don't think. It really hardly cut even."

Other recently de-registered charities said that as volunteers with full time jobs, they just had no time to complete the paperwork.

'Too busy' no excuse

But an independent researcher in the charity sector, Dr Michael Gousmett, said being too busy was not an excuse.

He said for some charities, failing to submit annual returns could be a way to hide wrongdoing, and not checking this left the system open to abuse.

He said although most charities were small, the public had a right to know about their finances.

"This is a sector that's subsidised by the taxpayer and the taxpayer has a right to know what you're doing with funds that are provided either through donations, or through the income tax exemption, or through the tax credit if you make donations.

"I don't think it's an excuse to say 'oh we're too busy and we can't get round to it' - that's the obligation of being a tax charity."

But Dr Gousmett was surprised that some of the worst offenders are only being dealt with now, when they had not filed returns for over four years.

"They [Charities Services] should have taken a much more proactive stance.

"I think it does raise issues about the whole function of Charities Services and what we expect of them. Either do the job properly or not do it at all."

Charities removed for not filing returns

Charities Services, which is part of the Department of Internal Affairs, said since the warning letters, they had taken 140 charities off the register themselves, 15 voluntarily deregistered and 800 have handed in returns.

Deneral manager Lesa Kalapu said checks are regular, but their process has room for improvement.

"We were taking action to remove some for not filing, but it wasn't done in a systematic way.

"We're always looking at ways we can enhance the system so that we can use the online system in a way so that it can put up flags for us, that type of thing.

Ms Kalapu said none of the de-registered charities will be investigated, as there had been no complaints about them.

But there could be further implications.

Charities lawyer, Sue Barker, said each case of de-registration will be passed to Inland Revenue, and the charities may have to refund tax that they were exempt from while they were registered.

"There are now new rules in the income tax legislation that require the charity to pay income tax on the value of its net assets, calculated according to a certain formula.

"They've basically got 12 months to get rid of all their assets or pay tax on the balance."

Ms Barker said charities have 20 working days to challenge being taken off the register, but have to appeal to a High Court.

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