Incorporated Society or Charity
[This article was issued as supplement to the April 2011 NZPF newsletter]
Registering as an Incorporated Society
Any group of people can form a Stamp Club with or without being incorporated, but in either case there may be income tax and GST considerations to take into account.
There are advantages in making the effort to register as an Incorporated Society, as this addresses potential liabilities to members and officers in running the group. This is also required if the group wishes to become a registered charity, and is possibly the preferable way to operate an organisation affiliated to the New Zealand Philatelic Federation Inc.
There may also be an advantage in registering for GST with the Inland Revenue Department.
Depending on the purpose of the organisation, it may be advantageous for tax and other reasons to be registered as a charity with the Charities Commission.
Registering as a Charity
To be registered with the Charities Commission the rules of the group have to show that it exists for an educational purpose. If the present rules do not reflect this aspect, then the rules need to be changed first. A Stamp or Philatelic Club’s rules may be able to show that they have an educational purpose. At least two philatelic societies affiliated to the NZPF have already registered as Charities.
In simple terms, registration gives the club Income Tax exemption; and thus generally gives less concern from an income tax perspective. There is an added advantage too – donors who can show they have donated to a registered charity can use this to help offset their personal income when submitting their tax return.
In dealing with the Company’s Office, IRD & Charities Commission, there are certain formalities to be completed during any calendar and/or financial year for the club. These formalities require someone within the club to be responsible for completing these tasks, often a shared responsibility of the Secretary and Treasurer. These two officers need to know their way around formal documents and requirements, or at least know where to look for advice.
Tax considerations can be dealt with by a club which is not a registered Charity, but this can mean difficulties in obtaining IRD approval for certain incomes to be considered exempt income tax. If the club registers as a Charity, then the IRD form-filling is most likely dispensed with, but the Charities Commission & Company Office still need forms and documents to be submitted.
The scale and size of the club has to be considered when dealing with the Income Tax question. If the club does not get involved in running of philatelic exhibitions or other significant events, then most likely there is less of a concern about Income tax returns.
If the club runs philatelic exhibitions or other similar events, then the tax issue could be very important, particularly if the events are successful in terms of making a significant surplus, which could give rise to the requirement to pay of income tax.
As an aside, large events, such as national exhibitions, run by an already established club should consider using a ‘venture’ or ‘exhibition’ account within the club’s overall financial reporting. The overall club accounts and venture account should be audited separately, and then reported to its members at their AGM before the ‘venture account’ is sent to the NZPF Executive Committee.
Holding a national exhibition is most likely time when a club may receive donations. Often the words ‘grants’ and ‘donations’ are taken as meaning one and the same thing, but in the view of the IRD they are considered to have quite different meanings.
At least for tax purposes, clubs prefer donations rather than grants, whether or not you have registered as a Charity. Be aware of calling a ‘gold coin’ entrance admission a donation, as the IRD does not regard it as such. This would suggest free admission to exhibitions, whether national or other. If not a registered Charity then there is the problem of trying to convince the IRD that your club does indeed have donations, as these would reduce income tax payable.
There is also a payroll scheme available if an individual’s employer offers a scheme which enables the employee to make donations directly from their pay to a chosen ‘donee’ organisation, and at the same time it is recorded by the employer with the IRD for that individuals income tax benefit. Whether or not a donor makes a donation direct to a ‘donee’ organisation, or through their employer’s scheme, the minimum donation is $5.00 per annum. If a donor makes a donation direct they require a signed official receipt from the ‘donee’ organisation to present to the IRD with their annual tax return.
Donations benefit only applies where funds are applied by your club for charitable, benevolent, philanthropic or cultural purposes wholly or principally within New Zealand.
Keep in mind too that all financial records have to be held for at least the past 7 years, based upon the 31st of March each year. It is also advantageous to retain your correspondence for about the same period of time and minutes of the club’s affairs should be held as archive material for the life of the club to perhaps enable a history of the club to be written for some future anniversary.