To get tax benefits like exemptions or deductions, your not-for-profit needs to include certain important clauses in its founding documents (its rules, constitution or trust deed).
Here are examples of the wording you’ll need to use in your documents, depending on what type of organisation you are and whether you want an exemption (no tax) or a deduction (less tax).
Not-for-profits wanting an income deduction
Use the following wording if you are a not-for-profit wanting an income deduction.
You need a personal benefit clause to stop members or people associated with the organisation from getting any private benefit from it.
Wording:
As a not-for-profit organisation, the officers and members may not receive any distributions of profit or income from it. This does not prevent officers or members:
- receiving reimbursement of actual and reasonable expenses incurred, or
- entering into any transactions with the organisation for goods or services supplied to or from them, which are at arms length, relative to what would occur between unrelated parties.
Provided no officer or member is allowed to influence any such decision made by the organisation in respect of payments or transactions between it and them, their direct family or any associated entity.
You need a clause that restricts changes to the organisation’s goals or purposes, the personal benefit clause and the winding up clause.
Wording:
No addition to, deletion from or alteration of the organisation’s rules shall be made which would allow personal pecuniary profits to any individuals.
You need a winding up clause that stops members from personally benefiting when your organisation winds up or dissolves.
Wording:
On winding up or dissolution of the organisation any surplus funds or assets shall not be paid or distributed to any members or individuals but shall be:
- applied to a purpose in line with the organisations objects, or
- given or transferred to another not-for-profit organisation.
Sports clubs wanting an income tax exemption
Use the following wording if you are a sports club wanting an income tax exemption.
You need a personal benefit clause to stop members or people associated with the organisation from getting any private benefit from it.
Wording:
As a not-for-profit organisation, the officers and members may not receive any distributions of profit or income from it. This does not prevent officers or members:
- receiving reimbursement of actual and reasonable expenses incurred, or
- entering into any transactions with the organisation for goods or services supplied to or from them, which are at arms length, relative to what would occur between unrelated parties.
Provided no officer or member is allowed to influence any such decision made by the organisation in respect of payments or transactions between it and them, their direct family or any associated entity.
You need a clause that restricts changes to the organisation’s goals or purposes, the personal benefit clause and the winding up clause.
Wording:
No addition to, deletion from or alteration of the organisation’s rules shall be made which would allow personal pecuniary profits to any individuals.
You need a winding up clause that stops members from personally benefiting when your organisation winds up or dissolves.
Wording:
On winding up or dissolution of the organisation any surplus funds or assets shall not be paid or distributed to any members or individuals but shall be:
- applied to a purpose in line with the organisations objects, or
- given or transferred to another not-for-profit sporting organisation or a registered charity.
District improvement promoter wanting an income tax exemption
Use the following wording if you are a not-for-profit that promotes a town or region and you want an income tax exemption.
You need a personal benefit clause to stop members or people associated with the organisation from getting any private benefit from it.
Wording:
None of the funds of the association or society is used or is or may become available to be used, for any other purpose that is not a charitable purpose.
You need a clause that restricts changes to the organisation’s goals or purposes, the personal benefit clause and the winding up clause.
Wording:
No addition to, deletion from or alteration of the organisation’s rules shall be made which would allow personal pecuniary profits to any individuals.
You need a winding up clause that stops members from personally benefiting when your organisation winds up or dissolves.
Wording:
If upon winding up or dissolution of the organisation there remains after the satisfaction of all its debts and liabilities any property whatsoever the same shall not be paid or distributed among the members of the organisation but shall be given or transferred to a charity or for charitable purposes only within New Zealand.