Charity Tax Rules Overhauled by Government

Charities and not-for-profits can earn $10,000 tax-free instead of $1,000 under new Government rules.

Revenue Minister Simon Watts and Community and Voluntary Sector Minister Louise Upston announced the changes after Inland Revenue's review found existing tax rules lacked clarity and could undermine credibility.

"Last year, Inland Revenue released an Issues Paper on how the not-for-profit sector is taxed. The paper attracted huge public interest with submitters noting that the rules lacked clarity and could undermine credibility," Watts said.

"The Government has listened to this feedback and is introducing a range of measures to ensure the charitable and not-for-profit sector is strong, fair, and has integrity."

The biggest change — a tenfold increase in tax-free earnings — takes effect between 2027 and 2028 along with other reforms.

Wealthy donors will face new limits. Those claiming donation tax credits will be capped at $100,000 per year, designed to prevent tax planning risks when donors give to charities they control.

Donors will also be able to receive tax credit refunds during the year rather than waiting until year-end, and can gift their donation tax credit directly to a charity.

Membership subscriptions and levies received by not-for-profits will remain non-taxable.

Upston said the charitable sector deserved robust rules given its economic contribution.

"Over 53 per cent of adult New Zealanders volunteer, many of them through charities and not-for-profits - 89 per cent of community organisations are volunteer run. Formal volunteering is worth $6.4 billion to the economy. When you add people who volunteer directly, it's even more - $14.4 billion," she said.

"That makes it even more vital the tax rules relating to charities are enduring and work for New Zealand."

The changes follow a 2025 Government examination of options for limiting access to charitable tax concessions. "That work is now complete," Watts said.

Inland Revenue will publish detailed information when the legislation is introduced.

"These changes are about striking the right balance between simplification, fiscal sustainability and ensuring the system has integrity," Watts said.