Should the Sanitarium tax ‘loophole’ be closed?

PLUS: What the ‘greatest-ever wealth transfer’ means for economic disparities

Summary:

• The government is promising to close charities’ tax “loopholes” in the Budget

• Although there are question marks about the activities of some larger charities, it is unclear that the government’s moves will address those issues

• Charities’ commercial revenue often goes to good causes, and a larger review of their activities and tax treatments is needed before any big moves are made

• Separately, an impending generational transfer of wealth raises the issue of whether we should copy Ireland’s innovative form of inheritance tax

On the tax treatment of Weetbix

Should Sanitarium pay more tax? This is one of the questions raised by the government’s prominently trailed plan to use this year’s Budget to close tax “loopholes” enjoyed by charities.

In a recent RNZ story, finance minister Nicola Willis said: "What essentially we're doing is looking to see if there are any loopholes that are being exploited that would allow entities that are structured as charities to avoid tax they should otherwise pay."

Inland Revenue is, accordingly, inviting comments by March 31 on a discussion paper on the tax treatment of not-for-profits. The issue is relevant to IDEA’s work on several fronts, including questions of equal treatment between different organisations, the role that charities play in addressing social problems, and the importance of civil society to a functioning democracy.

Problems at the big end of town

Many charities (a subset of the wider not-for-profit sector) are small organisations with low turnover. Some, however, have become sizeable outfits. This brings tensions, as does anything involving large sums of money. And there are several high-profile cases that could reasonably lead people to think that something is awry: