A government review into the tax-exempt status of business activities carried out by New Zealand charities has ignited a complex debate, particularly focusing on the role and financial contributions of churches and other religious organisations within the country’s sprawling non-profit sector.
At the heart of the discussion is the long-standing principle that allows registered charities, including those advancing religion, to avoid paying income tax on revenue generated, even from commercial enterprises, provided the funds support their charitable purpose. This decades-old exemption is now under scrutiny, prompting both defence and criticism from various quarters.
Leading a vocal defence is Dr Juliet Chevalier-Watts, an associate professor of law at the University of Waikato specialising in charity law. Dr Chevalier-Watts, who identifies as an atheist, argues forcefully against stripping churches and religious charities of their tax benefits, a position she reached after extensive academic research shifted her initial view that they should be taxed.
“If we were to say, ‘Okay, well let’s take the religious charities away,’ we will say to the government, ‘Make up for what they do’,” Dr Chevalier-Watts stated in a recent interview, highlighting the extensive social and economic contributions she believes these organisations make.
Research conducted by Dr Chevalier-Watts and a colleague, cited as being from 2018, quantified the economic contribution of religious charities – a category including but broader than just churches – at approximately $6.1 billion New Zealand dollars through services such as volunteering hours and employment. This figure, she noted, surpasses the combined contribution of New Zealand’s commercial fishing and forestry industries at that time and does not yet account for intangible benefits like improved health outcomes or social cohesion, nor the value of assets held.
Government Scrutiny and Public Concerns
The current government review, spearheaded by Finance Minister Nicola Willis, stems partly from New Zealand’s position as somewhat of an “international outlier” in its broad tax exemption for charities, a framework largely unchanged since 1940, according to RNZ money correspondent Susan Edmunds. Submissions on a government consultation paper exploring the issue were recently due.
Ms Edmunds explained the review is examining whether existing rules contain loopholes that might be exploited, allowing charities to avoid taxes they perhaps should pay. Concerns also centre on whether charity-run businesses gain an unfair competitive advantage over non-charitable counterparts. Examples frequently cited in public discussion include Sanitarium, owned by the Seventh-day Adventist Church, and the large early childhood education provider BestStart, owned by the Wright Family Foundation charity.
The debate is further complicated by the actions and structures of specific religious groups. Destiny Church, a Christian denomination registered as a charity with multiple arms, has faced criticism following protests linked to its members that police described as involving violent behaviour. Calls have also been made, including by broadcaster Duncan Garner, to remove Destiny Church’s tax-free status, potentially by amending the Charities Act to disqualify “advancing religion” as a standalone charitable purpose.
Separately, the Gloriavale Christian Community, registered as the Christian Church Community Trust, has been the subject of calls for independent inquiries regarding alleged abuse and employment law breaches within the community.
Transparency, Regulation, and the Definition of Charity
Defenders of the current system, like Dr Chevalier-Watts, emphasise that the financial activities of registered charities are already subject to significant oversight and transparency. Under the Charities Act 2005, organisations must register with Charities Services Ngā Ratonga Kaupapa Atawhai. Their annual returns and financial statements are publicly available on the Charities Register website.
Data from the register shows the scale and diversity of the sector, with over 28,000 registered charities. A search for “church” yields 3,817 results. Gloriavale’s latest return, for instance, shows significant revenue and details its ownership of various companies, while also noting company tax paid on certain activities.
Crucially, Dr Chevalier-Watts and Ms Edmunds both highlighted that under current law, all funds raised by a registered charity, including from business activities like cafes or, on a larger scale, entities like Sanitarium, must be used for its stated charitable purpose. Private pecuniary gain by individuals (beyond reasonable salaries, which are subject to PAYE tax) is illegal.
“Nobody can make a private pecuniary gain from that. It is illegal to do so from a charity law perspective,” Dr Chevalier-Watts stressed. She argued that large reserves held by some charities are often necessary savings for operational costs, building maintenance, or surviving downturns, citing the difficulties faced by many organisations during the COVID-19 pandemic lockdowns when donations dried up.
Dr Chevalier-Watts also cautioned against judging a charity’s legitimacy based solely on the popularity of its views or the actions of some members, drawing parallels with the early, unpopular days of the Rainbow rights movement. While condemning specific illegal actions, she argued the legal system, rather than de-registration, is the appropriate avenue for addressing harm or wrongdoing.
“If there comes a situation where people are physically harmed as a result of that, well then let the full force of the law deal with that,” she said.
The Path Forward
The government review is specifically looking at business income, potential unfair advantages, and the structure of donor-controlled charities. While the outcome remains uncertain, options floated include restricting commercial activities, taxing charities’ business income directly, or requiring a clear separation between charitable operations and commercial arms, with the latter potentially paying tax after making a defined donation to the parent charity.
As the government considers its next steps, the debate underscores a fundamental tension: balancing the recognised public benefit delivered by New Zealand’s diverse charitable sector, including its faith-based components, against ensuring tax fairness, competitive neutrality, and accountability for all entities operating within the economy. Dr Chevalier-Watts remains adamant that reducing the financial capacity of these organisations through increased taxation would ultimately prove detrimental to the communities they serve.
“Without churches, our societies would be horribly poor,” she concluded.
