Inland Revenue Department Clauses re Non Profit Status
Before awarding a club or organisation non profit status the IRD requires their constitution to have quite prescriptive wording ensuring that no-one gains any undue personal benefit and that in the event of ‘winding up’ the assets of the club/organisation are appropriately disposed of.
How much change is needed to be made to a constitution will depend on the extent to which the IRD’s concerns are already catered for in the existing wording.
The following clauses are direct copies of those supplied to a club and to an organisation by IRD in November 2009.
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(To the organisation)
“ … the following changes need to be made before non-profit status can be granted.
Personal benefit
As the organisation can employ the constitution requires a personal benefit clause. Please add the following:
‘Any income, benefit or advantage shall be applied to the objectives of the organisation. No member of the organisation or any person associated with a member, shall participate in or materially influence any decision made by the organisation, in respect of the payment to or on behalf of that member or associated person of any income, benefit, or advantage whatsoever. Any such income shall be reasonable and relative to that which would be paid in an arms length transaction (being open market value).
And the provisions and effect of this clause shall not be removed from this document and shall be included and implied into any document replacing this document’ ”
A variation to this clause, sent to a bowling club reads:
‘No member or person associated with a member of the club shall derive any income, benefit or advantage from the club where they can materially influence the payment of the income, benefit or advantage. Except where that income, benefit or advantage is derived from
a)Professional services to the club rendered in the course of business, charged at no greater rate than the current market rates; or
b) Interest on money lent at no greater than the current market rates’
(To the organisation)
Winding Up
A winding up clause is required which prevents members being able to receive a personal benefit. Please add to the end of this clause the following 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 some other organisation or body with similar objects to the first organisation that also has an income tax exemption or for some other charitable purpose, within New Zealand’
Alterations to rules clause
To qualify for non profit status there must be a clause stating that the objects, personal benefit clause and winding up clause cannot be altered. Please include the following paragraph:
‘No addition to or alteration of the non profit aims, personal benefit clause or the winding up clause shall be made which affect the tax exempt status.
The provisions and effects of this clause shall not be removed from this document and shall be included and implied into any document replacing this document’
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(Once the constitution has been signed by three officers/registered with the Economic and Development Companies Office a copy is forwarded to PO Box 1147, Palmerston North 4440)