Feds Call On Minister Watts To Rule Out Yet Another Tax

Scoop

4 days ago

Federated Farmers is calling on the Revenue Minister to rule out yet another tax, this time a controversial Inland Revenue proposal hitting the not-for-profit sector.
Under the proposal, organisations like Federated Farmers would be taxed on their membership subscription income for the first time.
"We're calling on Simon Watts to move quickly and categorically take this off the table," Federated Farmers board member Richard McIntyre says.
"This is not a routine tax consultation - this is a significant new interpretation that overturns 20 years of settled practice."
Ideally, Inland Revenue would withdraw its draft interpretation but, failing that, the Minister must step in, McIntyre says.
"This isn't a minor tweak - it's a fundamental shift in how the Inland Revenue Department (IRD) interprets the law.
"It would have serious consequences for New Zealand's not-for-profit sector."
Under current practice, not-for-profits structured as mutual associations - organisations set up to serve their members rather than make a profit - aren't taxed on income they receive from members.
This principle, known as mutuality, is based on the idea that a group of people cannot make profit from dealing with themselves.
However, IRD is proposing that if a not-for-profit is constitutionally prohibited from distributing profits to members, as most are, its member income should be taxed.
"This would pull the rug out from under about 9000 not-for profits, advocacy groups, professional associations, unions, community organisations, and political parties who rely on membership fees to fund their operations," McIntyre says.
"This is not just about Federated Farmers - it's sector-wide and is creating huge concern."
The IRD's draft relies heavily on an Australian legal precedent - the Coleambally Irrigation case - which found mutuality does not apply when there is a legal bar on profit distribution.
But Federated Farmers argues this is a poor precedent to import into New Zealand, noting that Australia's Parliament had to step in and reverse it with legislation after significant backlash.
New Zealand's not-for-profit framework is different - but the harm from adopting this interpretation would create exactly the same confusion and harm, McIntyre says.
Federated Farmers' submission urges the IRD Commissioner to withdraw the proposal and reaffirm the non-taxable status of genuine mutual income.
"Ultimately, this is now a political question. The Government cannot allow the Inland Revenue to unilaterally rewrite tax policy that affects thousands of organisations," McIntyre says.
"This is why the Minister needs to rule this out publicly. Tax policy decisions of this magnitude belong with elected representatives, not faceless tax officials in Wellington."
Federated Farmers has submitted on this consultation draft.
The submission questions why IRD is pursuing the change now, after more than 20 years of consistent guidance and practice and ecosystem has been allowed to flourish under the existing rules.
"After two decades of stability, we have to ask: why now? This has the hallmarks of a desperate revenue grab dressed up as a legal interpretation," McIntyre says.
"That's why the Minister needs to make it clear this won't proceed."
Federated Farmers is not alone in its concerns.
"We're hearing from a growing coalition of not-for-profits across the country, who are just as alarmed as us about the proposed change and its implications," McIntyre says.
"From unions to professional bodies to political parties, the feedback is unanimous: this proposal would be devastating.
"The mutuality principle has served our country well for decades, and it should be preserved."
Federated Farmers' submission concludes with a stark warning: if the Commissioner proceeds with the reinterpretation, it will become a political issue - one that Ministers and MPs will need to address urgently.
"The public deserve to know where the Government stands on this. We're calling on Minister Watts to give that clarity now," McIntyre says.
The full submission is available here (https://fedfarm.org.nz/FFPublic/Policy2/National/250624-IRD-Submission-NFPs.aspx), and Federated Farmers will continue to engage with the Government, other affected organisations, and the wider public as the consultation process unfolds.