Tax and associations — what your organisation needs to understand
Being a not-for-profit does not automatically mean an association is exempt from income tax. Understanding the difference between membership subscriptions, separately charged services and other income is essential.
At NZSAE’s member briefing with Inland Revenue on 21 October, we explored proposed tax changes and how existing rules apply to associations. The discussion highlighted both welcome improvements and areas where organisations and their accountants need clearer practical guidance.
Who does this affect?
The discussion primarily concerned associations without an existing income tax exemption. Registered charities and organisations qualifying for specific exemptions, such as certain amateur sports bodies, have different considerations.
For other associations, income tax obligations depend on the nature of their income and the deductions available. Incorporation and not-for-profit status alone do not remove those obligations.
Membership subscriptions and separately charged services
The proposed legislation would protect the generally non-taxable treatment of genuine membership subscriptions and levies that support an association’s collective purposes.
Membership can include benefits without automatically turning the subscription into payment for a separately supplied service. However, a specific charge for goods or services does not become exempt simply because it is called a subscription or levy.
Separately charged conferences, training, events and other services generally generate income under ordinary tax rules, including when the person paying is a member. Inland Revenue emphasised that this treatment of trading transactions is an existing requirement.
For associations with several income streams, each needs to be considered on its own terms.
The proposed $10,000 deduction
The proposals would increase the current $1,000 statutory deduction to a maximum of $10,000 for eligible not-for-profit organisations with net income of $10,000 or less.
This test concerns net income calculated under tax rules, before the statutory deduction and carried-forward tax losses. It is not a test of total receipts or turnover, and it may differ from the surplus shown in an organisation’s financial statements.
Eligible organisations would generally also have the option not to file an income tax return unless Inland Revenue requested one. They could still choose to file, including where they wanted to carry forward eligible tax losses.
These changes are proposed for the 2027–28 income year, subject to the legislation being passed.
Why the threshold needs attention
The proposed deduction has a sharp cut-off. An eligible organisation with net income of $10,000 could receive a deduction reducing that amount to zero. An organisation with net income of $10,001 would receive no deduction under this provision.
That does not mean carried-forward losses cease to be available. Their use is a separate question under the applicable tax rules.
The intention is to reduce compliance costs for smaller organisations, but the abrupt difference at the boundary is an issue NZSAE will raise in its submission.
Questions associations raised
Is tax payable on all conference revenue?
Conference receipts are included in income, with allowable expenses deducted when calculating net income across the association’s taxable activities. Receiving a conference fee does not mean tax is payable on the entire amount.
Direct expenses and shared overheads need to be considered. Shared costs require a fair and reasonable allocation, and expenditure relating to exempt subscriptions cannot simply all be deducted against taxable activities.
Are sponsorship payments treated as donations?
Not automatically. Where a sponsor receives advertising, promotion or another service, the payment is likely to be income to the association. The sponsor being a member does not, by itself, change that treatment.
Whether a payment qualifies for a donation tax credit is a separate question involving both the payment and the recipient organisation’s status.
What happens to tax losses from previous years?
The proposed $10,000 eligibility test is applied before carried-forward losses. This does not remove the ability to carry forward or use eligible losses under the relevant rules.
Associations should discuss their losses and filing position with their accountant, particularly before deciding not to file a return.
What about professional registration, complaints and disciplinary fees?
The discussion highlighted the need for further guidance on practising certificates, professional registration, complaint lodgement fees and disciplinary penalties.
These payments can arise under different arrangements and should not automatically be given the same tax treatment. Some questions were not resolved at the briefing, and associations should seek advice on their particular circumstances.
Is project funding tax free if it is fully spent?
Spending all the funding does not, by itself, determine whether it is taxable income. Whether the receipt is income and whether the related expenditure is deductible are separate questions.
Timing also matters, particularly where funding and expenditure fall into different income years. Grants, government contracts and blended funding arrangements may require advice beyond the member transactions covered by the draft guidance.
What if our financial year does not end on 31 March?
The proposals refer to the 2027–28 income year, while the draft operational approach refers to 1 April 2027. Associations with early or late balance dates should confirm how the commencement provisions apply to them.
What NZSAE will be advocating for
NZSAE will make a submission supporting greater certainty for genuine subscriptions, the increased deduction and simpler filing requirements for eligible organisations.
We will also seek reconsideration of the $10,000 cliff edge and clearer guidance on the practical situations associations face.
A priority is helping incorporated societies and their accountants understand both existing obligations and the proposed changes. We will offer to work with Inland Revenue on a practical how-to resource, supported by worked examples, checklists and clear pathways to further assistance.
The aim is for incorporated societies across New Zealand to understand what applies to them and have reliable guidance to support their decisions.
What associations can do now
Share this update with your accountant or financial adviser and review how your organisation classifies its income and allocates expenses. Check that your board understands your tax position, including the basis for any exemption.
The proposals remain subject to the parliamentary process. Consultation on Inland Revenue’s draft operational statement, ED0265, closes on 11 December 2026.
Read Inland Revenue’s consultation update.
This article summarises the NZSAE briefing held on 21 October 2026. It provides general information and is not tax advice for an individual organisation.