Inland Revenue has just released a draft operational statement (ED0265) about the income tax treatment of transactions between not-for-profit associations (Mutual Associations) and their members.
This statement is currently open for consultation and will significantly impact the tax obligations of a wide range of not-for-profit associations, including clubs, societies, cooperatives, and professional bodies.
- Historically, associations may not have paid tax on surpluses, but this is very likely to change going forward for most.
- Our view is this clarification represents a tax on organisations that are not registered charities or otherwise exempt under specific sections of the Income Tax Act.
This is not a change in law but a clarification of IRD’s view. The statement aims to clarify the tax rules for amounts received by associations from transactions with their members. This is an area that has previously been unclear with varying treatment across different organisations.
While there is a lot to consider in this document, our initial review has highlighted concerns about membership subscriptions, fees, and levies becoming taxable, particularly for associations prohibited from distributing funds to members.
The new Incorporated Societies Act 2022 requires that re registered incorporated societies do not allow distributions to members – meaning that those entities are highly exposed.
One positive in the operational statement is it will apply prospectively from the date of publication, meaning Inland Revenue will not adjust past assessments.
Inland Revenue is seeking feedback on the interpretative approach and operational proposals in this statement. Comments are welcome until 25 June 2025. We will likely be making a submission and encourage you to provide feedback to Inland Revenue if you have any concerns or suggestions.
We will be considering this operational statement and how it works in practice along with some illustrative examples, so watch this space.
