NZAID

Goods and Services Tax and New Zealand non-government organisations (NGOs)

NZAID information note - Goods and Services Tax and New Zealand non-government organisations

Introduction

In general, NZAID grant funding is provided to New Zealand non-government organisations (NGOs) for project or programme activities undertaken in developing countries. Usually, in approving the funding application, NZAID makes it a condition that a certain amount, if not all, is transferred to the New Zealand NGOs partner organisation overseas.

This note provides information on the Inland Revenue Department's (IRD) treatment of Goods and Services Tax (GST) in relation to NZAID grant funding to New Zealand based NGOs.

What IRD rules apply?

  • In general, NZAID grant funding received by New Zealand IRD in New Zealand attracts GST.
  • However, where such grant funding is transferred to an overseas partner organisation it may be exempt from GST if certain conditions are met.

What are the conditions?

To be eligible for an exemption to GST the following requirements must be made specific conditions of the grant by NZAID and the GST exempt funds must be:

  1. transferred outside New Zealand and
  2. transferred to an overseas organisation that is operating overseas at the time the payment is received by them, and
  3. used to acquire goods or services outside New Zealand.

What does it mean?

This means that most NZAID project or programme funding for New Zealand NGO partner organisations overseas will not attract GST.

For example:
NZAID enters into a grant funding arrangement with the New Zealand NGO Aotearoa In Action (AIA). It is a condition of the grant funding arrangement that the total project funds are sent to Aotearoa In Action's (AIA) partner NGO in Samoa. In addition to the project funds an amount (8 percent) is to be retained by AIA to cover project management costs in New Zealand. No GST is due on the project funds sent to Samoa, but GST is due on the 8 percent administration funds retained in New Zealand.

What should I do?

In preparing detailed programme/project budget information for NZAID grant applications it would be helpful if the following information was clearly set out:

  1. the total amount to be transferred overseas to the partner organisation (with no GST added)
  2. the total amount to be retained in New Zealand and used by the New Zealand NGO for example: for programme/project management (calculated to include GST). The net amount and GST amount should both be clearly identified. The amount retained for management costs may be 8 percent or such other percentage as is agreed with NZAID.

The total budget figure will then be paid as grant funding by NZAID 'inclusive of all taxes'.

Who is responsible to IRD?

Each individual NGO is responsible to account to the IRD and specifically to:

  • take independent advice to establish its need to be registered for GST
  • clarify what legal GST obligations it must meet
  • satisfy IRD as to its obligations.

NZAID cannot offer legal advice on these matters. However, NGOs may be directed to the IRD website, and the Goods and Services Tax (Grants and Subsidies) Amendment Order 2003.

This note has been prepared for information purposes only. It may be used as a first point of reference, but should not be used as a substitute for legal advice.

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Related links

New Zealand Inland Revenue