NZAID

GST and New Zealand NGOs

NZAID Information Note - GST and New Zealand NGOs

Introduction

In general, NZAID grant funding is provided to NZ 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 NZ NGOs partner organisation overseas.

This Note provides information on IRD's treatment of GST in relation to NZAID grant funding to New Zealand based NGOs.

What IRD rules apply?

  • In general NZAID grant funding received by a 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 NZ NGO partner organisations overseas will not attract GST.

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 AIA's partner NGO in Samoa. In addition to the project funds an amount (8%) 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% 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), and
  2. the total amount to be retained in New Zealand and used by the NZ NGO e.g. 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%, 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. The information presented is current as at September 2005.

Relevant link: New Zealand Inland Revenue

Page Last Reviewed: 13 July, 2006