“Ten election policies for charities for 2023 with Sue Barker” – Policy 5: Imputation Credit Refundability

Sue BarkerWhile floods and cost-of-living issues justifiably dominate our focus, behind the scenes, political parties continue to develop their manifestos in the lead-up to this year’s general election. Sue Barker, Director of Sue Barker Charities Law, joins us for a series on 10 election policies for charities for 2023. In the fourth part of the series, Sue shares her insight on imputation credit refundability. She will also be presenting in March at the upcoming Charities and Not for Profits Update.


Policy 5: Imputation Credit Refundability

Policies 2 and 3 discussed elegant means of allowing funding to flow to where it is needed. Another elegant solution would be to remove the current restriction on registered charities receiving refunds of their unused imputation credits.

The underlying policy of imputation is that dividends earned by a company’s shareholders should be taxed at each shareholder’s marginal tax rate. The marginal tax rate for registered charities is zero due to the charitable exemptions from income tax: not allowing them to receive refunds of their unused imputation credits runs counter to the underlying policy of imputation, and currently unfairly results in registered charities paying tens, if not hundreds, of millions of dollars in tax.[1]

Non-refundability of imputation credits has a distorting effect on investment decisions: it biases registered charities away from investing in New Zealand companies, towards investments where their income tax exemption will be effective (such as in foreign companies offering unimputed dividends, or in interest-bearing debt). Allowing imputation credits to be refunded to registered charities would remove this distortion, and would also have a number of positive side-effects, including eliminating the element of double taxation and bringing the law into line with the underlying policy; it would also bring New Zealand into alignment with Australia, which has been allowing refunds of charities’ surplus imputation credits (known in Australia as “franking credits”) for more than 20 years[2]

The issue of imputation credit refundability was on the New Zealand Government’s tax policy work programme for 2019-2020,[3] but appears to have “fallen off” without being addressed.[4] Previous considerations of this issue have rejected fixing the problem on the grounds of “fiscal cost”:[5] however, in calculating that cost, the offsetting benefits that might flow from removing a significant barrier to investment by New Zealand charities in New Zealand companies, and from allowing millions of tax dollars to flow to communities where the impact would be multiplied, do not appear to have been taken into account. Similarly, the comprehensive financial reporting rules for registered charities that were introduced from 2015 also appear to have been overlooked:[6] New Zealand registered charities are now subject to arguably the most comprehensive set of transparency and accountability requirements in the world,[7] providing more than ample checks and balances to guard against any potential abuse.

Allowing imputation credit refundability to registered charities would fix a longstanding anomaly and would be welcomed by charities (and those they work to support). Combined with allowing a more reasonable range of charities to access registration and donee status (see policies 1-4), it would also help to unlock the balance sheets of philanthropy and allow more capital to flow into important areas such as economic development, social enterprise, affordable housing, amateur sport, and public interest journalism.[8]

Why is it taking so long for this issue to be fixed?


Sue Barker is the director of Sue Barker Charities Law, a boutique law firm based in Wellington, New Zealand, specialising in charities law and public tax law. Since its founding in 2012, the firm has won a number of awards, including Boutique Law Firm of the Year at the New Zealand Law Awards. Sue is a member of Charities Services’ Sector Group and a member of the Core Reference Group for the review of the Charities Act. Sue is also a co-author of the text The Law and Practice of Charities in New Zealand (LexisNexis, 2013) and a contributor to a number of texts, including Charity Law: Exploring the Concept of Public Benefit (Routledge, 2022) and Regulating Charities: the Inside Story (Routledge, 2017). In 2016, Sue was made an Honorary National Life Member of the National Council of Women of New Zealand Incorporated for her work assisting the Council with charities law issues. In 2019, Sue was awarded the New Zealand Law Foundation International Research Fellowship Te Karahipi Rangahau ā Taiao, New Zealand’s premier legal research award, to undertake research into the question “What does a world-leading framework of charities law look like?”. Her report Focus on purpose was released in April 2022 making 70 recommendations for charities law reform in Aotearoa New Zealand”. More information about Sue and the research can be found at www.charitieslaw.co and www.charitieslawreform.nz
Contact Sue at susan.barker@charitieslaw.co or connect via LinkedIn

[1] See, for example, the May 2019 submissions of The Tindall Foundation and the JR McKenzie Trust to the DIA’s review of the Charities Act: <www.dia.govt.nz/Charities-Act-Submissions>.

[2] S Barker Focus on purpose – what does a world-leading framework of charities law look like? [2022] NZLFRR at 309-312.

[3] Inland Revenue Te Tari Taake Government tax policy work programme 2019-20 as at 8 August 2019: <www.taxpolicy.ird.govt.nz/work-programme/government-tax-policy-work-programme-2020-21#charities>.

[4] Inland Revenue Te Tari Taake Government tax policy work programme 2021-22 as at 23 July 2021: <www.taxpolicy.ird.govt.nz/work-programme#:~:text=The%20tax%20policy%20work%20programme,Integrity%20of%20the%20tax%20system>.

[5] See, for example, Inland Revenue and the Treasury for the Tax Working Group Charities and the not-for-profit sector: Background Paper for Session 13 of the Tax Working Group 6 July 2018 at 20.

[6] Charities Act 2005 ss 41(2), 42A.

[7] S Barker Focus on purpose – what does a world-leading framework of charities law look like? [2022] NZLFRR chapter 1 and Appendix A.

[8] For an example of how the charities law framework is being used to prevent charities from helping people into affordable housing, see the social housing case study at S Barker Focus on purpose – what does a world-leading framework of charities law look like? [2022] NZLFRR at 131-134.