Submission on Inland Revenue’s Targeted Consultation
Taxation and the Not-for-Profit Sector
New Zealand Chambers of Commerce Inc (NZCCI)
18 December 2025
Executive Summary
New Zealand Chambers of Commerce Inc represents a national network of 30 regional business associations that deliver economic development, capability-building, export support, and advocacy across New Zealand. Our chambers are not-for-profit membership organisations whose constitutions prohibit the distribution of income or assets to members.
NZCCI opposes the proposals in Chapter 3 of the targeted consultation document Taxation and the Not-for-Profit Sector (14 November 2025), which would:
- introduce a statutory definition of membership subscriptions that narrows the scope of non-taxable revenue
- require organisations to apportion subscriptions into taxable and non-taxable components
- expand the range of member transactions deemed taxable
- increase filing obligations for thousands of community entities
- introduce a $10,000 “cliff-face” tax-free threshold that will create distortions and compliance burdens
These proposals would impose significant administrative and financial burdens on chambers of commerce and other not-for-profit business associations, for minimal or no gain to the tax base. The approach does not reflect the realities of not-for-profit operations, nor does it recognise the mutual, collective, and reinvested nature of membership revenue.
The new definition of membership subscriptions is unworkable in practice, fundamentally
mischaracterises the purpose of chambers, and risks undermining the financial sustainability of regional business organisations that are already operating with limited resources. Chambers rely on multiple revenue sources precisely because membership income alone is insufficient to sustain their operations; all surpluses are reinvested into programmes, services, and facilities that support local business communities.
We urge Inland Revenue to withdraw the proposed framework and instead maintain the current treatment of membership subscriptions as non-taxable where profit distribution is constitutionally prohibited.
About NZCCI
NZCCI is the national accreditation body for 30 chambers of commerce, ranging from large metropolitan chambers to small regional organisations. Chambers provide:
- Business networking that strengthens local economies
- Training and capability development, often subsidised or free
- Export documentation services relied upon by regional exporters
- Advocacy and policy engagement on behalf of local business communities
- Trusted communication channels between government agencies and local businesses
Chambers reinvest all income into service delivery and are governed by constitutions that prohibit members from receiving private pecuniary benefit. They operate for community value, not commercial profit, and their activities support Government objectives in regional
development and business growth. Chambers are enablers and connectors, not competitors with private enterprises.
Key Concerns with the Proposed Framework
1. The proposed definition of membership subscriptions is unworkable and misaligned with real-world not-for-profit structures
The new definition attempts to distinguish “core membership benefits” (non-taxable) from
“identifiable direct valuable benefits” (taxable). In practice, this line cannot be drawn cleanly for NFP business associations.
Chamber membership is a bundle of interconnected benefits that collectively support the local business community. These benefits cannot be meaningfully separated into taxable and non-taxable components without creating:
- significant compliance costs
- arbitrary apportionment decisions
- inconsistent treatment across organisations
- confusion for both members and administrators
The approach assumes a commercial, transactional model of service delivery. Chambers do not operate this way; membership funds a collective ecosystem of support, not discrete priced services.
In addition, chambers cannot rely solely on membership subscriptions to fund their operations. Membership income typically covers only a portion of the cost of running a chamber, requiring responsible generation of additional revenue through training programmes, events, sponsorship, and export documentation. These activities support the organisation’s
community-focused mission and are not commercial in the private-sector sense. Any surpluses are reinvested into programmes and capability-building rather than distributed for private gain. This underscores why carving up membership fees into taxable and non-taxable components does not reflect operational reality.
2. Apportionment of subscription income is impractical and burdensome
Apportionment would require detailed analysis of:
- governance rights
- communications and reporting
- networking opportunities
- advocacy
- access to programmes or events
- informal business support
Attempting to allocate a percentage of each subscription to “core” or “direct valuable benefits” is administratively unachievable and will generate inconsistent outcomes across the NFP sector.
The compliance burden would fall particularly heavily on small regional chambers, many of which have only one or two staff. Rising compliance obligations under the Incorporated
Societies Act and other regulatory frameworks already impose substantial pressure on these organisations. Adding a complex apportionment-based tax regime would exacerbate existing compliance costs and divert staff time away from delivering essential support to local businesses.
3. The proposal disregards the mutuality principle and the statutory prohibition on profit distribution
Chambers exist solely for mutual benefit. Members do not receive profits or pecuniary gain. Surpluses are reinvested or transferred to similar organisations upon winding up. Chambers’
constitutions are explicit that no member may benefit financially, and any assets must pass to another entity with similar charitable or community objectives if the society winds up.
This statutory prohibition on private benefit confirms that chambers do not operate as commercial entities. The proposal effectively sets aside the mutuality principle despite its long-standing acceptance in New Zealand tax settings. Internationally, when courts have limited mutuality (e.g., Australia), Parliament overturned those decisions due to the significant negative impact on NFPs. New Zealand should avoid repeating this pattern.
4. Increased compliance and filing obligations undermine the Government’s stated objective to reduce compliance costs
The proposed “short-form return” still introduces mandatory annual filing for tens of thousands of small, volunteer-run organisations. This adds administrative burden without improving tax integrity.
The requirement for financial institutions to report income for RWT exemption monitoring further adds complexity.
Despite this, Inland Revenue acknowledges that most NFPs would remain tax-neutral, meaning the compliance burden is disproportionate to the likely revenue impact.
Chambers already face increasing compliance costs due to enhanced reporting and governance requirements. Adding new tax-related obligations compounds these pressures and reduces capacity to deliver core services.
This increase in compliance obligations also runs counter to the current Government’s stated goal of reducing complexity and lowering compliance costs for businesses and community organisations. This additional compliance also runs counter to the Government’s goal of reducing complexity and lowering compliance costs. Instead of simplifying the system, the proposals introduce new forms, calculations, and reporting requirements that smaller regional chambers are least able to absorb. This contradicts the wider commitment to reducing administrative burden across the economy.
5. The proposed $10,000 “cliff-face” threshold creates unfair distortions
A not-for-profit with a $9,000 surplus pays no tax; one with an $11,000 surplus pays tax on the full amount. This creates perverse incentives to:
- keep surpluses artificially low
- shift or defer income
- restructure operations
It penalises organisations that manage their finances prudently.
6. The consultation process has been perceived as narrow and inconsistent with the Generic Tax Policy Process
Sector organisations have expressed concern that:
- this round of consultation was not publicly released
- messaging earlier in the year indicated the proposal had been paused
- only a limited group of stakeholders were approached
This has eroded confidence that the process is transparent and inclusive, particularly given the wide impact on the incorporated societies sector.
7. Significant consequences for regional business communities
If membership subscriptions become taxable in whole or in part, chambers will face:
- pressure to increase fees
- reduced capacity to deliver services
- withdrawal of business support programmes
- increased reliance on government funding
- closure risk for smaller chambers
For some organisations, particularly those in smaller or parochial regions, the cumulative financial and compliance burden may render operations unsustainable. Some incorporated societies may be forced to close entirely. The loss of a chamber would remove the only structured business support infrastructure available to many communities, undermining local resilience and limiting the Government’s ability to reach businesses through trusted intermediaries.
Recommendations
NZCCI recommends that Inland Revenue:
- Retain the non-taxable status of membership subscriptions where distribution of profits or assets is prohibited.
- Abandon the requirement to apportion subscription revenue, which is impractical and costly for the NFP sector.
- Maintain the current, simple approach that recognises the mutual nature of membership income.
- Avoid introducing compliance burdens that disproportionately affect small, volunteer-based organisations.
- Engage with the sector to identify targeted solutions where genuine integrity concerns exist instead of broad, sweeping changes.
- Reinforce the mutuality principle as an essential feature of New Zealand’s tax framework for membership-based NFPs.
Conclusion
Chambers of commerce deliver substantial value to local businesses, government engagement, and regional development. Taxing membership subscription income, apportioning membership benefits, and increasing compliance obligations would erode the financial resilience of chambers and undermine their ability to support local communities.
The proposed framework imposes disproportionate burdens for minimal fiscal gain and fails to reflect the mutual, community-driven nature of chambers. More broadly, the changes would have significant adverse consequences for the wider incorporated societies sector, including sports clubs, cultural groups, professional associations, volunteer-run organisations, and thousands of other membership-based community entities. Many of these organisations operate on minimal budgets, rely heavily on volunteers, and lack the administrative capacity to absorb complex new tax obligations. The proposals therefore risk widespread financial stress, service reductions, and organisational closures across the membership and community ecosystem.
NZCCI strongly urges Inland Revenue to withdraw the proposed changes and work with the sector to design a tax framework that is fair, principled, and aligned with New Zealand’s long-term economic and social goals.