Tax exemption to help community organisations assist home ownership

The Government will introduce legislation to Parliament to give community housing providers and donors certainty that assisting low-income families into home ownership will be exempt from income tax.

“The Government is committed to supporting as many kiwi families as possible to achieve the goal of owning their own home. This tax change is about supporting organisations like Habitat for Humanity who help low-income families buy a house through rent-to-buy or similar home ownership products,” Housing Minister Dr Nick Smith says.

The law change is necessary after the former Charities Commission decided that while assisting low-income people with renting a house was charitable, assisting people into home ownership was not. This decision was confirmed by the High Court. One trust was deregistered and a number of others were left uncertain about their tax status, giving rise to significant anxiety in the community social housing sector.

“A key policy goal of the Government is growing the community social housing sector and we do not want uncertainty over tax issues acting as a barrier to this. The tax exemption should be limited to providing housing support to low- income families but should not be limited to just rental options. Helping a low- income family achieve home ownership can be hugely beneficial to the stability and long-term financial security of that family,” Dr Smith says.

“Certainty is an important component of tax policy. We do not think it was fair that community organisations working hard to assist families with housing could face uncertainty over whether they would or would not be liable for tax. This law change will give these providers the confidence they need to get on with their important work,” Revenue Minister Todd McClay says.

“The changes will also enable people to claim tax relief on their donations to qualifying community housing providers,” Mr McClay says.

The changes are estimated to have a fiscal cost of up to $2.4 million per annum. They will be included in an amendment bill to the Income Tax Act 2007, to be introduced to Parliament later this week. The Government will also be providing transitional assistance to some community housing providers facing tax liabilities prior to the new law coming into effect on 14 April 2014.