Non-Profit Accounting and Tax Tips 101

24 Jun 2022 | Biz Finances, Non-profit

People are yearning to be asked to use the full measure of their potential for something they care about. – Dan Pallotta, author

We continue our series on non-profit organisations, with tips to help you navigate the rewarding venture of running a charitable operation for a cause you’re passionate about. If your non-profit is still new, or you’re still considering whether to start one, read What You Should Know Before Starting a Non-Profit in New Zealand first. 

Now let’s look at the accounting and tax-related aspects that are unique to non-profits. Since the purpose, goals and needs of non-profits are different from those of conventional businesses, there are some aspects of their accounting that are handled differently too.  

Because the purpose of non-profits is to serve their cause, they are accountable to their supporters and contributors. The most important bit to understand is that there should be a money trail for all money that comes in and flows out of the bank account.  

Here are a few more tips that will help you run your organisation smoothly, and legally. 

Record All Your Income

You need to keep different sources of revenue separate in your accounts, because not only will it be easier to track and report on, but some income could be taxable.

Types of Revenue:

  • Donations – People donating to your organisation can get a tax deduction, so it’s both important to keep a proper record, and you need to send donees a receipt which they can include in their tax return.
  • Pledges – Some pledges could be conditional, like matching a future pledge from another donor, so track these accordingly.
  • Membership Dues – Subscriptions could be recurring monthly or annually and are usually for some type of service in return, like educational material in the form of magazines, webinars, or other events.
  • Special Events – These could include entrance fees to attend fundraisers or other occasions.
  • Grants or Other Lump Sums – There may be grants available from local or federal government agencies or from the private sector for your industry.
  • Volunteer Time and In-Kind Contributions – The donation of time and non-monetary services or goods also needs to be accounted for. This could be services from skilled professionals such as counsellors, tradesmen, marketers or bookkeepers, or someone gifting your organisation with a free piece of equipment such as a new computer.

Choose the Right Accounting Software

We don’t recommend you compromise when it comes to the engine that drives your accounting. Look for these must-have features:

  • Designed for Non-profit Organisations – Choose a package that features this customisation to handle the unique features that charities need, and even better, was developed with the input and recommendations of other non-profit entities.
  • Robust Reporting – Don’t settle for minimal features here, but look for the ability to track and report on multiple statistics that you can customise, such as debtor days, asset to debt ratio, expense cover trends, and liquidity graphs.
  • Supports Your Growth – Choose software that can grow with you and can be scaled up for extra add-on apps, additional users, or other features at a higher level of usage than what you might first start out with.
  • Other Handy Features – These could include donation tracking, donor management, third-party app integrations, and easily accessible customer support or FAQ forums.

We recommend using Xero for your accounting, with Spotlight Reporting for creating your monthly or quarterly reports. Xero has a great function to track different types of income and expenses with tracking codes, so you can report on each individual income stream separately. You need to set it up correctly from the start, so make sure you get in touch so we can help you with that. Spotlight Reporting has great reporting functions and a template specific to non-profit organisations, which we find useful.


What About Tax?

One of the great advantages of having non-profit status is that you don’t generally have to pay tax on your income, which will leave more money in your accounts to put towards running your organisation and providing a better service to your cause.

However, some forms of income are taxable. These include:

  • Business-related revenue, such as income from op shops (e.g. Salvation Army);
  • Investment income, such as interest on a term deposit, shares or real estate transactions.

Some non-profits could qualify for an exemption on the first $1,000 of taxable income from business activities or investments, so make sure you get in touch with us for more guidance.

Even if you have no taxable income, you will still have to file a tax return each year with the IRD, and you still need to deduct PAYE from your employees’ salaries as with any other job.


Do I Need to Register for GST?

As with for-profit businesses, if the income is above the GST threshold – if turnover is/or expected to be more than $60,000 in 12 months – you will need to register.

If you’re unsure whether you should register, or if you need help with registering and completing your GST returns, get in touch with us.


Partner With the Right Accountant

Operating a successful non-profit organisation requires professional support, as the reporting is distinct from conventional businesses. It’s vital to hire an accountant who not only understands your vision and goals and can give unbiased advice, but also understands the compliance and legal obligations specific to non-profits. Contact the team at BW Miller Dean to see how we can keep you on top of the finances in your non-profit.