What Budget 2026 means for New Zealand’s Not-for-Profit sector

Budget 2026 arrives at a time when many Not-for-Profit organisations are already under sustained pressure. CEOs and boards are balancing rising demand for services, constrained funding, higher operating costs, and increased governance expectations, while also managing long-term financial sustainability challenges. For leadership teams, the challenge is not only responding to immediate pressures but making confident decisions about how to protect delivery and strengthen organisational resilience.

Our May 2026 BDO Business Performance Index showed that business leaders from the not-for-profit sector are most concerned about growth and cash flow. 

Against this backdrop, the Government has introduced a set of tax and regulatory changes that signal a shift towards fiscal discipline, with a strong focus on returning to surplus and targeting investment into core public services. For not-for-profit organisations, the more immediate implications sit in what those changes could mean for governance, donor behaviour, funding resilience, compliance and strategic planning.
 

“Budget 2026 introduces several pragmatic changes for the not-for-profit sector, particularly for smaller organisations. Increasing the tax-free income threshold from $1,000 to $10,000 should reduce administrative burden for organisations earning modest levels of trading income, while in-year donation tax credits and the ability to gift those credits could improve flexibility for some donors. It is also helpful to see confirmation that membership subscriptions and levies will remain non-taxable, although the detail around how this is applied in practice will be important. The key trade-off is the introduction of a cap on eligible donations. While this may strengthen the integrity of the system, some organisations will be watching closely to see whether it affects giving behaviour among larger donors. Overall, the Budget signals a shift toward balancing support for the sector with a stronger focus on transparency, sustainability and integrity.” – Vanessa Rowe, National Not-for-Profit Sector Leader

 

What has Budget 2026 changed for the Not-for-Profit sector?

The most significant changes sit in the proposed tax and regulatory settings announced in Budget 2026. The relevance of these measures will often come down to an organisation's operating model, funding mix, governance maturity and existing compliance obligations. In practice, some organisations may benefit from reduced administrative burden, while others may need to reassess fundraising settings, tax treatment, risk management and board reporting.

Taken together, the proposals point to a more targeted approach to support, rather than broad-based entitlements. There is also increased focus on the structure used to access tax benefits and ensuring that funds flow through to genuine charitable activity. 
 

“While these changes are intended to improve fairness and system integrity, they may also influence donor behaviour and funding flows over time. For organisations that rely heavily on philanthropy, even subtle shifts in tax settings can have a meaningful impact.”

 

Changes to tax rules for not-for-profits and charities

Following earlier Inland Revenue consultation (to which BDO contributed), many of the changes reflect the scope and direction signalled and are broadly consistent with submitter feedback. However, one area stands out, with a wider policy response than many would have originally expected - the introduction of a cap on individual donation tax credits.

• The donation tax credit for eligible donations will be capped at the lower of $100,000 or the donor’s taxable income each year, while the current tax credit rate of 33.33% will be retained.

This applies to donations made on or after 1 April 2027. Inland Revenue has indicated the cap is expected to affect around 350 donor entitlements (approximately 0.1% of donors), with a maximum annual credit of $33,333.33.

For most donors, this change will have little practical effect. However, higher value donors contribute a disproportionate share of philanthropic funding, meaning even small behavioural shifts could have wider implications for the sector.

This is therefore less a revenue measure and more a signal or a rebalancing of how generosity is incentivised within the tax system, and potentially how intergenerational wealth is deployed.
 

“While the purpose of the donation tax credit is to encourage and reinforce charitable giving, there may be some concern across the sector about whether the cap on eligible donations could reduce giving from larger donors.”

For those affected, the focus shifts from simply how much to give, to how and when giving occurs. This may include staging donations over multiple years, allocating across individuals, or considering alternative structures.

Over time, this could result in:

• Greater use of multi-year funding commitments rather than one-off donations
• Increased funding uncertainty for large projects
• A stronger emphasis on planned giving strategies

For organisations reliant on major donors, this underscores the importance of actively managing donor engagement and funding pipelines.

Other proposed changes include:

• Increasing the amount of net income a not-for-profit can earn without paying income tax from $1,000 to $10,000.

Taxable not-for-profit organisations with income of $10,000 or less will not have to pay income tax on that income. Not-for-profits with income of more than $10,000 will not be eligible for the threshold. Inland Revenue also says taxable not-for-profits with income of $10,000 or less will not be required to file an annual tax return unless specifically requested to do so with this filing exemption applying from the 2027-28 tax year. Inland Revenue will monitor this exemption by requiring financial institutions to provide interest income information for RWT-exempt customers from 1 April 2028.

• Ensuring that membership subscriptions and levies received by not-for-profits remain non-taxable.

This change would take effect from 1 April 2027 for most taxpayers and benefit taxable not-for-profits like clubs and societies that charge membership subscriptions and levies. This is particularly reassuring given recent changes for the Incorporated Societies regime, which had raised uncertainty around the tax treatment for member-based organisations.

• Donors will be able to receive their donation tax credit refunds throughout the year in certain circumstances, rather than waiting until the end of the tax year. 

This change will allow Inland Revenue to refund approved donation tax credits periodically throughout the tax year, if desired. In-year refunds will only be available to individual donors who earn reportable income (i.e. salary and wages) during the year and limited to a third of the individual’s reportable income. 

• Allowing donors to gift their donation tax credit back to the charity.

This allows donors to request Inland Revenue to transfer their donation tax credit refund to the charity they originally donated to, if they choose to. Charities that would like to receive these transferred donation tax credit refunds will be required to provide Inland Revenue with a bank account, otherwise the donation tax credit will be refunded back to the donor. 

• Simplification of volunteers’ tax obligations

The proposed change would give Not-for-Profit organisations the option of treating honoraria as salary or wages rather than treating them as schedular payments for tax purposes, which can be confusing for volunteers and create unnecessary compliance costs around PAYE and ACC levy obligations. This would apply from 1 April 2028. 

• Repeal of income tax exemption for non-resident charities

From 1 April 2028, non-resident charities that earn income in New Zealand but do not carry out charitable activities here will no longer be eligible for an income tax exemption on that income. This means overseas charities will generally be taxed on New Zealand sourced income such as interest, dividends and royalties, bringing them into line with other non-resident entities.
 

“For most New Zealand-based charities and not-for-profits, this change will have little direct impact. However, it signals a clear policy direction, with tax benefits increasingly targeted toward organisations delivering outcomes in New Zealand, and may create a more level playing field between domestic and offshore entities.”

 

• Tightening rules on trust distributions to charities

From the 2028–29 income year, private trusts that allocate income to tax-exempt beneficiaries, such as charities, will need to actually pay that income out within a specified timeframe for it to remain tax-exempt. If the income is not paid within that period, it will instead be taxed at the trustee rate, even if it has been allocated on paper.
For charities and not-for-profits, this change is designed to ensure funds allocated to them are genuinely received and used for charitable purposes, rather than retained within trusts. While the direct impact is expected to be limited to a relatively small number of arrangements, it reinforces a broader move toward tighter integrity in the sector’s tax settings and greater transparency around how charitable funds are distributed. 

 

How BDO can help

These changes create both opportunities and practical challenges for charities and not-for-profits. These organisations will need to focus on understanding where the Budget 2026 proposals intersect with existing structures, donor models, risk settings and operational pressures. Starting points could include: 

• Reviewing how the proposed tax changes may affect your organisation’s structure, income streams, compliance obligations and governance responsibilities.
• Assessing whether changes to donation tax credits could influence fundraising strategy, donor communications and engagement, cash flow planning or board-level financial oversight.
• Clarifying the treatment of subscriptions, levies, honoraria and other income sources to reduce uncertainty and support sound decision-making.
• Supporting boards, trustees and executive teams to understand governance implications, risk considerations and any changes needed to reporting or tax administration processes.
• Providing practical advice tailored to your operating model, funding mix and long-term strategic priorities.

If you would like to understand what these changes could mean for your organisation, please get in touch with your local BDO adviser.