Grey Power slip-up over tax

Grey Power NZ has been hit with a hefty bill after failing to pay income tax on its lucrative commercial arrangements for several years.

The over-50s advocacy group has had to pay $129,193 to Inland Revenue, including interest penalties, for unpaid tax covering the four years to 2018.

Grey Power says it didn’t know it was liable for the tax.

‘‘We believed incorporated societies’ income was tax-free,’’ national treasurer Roy Reid said.

Grey Power is a political lobby group of about 60,000 members with a national federation funded by a portion of members’ fees as well as three commercial deals.

Kiwibank pays Grey Power a commission for member term deposits ($117,415 last year); Pulse Energy pays a commission for members who belong to its Grey Power electricity scheme ($203,310 last year); and an advertising profit-sharing arrangement with the Grey Power magazine returned $24,993 last year.

Reid confirmed tax had not been paid since those arrangements were set up about 10 years ago. ‘‘If Inland Revenue wanted to, they could have gone back to day one but because we made a voluntary disclosure they accepted four years,’’ he said.

According to Grey Power’s annual accounts going back to 2008, it received at least $1.34 million from the three revenue sources. That means it has now paid about 10 per cent tax on the income – incorporated societies are normally taxed at 28 per cent.

Reid said the group’s auditors raised the tax issue this year and Grey Power sought an opinion from Inland Revenue.

Members had been expecting to see the audited financial accounts at this year’s annual meeting in May but it is understood the auditors, Lynch and Partners of Paeroa, wouldn’t sign off until the issue was resolved.

Reid confirmed the tax bill had contributed to Grey Power NZ incurring a $40,000 deficit on total income of $626,000 last year.

He said it was not well known that some incorporated societies’ income, such as membergenerated income was tax-free, but other income streams were taxable. Some societies had tax exemptions and others did not, he said. ‘‘It is a real mix-up. We made a voluntary disclosure and paid the tax so that is the end of the matter as far as we are concerned.’’

He said Grey Power NZ was still in a solid financial position with equity of $731,458.

David Cuthbert, a member of Grey Power’s Wellington central committee with experience running NGOS, said he started digging when the financial statements were late arriving.

‘‘They couldn’t produce the audited accounts at the annual meeting, which led to a kerfuffle,’’ he said.

‘‘Getting information out of the leadership is next to impossible, they just don’t respond.’’

Cuthbert said it should have been obvious to the treasurer and auditors that tax needed to be paid on the income.

‘‘If you have got an income stream coming from commissions being paid by a bank, commissions being paid by an electric company . . . you have got to account for it.

‘‘If you are being paid commissions, you pay tax on them, it is an income stream, not a donation.’’

Cuthbert said the auditors should have questioned the arrangement long ago.

‘‘I think they are in the gun as well.’’

Lynch and Partners did not respond to messages.

An Inland Revenue spokesperson said the tax treatment of incorporated societies had not changed appreciably ‘‘in decades’’ and the department had published guidelines for many years.

Taxable income was based on revenue sources such as interest, dividends, rents, sponsorship, admission fees and advertising revenue, but not membership subscriptions or levies.

The spokesperson said Inland Revenue sometimes made settlements when the taxpayer was taking steps to voluntarily comply and those decisions were made on a ‘‘case-by-case basis’’.