Important Deadline Closing: 25 June 2025 - Mutual transactions of associations (including clubs and societies)

In case you missed it, IR are proposing to override the mutuality principle for trading stock and services supplied to members, and that previously subscriptions and levies covered by the mutuality principle will not be covered by the mutuality principle if the association is not able to distribute to members.

In case you missed it, on 30 April, IR released a draft operational statement explaining their proposed income tax treatment of amounts clubs, societies, and other associations receive from members, other than those already subject to tax. ED0265 can be found here. It is proposed that the change to previous interpretations will apply prospectively from the date of publication of the Operational Statement (yet to be determined).

"The common law principle of mutuality developed through a series of court cases, including some from the 19th century. In brief, the principle is that a group of persons cannot derive assessable income from a mutual transaction on the basis that group members cannot make a taxable gain from trading with themselves.

A mutual transaction generally is one confined to the circle of membership of the group. When the group enters into transactions with persons who are not members, it is no longer transacting within the circle of membership. Any profits from those transactions are potentially assessable income."[1]

Mutual transactions involve transactions with

both members and non-members

The change in position by IR is as a result of an Australian case, where subscriptions, fees and levies are considered income under ordinary concepts.

Question for You

The question we pose to you, where you have joined an organisation to be a member, do you see that organisation as being an advocate for you (providing services such as sporting activities or industry promotion or both) do you perceive the fees you pay as income to the association and that the benefits you receive while indirect are still of value to you? Albeit not a tangible monetary rebate.

The second question we pose is a result of para 55, which discusses whether membership fees/levies received may not be business income or income under ordinary concepts because all they entitle the member to is membership of the association and matters incidental to membership, such as the right to vote at meetings. If the exposure draft is published without change, then we encourage entities caught by the statement to receive a tax opinion on the nature of your membership fees/levies. Perhaps you could restructure your current membership fees.

Our final question is whether the current $1,000 deduction for non-profit organisations is too low. Is $10,000 a much more reasonable deduction given the cost of compliance? While commenting on the current deduction limit potentially being outside the scope of the exposure draft, responding with unconditional acceptance without asking for something in return for non-profits isn't okay either.

Next Steps

We encourage you to enter a submission. Inland Revenue is accepting submissions until 25 June 2025. If you are interested in making a submission or have any queries about the tax treatment of mutual transactions undertaken by your club, society, or association, please contact us at info@businessstudio.co.nz.

[1] Exposure Draft ED0265, issued 30 April 2025, Mutual transactions of associations (including clubs and societies), page 5, para's 25 & 26.