Developments in New Zealand charities law

This article discusses recent developments in New Zealand charities law. 

First, the New Zealand Supreme Court has sent a clear message in its recent decision against Family First New Zealand in its application to retain charitable status.  Family First New Zealand (Family First) has been engaged in a protracted interaction with the Charity Registration Board, who initially sought to de-register the entity as a charity back in 2013.  The Supreme Court judgment explores where to lay the boundary of charitability between what amounts to an educative charitable purpose on one side, and merely political or propaganda-based objects on the other.  The case also provides additional clarity as to what evidence can be considered when making such a determination. 

Secondly, the government has announced plans to modernise the Charities Act 2005 by proposing legislative changes relating to regulatory and compliance matters, internal governance mechanisms and reporting obligations.  The Charities Amendment Bill is set to be introduced to Parliament this year and is expected to come into force in 2023.

Common law developments: Supreme Court Ruling on Family First

The essential requirements for charity registration are set out in section 13 of the Charities Act 2005.  To be a charity, all entities (whether a trust, society or institution) must be established and maintained for a "charitable purpose".  "Charitable purpose" is defined in section 5 of the Act as the following:

1. Relief of poverty;
2. Advancement of education;
3. Advancement of religion; and/or
4. Any other matter beneficial to the community.

These are referred to as the four ‘heads’ of charity.

The judgment considered the history of earlier cases on charity registration, confirming that section 5 assumes common law methodology – the courts are to look at earlier cases on what can be considered a charitable purpose, and to apply the statutory test in line with those cases.

The court will consider when determining whether an entity is established and maintained for a charitable purpose:

1. The stated objects in the trust deed (or establishment document) of the entity.Where an entity's purpose, objects or goals are stated in the trust deed, the courts must consider whether and how such statements reflect a charitable purpose.
2. The activities carried out by the entity, as well as those it proposes to carry out. In this case, article publications, research reports and website 'reading room' sections were some activities considered by the court.
   
   

Primary vs. Ancillary Purpose(s)

The Act provides that an entity can still be charitable if its purposes include non-charitable purposes.

This issue was considered in Re Greenpeace of New Zealand Inc.  The Act provides that if the purposes of an entity include a non-charitable purpose (for example, advocacy) which is merely secondary to the charitable purpose, the non-charitable purpose does not, by itself, prevent qualification as a charitable entity.  It was argued Greenpeace could not qualify as a charity because political advocacy was part of Greenpeace’s purposes.  Under the existing law at the time, an entity holding a political purpose was deemed unable to qualify for charity registration.

The Supreme Court in Re Greenpeace found that advocacy can be undertaken by charitable organisations on the basis that it is secondary to charitable purposes, removing the rule that a political purpose could otherwise extinguish charitable purpose(s).  The judgment shows that charitable status is recognised on a case by case basis in order to meet fresh facts and changing perceptions of what the law requires in relation to charity law.

It is this case by case approach through which the Supreme Court distinguished the purpose found in Family First from that of Re Greenpeace.  The Court found that although promoting a single viewpoint would not in itself be fatal to a finding of educative charitable purpose, it disagreed with the view that the activities taken by Family First were, in fact, education.  Rather, the Court highlighted, the education advanced by Family First was advocacy of a singular viewpoint, coming from a place of “trying to convert” those with whom it sought to communicate.

What the Family First case means going forward

Some have argued that the Family First decision gives a concerning amount of discretion and subjectivity to the Courts' interpretation of charitable purpose.  However, the common law has always acknowledged that the four ‘heads’ of charity are to be interpreted contemporarily and in line with the changing values of society by using a case-by-case approach.It is clear from both the Re Greenpeace and Family First decisions that the Courts acknowledge the inherent complexities of what can be considered "charitable" in purpose because the boundary can sometimes be blurry between what is education and what is advocacy or propaganda.  This recent judgment makes clear however that solely propounding a biased and discriminatory point of view in the name of education will not be considered advancement of education within the meaning of charities law.

Thinking about establishing a charity? Tips from the Family First decision

The Court in Family First make it clear that it possible for charities to have secondary or supplementary purposes, for example advocacy.  This provides some practical comfort for those who are considering a charity as the preferred structure for their organisation – so long there is a central charitable purpose which is expressed clearly in the objects and through your organisation's goals and activities, peripheral goals and objectives will not necessarily prevent charitable status.

To make sure a charitable entity is the right fit for your organisation, you should consider:

• Is there a central charitable purpose? Does it fall within the 'four heads of charity'?
• Will your organisation focus on other goals or undertake activities separate from the central charitable purpose (e.g., advocacy)? If so, can these goals and activities be considered as secondary to the charitable purpose?
• If education is the charitable purpose, are the views or teachings of your organisation unbiased, neutral, and well-researched?

If you do decide a charity would be the best structure to achieve your goals, you should next consider how to translate your purpose and objects into a governing document to properly reflect your organisation's charitable purpose.  Following charitable registration, you should keep note of how your charity's day-to-day activities or wider projects align with these stated objects.

Statutory developments: The Charities Amendment Bill and other policy changes

Alongside the above common law developments, the government recently expressed its own interest in reviewing the statutory law and regulation of charities, including the Charities Act 2005.  Such changes are to include the following:

• Increased internal governance requirements:the definition of 'officer' will be amended to capture all persons with significant influence over the management or administration of the charitable entity.The role of an 'officer' is also set to be clarified.Charities will be required to review their rules document (constitution or trust deed) every year.
• Reporting obligations:large charities accumulating funds will have to update its annual return form to report any reasons for accumulated funds to the Charities Services.Smaller charities may be exempt from these increased financial reporting obligations.
• Regulatory decision-making and accountability:the Charities Registration Board will be required to publish decisions on declining an application for registration and deregistering a charity, with clarified processes for charities to object to significant decisions of the Charities Registration Board and Charities Services.The Taxation Review Authority is the proposed new entity to hear first appeals under the Charities Act instead of the High Court (with further appeals to the High Court and Court of Appeal on points of law).

The Cabinet Paper of June 2022 states the proposed changes are to 'modernise' the Act and provide greater clarity on the operation of the Act for the 28,000 registered charities across Aotearoa.  Changes discussed in the Paper include greater accessibility to an appeals body, increasing transparency on accumulated funds, reducing reporting requirements for very small charities, and clarifying the role of officers of charities. 

Distinct from the issues of 'charitable purpose' tackled by the Courts in Family First or Re Greenpeace, Parliament's focus for this Bill seems to be on improving the governance, reporting and compliance frameworks of charitable organisations, particularly with respect to large charities operating with annual expenses over $140,000.  On the other hand, smaller charities are set to benefit from the easing of financial reporting obligations to reflect their resources and capacity. These amendments aim to encourage greater transparency, which in turn, will build greater trust from the public to the charities responsible with their tax-free income.

*Lola Stoodley and Sophie Lim also contributed to this article.