New changes in effect from the Charities Amendment Act 2023

As of 5 October 2023 the amendments arising under the new Charities Amendment Act 2023 (Amendment) are now in force. The Charities Act 2005 (Act) was amended with the intention to improve transparency and accountability in the charities sector. Our note on the original Bill introduced on 21 September 2022 (Bill) can be found here.

In this update we summarise the changes made to the Bill and note relevant “need to knows” for charities.

 

Changes from the Bill

The following changes have been made to the Bill under the enacted Amendment:

Governance Reviews

• The Bill sought to require charities to review their governance procedures annually. Following submissions and recommendations from the Select Committee report, the Amendment lengthens the review frequency to at least once every three years in recognition that an annual review of governance procedures may be excessively onerous on charities that run solely on volunteer labour.

Officers

• The Bill sought to capture all individuals who influenced an entity's decision-making to be classified as “Officers”. The Amendment narrows the definition of “Officers” to only those individuals that are position-holders and are able to exercise significant influence over substantial decisions of the entity. Delegated decision-makers, who may or may not hold a position, are also included as Officers.
• This change was made in an effort to address concerns raised in submissions that the definition was too broad and may unintentionally capture administrative and operational staff.
• The definition of Officer is particularly relevant in relation to the new power of the Charities Registration Board (Board) to disqualify Officers for serious wrongdoing or significant non compliance with the Act. Disqualified Officers cannot be Officers of any other charitable entity during the period of their disqualification.
• Under the previous regime, the only action available to the Board in response to breaches of the Act or wrongdoing is de-registration of the entire charity. The Amendment allows charities to elect whether they would like to continue to operate but remove the disqualified Officer, or whether they prefer to be deregistered and retain the disqualified Officer.

Regulatory decision-making and accountability

• The Chief Executive of the Department of Internal Affairs (DIA) is now required to consult before issuing significant guidance or best-practice recommendations.
• The Bill would require the Chief Executive to consult people who were “representative of the interests of charitable entities”. Throughout the Bill's journey, the consultation requirement has been updated to give more flexibility and discretion to the Chief Executive. The enacted Amendment now requires consultation with people who the Chief Executive considers reasonable in the circumstances (ie, public or targeted consultation).

Appeals to decisions made by the Chief Executive

• The Amendment also broadens the scope of decisions made by the Chief Executive that may be appealed or objected to as compared to the Bill. This change was to ensure all decisions made by the Chief Executive that substantially affect an entity can be reviewed.

 

What this means for charities

As a result of the Amendment, registered charities are now required to (in summary):

Conduct regular governance reviews

– as of 5 October 2023, all registered charities must review their governance procedures and charity rules at least once every three years. The review must consider whether the charity's governance procedures:

• are fit for purpose;
• assist the charitable entity to achieve its charitable purpose; and
• assist the charitable entity to comply with the requirements of the Act.

Some useful guidance from Charities Services can be found here.

Officers must be qualified

– charities will need to certify that their “Officers”, ie, all those captured by the new definition, are qualified (or not disqualified). Changes to Officers must also be notified to the Charities Register. At least one Officer must be 18 years of age or older.

 

Forms Consultation

A currently open consultation¹ by the DIA on a proposed change to the form of charity annual returns includes some additional reporting requirements under the new regime. Depending on the final form of the annual return, charities may now annually be required to report on (amongst other changes):

• whether they have reviewed their governance procedures, including their charity rules, in the last three years; and
• for larger charities (Tiers 1-3), the reason they are accumulating funds (eg, for a future capital expenditure or otherwise);
• grounds for removing any officers must be clearly stated to account for the Charities Register's record-keeping, as Officer disqualifications may be a matter of public record under the new Officer disqualification rules.

 

Our view and next steps

Given tax exemptions, registration of particular entities as charitable has been a topic of election conversation, and we expect scrutiny of charitable status and charity ownership to continue post election.² The Amendment aims to create greater transparency and public accountability of charitable entities by putting in place new compliance and disclosure requirements.

Although Charities Services intends on publishing guidance sometime in the future in relation to the new duty to conduct regular reviews of governance procedures, it is unclear whether a simple confirmation that there has been a review on the annual return is sufficient (as it is in the proposed form of annual review), or whether there may be more fulsome documentation requirements, eg, minutes of a trustee meeting reflecting the review.

It may be beneficial for charities to have clearer guidance on what constitutes a satisfactory review of governance procedures to ensure that they comply with the law.

If you would like any assistance preparing a submission in response to the proposed changes to the form of annual return and registration applications or require any assistance reviewing your charity rules, please contact your usual DLA Piper expert.

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¹The consultation will run until 24 October 2023.

²For example, the ownership of Sanitarium by the Seventh-day Adventist Church was called into question in Leadership Debates.