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Appendix A
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Purpose
1.
This aide memoire supports your oral item at the Cabinet Social Wellbeing Committee
(SWC) meeting on the 17 March 2021. Your oral item updates SWC on the work to
modernise the Charities Act 2005 (the Act). Attached is:
a)
an oral item paper to table at SWC, outlining your proposed approach to
modernising the Act in
Appendix A;
b)
talking points to support the oral item in
Appendix B;
c)
suggested responses to possible questions from SWC members in
Appendix C;
and
d)
Cabinet Committee Oral Item Request Template in
Appendix D.
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Background on the oral item
2.
Cabinet made initial decisions on the scope of the work to modernise the Act in 2018.
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You have confirmed you wish to continue with this work as a priority for your portfolio.
The oral item is an opportunity to update SWC on your intentions for this work
including:
a)
that you intend to make practical improvements to the Act;
b)
that you are taking a staged approach to focus on addressing the more pressing
and practical issues for the sector as the priority. Stage one considers:
o
charities’ obligations (including reporting requirements);
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o
the regulator’s powers and decision-making;
o
the accessibility of appeals; and
o
charities’ accumulation of funds and business activities;
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c)
that you wil consider a process for stage two next year which wil focus on the
remaining matters from public consultation including advocacy by charities; and
the
d)
that you will seek policy decisions from Cabinet on reporting requirements for
charities, and charities accumulation of funds and business activities in June 2021.
You will take the remaining issues to Cabinet in December 2021.
3.
Your office wil need to submit a request to Cabinet Office to present the oral item by
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10.00am, Thursday 11 March 2021, and submit the oral template form (Appendix D).
4.
The Minister of Revenue is not a member of SWC. Given the Minister’s interest in the
tax component of the work, we suggest you also update the Minister of Revenue on
your intentions for this work. We can draft a letter for you to enable this.
5.
We will provide advice on policy options for reporting requirements for small charities,
and an engagement plan which includes details about publicly announcing the work in
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the week beginning 15 March 2021.
Hon Priyanca Radhakrishnan
Minister for the Community
and Voluntary Sector
/
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Appendix A: Oral item Cabinet Social Wellbeing Committee 17 March 2021 -
Modernising the Charities Act 2005
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Oral item - Cabinet Social Wellbeing Committee: Modernising the Charities Act
The Charities Act provides a registration, reporting and monitoring system to support public
trust and confidence in charities
1. More than 27,000 charities are registered under the Charities Act (the Act). Charities
spend around $18 billion annually on charitable purposes and manage $65 billion in
assets. Some charities are widely known, such as Plunket Society or the Salvation Army.
Many more are small charities that make a huge difference in communities, from
maintaining marae to running toy libraries.
I intend to resume policy work to modernise the Charities Act
2. Modernising the Act is about enabling the charities sector to thrive and to continue their
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valuable contribution to community wel being and social cohesion.
3. I intend to start by making practical improvements. To do so requires careful balancing of
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principles like transparency with the compliance burden that small charities face from
extensive annual reporting. I will take a balanced approach to looking at the business
activities charities are involved in, while being mindful that the sustainability of some
charities is directly related to running successful businesses.
A staged approach to deliver change and to pass an amendment bil this term
4. I wil build on and progress the work that my col eagues launched last term. In 2019, wide-
ranging and passionate views came through on the Act, through 27 community meetings
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and 363 submissions on a discussion document.
5. In restarting this work, I will shortly announce stage one. Stage one will lead to an
amendment bill this term for a number of key areas publicly consulted on last term.
6. Stage one looks at: charities’ obligations; the regulator’s powers and decision-making; the
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accessibility of appeals on decisions; and charities’ accumulation of funds and business
activities. Progressing the remaining matters consulted on last term, such as advocacy by
charities, is important. I wil investigate a process for stage two next year.
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Targeted engagement before taking the first set of policy proposals to Cabinet
7. Policy development and testing with key stakeholders will focus first on small charities’
reporting requirements, and charities’ accumulation of funds and business activities. I
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intend to take the first set of policy proposals to Cabinet in June 2021. I will then return to
Cabinet in December 2021 with the remaining policy issues for stage one. I will ensure
that Ministers with portfolio interests in this work are kept informed of progress.
Recommendation
8. It is recommended that the Cabinet Social Wellbeing Committee:
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8.1.
notes that the Minister for the Community and Voluntary Sector intends to resume
work to modernise the Charities Act 2005;
8.2.
notes that stage one of this work focuses on more practical issues to improve the
operations of the charitable sector with fundamental matters to be considered as
part of a later stage; and
8.3.
notes that the Minister for the Community and Voluntary Sector intends to publicly
announce the resumption of the work to modernise the Charities Act 2005 shortly.
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Appendix B: Talking points for Cabinet Social Wel being Committee on 17 March
2021: Modernising the Charities Act
Inform and update on the work to modernise the Charities Act
• I want to update you on the work to modernise the Charities Act that my col eagues
launched in the previous term.
• In 2018 we began to look at how wel the Act is working. We gained extensive information
from public consultation in 2019 about the issues and opportunities that charities face.
• There are more than 27,000 charities registered under the Charities Act. As we know,
charities contribute hugely to the strength of communities across New Zealand – in sports,
the arts, health, and other countless activities that make a real difference to people’s lives.
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My aim is to progress the modernisation of the Charities Act to deliver real world benefits
• Given the significance and contribution of the sector to communities, I am keen to
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continue this work, and I am committed to achieving practical improvements this term.
• My goal is to pass legislative amendments to modernise the Act by 2023.
• The modernisation work will ensure that the Charities Act:
o is effective and fit for purpose;
o promotes continued public trust and confidence in the charitable sector; and
o helps deliver real world benefits to charities.
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Taking a staged approach to deliver more practical benefits first
• To deliver real change and benefits, a staged approach is important. Most charities are
small and are trying to meet their obligations, but the balance between the compliance
burden and transparency needs addressing.
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• Stakeholders were consulted on a wide range of matters in 2019.
• Stage one will lead to an amendment bill, and will look at:
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o the obligations that charities have under the Act, including the annual reporting
requirements that small charities face, as well as the duties for officers of charities;
o the regulator, in the sense of its powers, accountability and decision-making under its
current structure (being the
under independent Charities Registration Board and Charities
Services within the Department of Internal Affairs);
o the accessibility of appeals within the current structure of appeal bodies; and
o charities’ business activities and their accumulation of funds.
• I will consider a process for stage two next year, but it will focus on the remaining matters
from public consultation. This means:
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o any additional purposes that might be appropriate for the Act;
o Te Ao Māori (in the sense of more fundamental consideration beyond the Te Ao Māori
lens that wil be applied to al of the stage one matters); and
o where the line is for advocacy by charities.
Next steps
• I plan to announce my decision to resume work on modernising the Charities Act in the
near future.
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• I will return to you in June and December this year for policy decisions on stage one
matters.
• The first set of policy decisions will be on the objectives for this work, the reporting
requirements for small charities and the business and accumulation activities charities are
involved in. My officials will carry out targeted consultation with key stakeholders to test
and refine the proposals ahead of Cabinet consideration.
• I will keep you informed at key points, as the diverse activities that charities perform
overlaps with many of your portfolio interests. Revenue is one portfolio that this work
overlaps particularly closely with, as charities receive favourable tax treatment.
• I look forward to continuing to work together on modernising the Charities Act.
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Appendix C: Suggested responses to possible questions from SWC members
Significance and scope of this work
1. Why is this work important?
• The community sector is diverse and complex, and forms a vital part in our society.
• Modernising the Charities Act by delivering some practical improvements will achieve
real world benefits for the community sector.
• Public consultation showed there are significant issues to address, like the compliance
burden smal charities face through reporting obligations.
2. Are you looking at contracting arrangements for government services?
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• No, this is a legislative review of the Charities Act.
3. Is this a first principles review of the Act?
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• No, key concepts underpinning the Act - particularly a registration, reporting and
monitoring system for charities - remain sound.
• This work is about addressing substantive issues, while building on the Act’s strengths.
• Overall, this work continues to be guided by the 2018 terms of reference that went to
Cabinet and is not about starting from scratch. 9(2)(f)(iv)
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4. Why are these issues out of scope for stage one?
•
Charitable purpose. ‘Charitable purpose’ (meaning the relief of poverty, advancement
of education or religion, or any other matter beneficial to the community) was
excluded from the work launched in 2018, and was therefore not publicly consulted
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on in 2019. Charitable purpose can and does continue to evolve through case law.
Charitable purpose triggers strong views and opinions, and any process to consider it
would need careful planning.
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•
Advocacy. Clarity is important on where the line is drawn when charities advocate.
With an advocacy case currently before the courts, I intend to consider advocacy in
stage two. Charities Services advise me they are also working to improve sector
understanding and applica
under tion of the current law.
•
Te Ao Māori. Te Ao Māori lens wil be used throughout this work. The issues specific
to iwi/Māori charities wil be picked up under the topics as needed. Any process to
consider Te Ao Māori in light of the more fundamental matters (like the meaning of
‘charitable purpose’ that derives from 400 years of case law) would need careful
planning.
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•
Structure of regulator or appeals mechanism. 9(2)(f)(iv)
9(2)(f)(iv)
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9(2)(f)(iv)
Timing/engagement/process
6. Why do targeted engagement, and not public consultation during the upcoming policy
development phase?
• Public consultation from 2019 provided a wealth of information about the issues and
opportunities that charities face, as well as the views of individuals, broader not-for-
profits and others.
• This base forms a solid foundation to work from, and will be added to by targeting our
engagement on specific policy proposals to key stakeholders most likely to be
affected.
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7. 9(2)(f)(iv)
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8. 9(2)(f)(iv)
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Connections between this work and other portfolio interests
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9. How do you intend to manage any crossovers between this work and other portfolio
interests?
the
• Close connections at the officials’ level and at the Ministerial level will be important,
as the Charities Act is not the only legislation that affects charities.
• For example, registered charities structured as incorporated societies would, in time,
be affected by the Incorporated Societies Amendment Bill if it progresses through the
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House to enactment.
• Tax is another area of importance, where registration as a charity provides tax
benefits. I have written to the Minister of Revenue to inform him of my plans for this
work and will continue to keep him informed, as appropriate.
Substance of policy areas for the first phase of stage one
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10. What are you considering when looking at charities’ business activities?
• Business income is important to the financial sustainability of many charities.
• Charities can run businesses, if the profits only go to charitable purposes.
• An issue that may need further consideration is, for example, the risk that charitable
funds are not used for charitable purposes (e.g. a charity putting money into a failing
business).
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11. What are you considering when looking at charities’ accumulation of funds?
• Accumulation of funds is usually a good thing e.g. a charity saving for a new
community facility or growing assets to benefit current and future generations
(including iwi and hapu charities that hold settlement assets).
• An issue that may need further consideration is the risk to charitable funds where
charities without explanation accumulate significant funds over time, distributing little
or nothing to charitable purposes.
12. Are you looking at reporting requirements of small charities?
• Yes, we are considering whether the compliance burden on those very smal charities
is appropriate and how this could be balanced with the need for transparency in the
use of charitable funds.
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13. What other areas wil you look at in stage one?
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• I will look at the role of the regulator. This will include looking at the regulator’s
powers, accountability and transparency to the sector and the public. For example,
looking at potential enforcement tools available to the regulator where officers are
not meeting their obligations.
• I will look at the accessibility of the appeals process within the current structure.
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Appendix A
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Purpose
1.
This briefing provides proposed communications to announce that work is resuming to
modernise the Charities Act 2005 (the Act). This briefing also advises you of the
Department of Internal Affairs’ (the Department’s) proposed approach to stakeholder
engagement for this work, ahead of the first set of Cabinet decisions in June 2021.
Included in this briefing is:
1.1. a draft media release announcing that work is resuming to modernise the Act
(
Appendix A);
1.2. draft talking points to support you with the media release (
Appendix B);
1.3. a letter to update the Minister of Revenue on work to modernise the Act
(
Appendix C); and
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1.4. the key stakeholders the Department intends to engage with during policy
development (
Appendix D)
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Announcing the resumption of work to stakeholders and the wider charities sector
2.
You have decided to resume the work commenced in 2018 to modernise the Act
[briefing CVS2020000231 refers]. You have an opportunity to publicly announce your
decision, and to share with key stakeholders how you wish to progress the work.
3.
We suggest a media release as a positive way to communicate your decision to resume
the work. Given the strong levels of engagement during public consultation in 2019,
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we anticipate much of the sector wil be keenly interested in this work resuming.
4.
Appendix A contains a draft media release for your consideration. We understand that
Cabinet Social Wellbeing Committee (SWC) confirmed the scope and sequencing of
this work on 17 March 2021. In addition, with your fol ow up meeting scheduled for 22
March 2021 with Ministers Henare and Williams,
Official we recommend a media release in
the week beginning 22 March 2021.
5.
To support any media and stakeho
the lder engagement that you may wish to do,
Appendix B attaches talking points to support the media release. Following the
announcement, some stakeholders may wish to meet with you to discuss your
intentions for the work. We wil work with your office to support these meetings.
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Reconnecting with and informing key stakeholders of the decision to resume work
6.
Fol owing the media release, we wil update the Department’s webpage and
communicate to key stakeholders via email. For example, we will ensure that we
promptly inform the Charities Registration Board and the Sector Group (a key
stakeholder group) that this work is resuming. If you do not wish to announce the
resumption through a media release, we seek your agreement to refer to the
resumption on the
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beginning 29 March 2021.
7.
As noted late last year [briefing CVS202000231 refers], we propose not to restart the
Core Reference Group. In informing them about the work resuming, we anticipate that
some members may be disappointed at the decision. We wil inform them that we
intend to still seek the input of individual group members, as appropriate, as we target
the expertise needed for particular topics. As discussed in the second section of this
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briefing, stakeholder input will remain crucial to policy development and will inform
the later design of the amendment bil .
Keeping Ministerial colleagues informed
8.
We understand that SWC confirmed the scope and sequencing of this work on 17
March 2021. The Minister of Revenue is not a member of SWC but will likely have a
significant interest due to the connection between charities’ registration status and
their tax treatment. We suggest you update the Minister of Revenue on your decision
to resume work to modernise the Act. We have provided a draft letter for your
consideration as
Appendix C.
9.
We also note that Ministerial consultation wil be important ahead of progressing
papers through the Cabinet process. We will work at the officials’ level to keep other
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agencies informed as they brief their Ministers and we will support you in your
engagement with your Ministerial colleagues.
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10. The Ministers of Revenue and Finance will likely have a greater interest in the
connection between their portfolios and the work on topics for the June 2021 Cabinet
paper. The interests of the Ministers of Justice and Social Development and
Employment, along with the Attorney General as the protector of charities, will likely
lie in the work for the October 2021 Cabinet paper. We suggest engaging with these
Ministers more closely as policy options are developed to ensure the options are fit for
purpose.
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Engaging with stakeholders during policy development
Summary of earlier stakeholder engagement
11. In February 2019, the Department released a public discussion document titled
Modernising the Charities Act 2005. The discussio
Official n document was exploratory in
nature. The discussion document asked about the issues faced in the sector, but did
not propose options for consideration.
the
12. During the consultation period, the Department held 27 public community meetings
around the country. These meetings included six hui, one Pacific fono and one meeting
for representatives of ethnically diverse communities. More than 1,200 people
attended these gatherings. The Department received 363 written submissions on the
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discussion document.
13. The Department also released an online meeting presentation video for members of
the public that were unable to attend a community meeting. This video was viewed
live by more than 350 attendees and has since been viewed more than 650 times on
demand. The Department’s webpage for this work received more than 7,000 views
during the consultation period.
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Engaging with targeted stakeholders is essential to developing and testing policy options
14. Public consultation provided a wealth of information about the issues and
opportunities that charities face, as well as the views of individuals, broader not-for-
profits and others. This feedback forms a solid foundation to continue working from.
15. Our engagement will now target specific stakeholders as we develop policy options
ahead of the first set of Cabinet decisions in June 2021. Stakeholder expertise is
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essential when considering policy options on technical topics like charities’
accumulation of funds and business activities.
16. Demonstrating that consultation has informed policy development is also an essential
element to the assessment of the Regulatory Impact Statement that accompanies
Cabinet papers. Consultation wil continue to be important later in the process, when
informing design of the amendment bil . The Legislation Design and Advisory
Committee will assess and advise on the amendment bil against the contents of the
Legislation Guidelines, which include effective consultation.
17.
Appendix D outlines the key stakeholders we intend to consult with as representatives
for the sector and subject matter experts. For example, the Sector Group, with its
wide-ranging membership, will be a key stakeholder group for this work. We have also
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noted the key agencies we wil be working with.
18. To ensure an appropriate cross-section and representation of the sector, we have
selected stakeholders who:
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a. have a high interest in a topic(s) that are in scope for this work; and/or
b. have high influence in topics(s) that are in scope for this work; and/or
c. demonstrated understanding and expertise of the topics in the 2019 public
consultation; and/or
d. provide diversity of views (based on the public consultation); and/or
e. represent a diverse range of charities across different sectors, t
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geographical spread.
19. This list of stakeholders is subject to stakeholders’ availability and continued interest in
engaging on the work.
20. We also note that targeted engagement means not being able to consult with
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everyone who may be interested in the work. We recognise the risk that some
stakeholders may voice their concern about not having the opportunity to participate
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in this next phase. The talking points at
Appendix B emphasise that at a minimum,
Select Committee consideration of the amendment bill will provide an opportunity for
all stakeholders, and the wider public, to participate.
21. We will also add to this key stakeholders list, as needed, as we move into the
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remaining topics for stage one policy development ahead of Cabinet decisions in
October 2021. We will also update the wider charities sector at appropriate
milestones.
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Recommendations
We recommend that you:
a)
EITHER
i)
agree to a media release announcing that work to
Yes / No
modernise the Charities Act 2005 is resuming
AND
ii)
note that the Department wil communicate to key
stakeholders and update the Department of Internal
Affairs website about the resumption of work fol owing
the media release
(recommended option)
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OR
iii)
agree that if a decision is made not to issue a media Act
release, the Department will begin to communicate to
Yes / No
key stakeholders and update the Department of Internal
Affairs website in the week beginning 29 March 2021;
b)
note the draft talking points provided to support the media release;
c)
notify the Minister of Revenue of your decision to resume this work;
Yes / No
and
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d)
note the importance of consultation to policy development, ahead
of legislative drafting, and the key stakeholders the Department wil
engage with
.
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Sela Finau
Policy Director
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Hon Priyanca Radhakrishnan
Minister for the Community
and Voluntary Sector
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Appendix B: Draft talking points to support media release
Resuming work to modernise the Charities Act 2005
I am keen to deliver real world benefits to help charities in New Zealand
• In 2018 we began to look at how wel the Act is working. We gained extensive
information from public consultation in 2019 about the issues and opportunities that
charities face.
• There are more than 27,000 charities registered under the Charities Act. Charities spend
around $18 billion annually on charitable purposes and manage $65 billion in assets.
• Charities contribute hugely to the strength of communities across New Zealand – in1982
sports, the arts, health, and other countless activities that make a real difference to
people’s lives.
• Given the significance and contribution of the sector to communities, I am committed to
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achieving practical improvements and pass legislative amendments to modernise the Act
this term.
9(2)(f)(iv)
• 9(2)(f)(iv)
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• Stage one will lead to an amendment bill, and will look at:
o the obligations that charities have under the Act, including the annual reporting
requirements that small charities face, as well as the duties for officers of charities;
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o the regulator, in the sense of its powers, accountability and decision-making under
its current structure (being the independent Charities Registration Board and
the
Charities Services within the Department of Internal Affairs);
o the accessibility of appeals within the current structure of appeal bodies; and
o charities’ business activities and their accumulation of funds.
•
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9(2)(f)(iv)
Importance of modernising the Charities Act
Modernising the Charities Act is important to maintain public trust and confidence in the
charities sector
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• The community sector is diverse and complex and forms a vital part in our society.
• Modernising the Charities Act by delivering some practical improvements will achieve
real world benefits for the community sector.
• Public consultation showed there are significant issues to address, like the compliance
burden smal charities face through reporting obligations.
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• The changes can be made without a first principles review because key concepts
underpinning the Act - particularly a registration, reporting and monitoring system for
charities - remain sound. 9(2)(f)(iv)
Targeted consultation approach taken for the upcoming policy development phase
I intend to take a targeted approach to consultation to engage with the key stakeholders
most likely to be affected
• Public consultation from 2019 provided a wealth of information about the issues and
opportunities that charities face, as well as the views of individuals, broader not-for-
profits and others.
• This forms a solid foundation to work from, and there is now an opportunity to maintain
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engagement with a more targeted scope of stakeholders as we develop policy options
for stage one of the work.
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• At a minimum, Select Committee consideration of the amendment bill will provide an
opportunity for al stakeholders, and the wider public, to participate again.
Topics for policy development in stage one
Topics that stage one policy development wil explore are:
1.
reporting requirements for small charities
• This issue will consider the appropriateness of the compliance burden
Information on small
charities, and its balance with the need for transparency in the use of charitable
funds.
2.
charities’ accumulation of funds and business activities
• Understanding the risk to charitable funds is important, where charities without
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explanation accumulate significant funds over time, distributing little or nothing to
charitable purposes. the
• It is also important to acknowledge that accumulating funds is often necessary for
a charity to save for a new community facility or to grow assets to benefit current
and future generations (including iwi and hapu charities that hold settlement
assets). under
• Business income is important to the financial sustainability of many charities.
• However, an issue that may need further consideration is, for example, the risk
that charitable funds are not used for charitable purposes (e.g. a charity putting
money into a failing business).
3.
duties of officers
• Charities register under the Charities Act, but often incorporate and have legal
Released
obligations under other legislation, like the Incorporated Societies Act.
• Consideration is required, as officers of charities may have very similar duties
under more than one piece of legislation.
4.
regulator’s powers, accountability and decision-making (under its current structure)
• Independence of the regulator’s decision-making was an important issue for
submitters during public consultation in 2019.
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• Options to strengthen the perceived independence and performance of the current
regulator will be considered, such as whether the current number of members for
the Charities Registration Board is appropriate.
5.
accessibility of appeals (within current structures)
• Currently charities can only appeal decisions taken by the Charities Registration
Board to the High Court. The time and significant cost involved can be a barrier to
appeals.
• Intermediate options for a more accessible appeals process will be considered.
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Appendix C: Draft letter to the Minister of Revenue
[date] March 2021
Hon David Parker
Minister of Revenue
Update on resuming work to modernise the Charities Act
Tēnā koe David
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I am writing to update you on work to modernise the Charities Act 2005 that commenced
last term. I am resuming this work as a top priority in my portfolio. I also updated col eagues
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on the scope and sequencing last week at Cabinet Social Wellbeing Committee.
9(2)(f)(iv)
The first stage will lead to enactment of an
amendment bill this term covering many key areas that were publicly consulted on last term.
The first stage includes several issues you may have an interest in, such as:
• reporting requirements for small charities;
• charities’ accumulation of funds; and
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• charities’ business activities.
I intend to seek Cabinet approval on policy decisions for these issues in June 2021. I will
share my early views and consult with you as the policy proposals develop. As part of this
work, I will also be contacting you later in the year about appeals issues for charities, in your
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role as Attorney-General. If you have any questions in the meantime, please get in touch.
the
Nāku iti noa, nā
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Hon Priyanca Radhakrishnan
Minister for the Community and Voluntary Sector
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Private foundations
Accumulation can be important to private foundations, who may have an
(a subset of Tier 1
interest in both the business and accumulation policy proposals. We
and 2 charities)
received submissions from Tier 1 and 2 private foundations on these issues
in public consultation.
We will look to engage with individuals involved in small charities. We will
Specific individuals
identify these individuals from public submissions in 2019, or from our work
Small Charities involved in small
to date. For example, we will likely approach Charmaine Brown, who was on
charities (to be
the Core Reference Group. Charmaine is a Chartered Accountant with
confirmed)
significant experience in the not for profit sector through her involvement
with several small charities and marae.
Charities Services and
Regulator
Charities Registration Charities Services and the Registration Board together comprise the
Board
regulator. They are well placed to share their insights on current workings.
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Charities’ registration status connects to their tax treatment. The
Government Response to the Tax Working Group’s final report was that
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Inland Revenue (IR)
business and accumulation issues would be considered as part of IR’s Tax
Policy Work Programme and through work to modernise the Charities Act.
As such, IR have a high interest in this work.
The External
Reporting Board
XRB set the reporting standards for not-for-profits and will want to input on
(XRB)
recommendations relating to reporting/transparency of funds.
MBIE will be advising on the recently introduced Incorporated Societies Bill.
Ministry of Business, The Bill affects the significant proportion of charities that are also
Government
Innovation and
incorporated societies. Information
Employment (MBIE)
Te Puni Kokiri will be interested on the impact of any proposal on Māori
Te Puni Kokiri (TPK)
charities/iwi/post settlement governance groups. They may be able to
and Te Arawhiti
provide advice on applying a te ao Māori lens to the business and
accumulation issues. We will also seek advice from Te Arawhiti on
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approaches to engaging with Māori and iwi for this project.
Ministry of Justice
(MoJ) and Crown Law The Ministry of Justice and Crown Law will have a key interest in any policy
the
Office
proposals regarding the appeals process.
Iwi, particularly mature post settlement groups such as Waikato Tainui and
Waikato Tainui
Ngāi Tahu, have established charitable arms and will have significant
Raupatu Lands Trust
interests in the business and accumulation topics. This is because these
under
and Group and Ngāi
groups tend to maintain substantial levels of assets and surplus funds and
Tahu Charitable
operate several businesses. This is to grow settlement funding and provide
Group
benefits for future generations. Donna Flavell was on the Core Reference
Iwi and Māori
Group and is Chief Executive of Te Whakakitenga o Waikato Incorporated.
Te Hunga Rōia Māori o Aotearoa provides te iwi Māori representation in the
Te Hunga Rōia Māori legal profession. The Society includes a significant membership of legal
o Aotearoa – The
practitioners, judges, parliamentarians, legal academics, policy analysts,
Māori Law society
researchers and Māori law students. The Society will provide valuable Māori
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perspective on our proposals.
Ian Murray is an academic/professor based in Western Australia who has
Ian Murray
published research on charity law and accumulation. His studies include
consideration of intergenerational distribution of charitable funds and other
related issues.
Academics
Michael Gousmett is an independent researcher who has written
Michael Gousmett
extensively about charitable business. He was featured in the New Zealand
Law Journal in March 2000, where he wrote about the transparency of
charitable business and provided examples.
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We may contact submitters from public consultation in 2019 that
Individual
demonstrated high interest and consideration of the impacts of the issues,
submitters
Individual submitters or unique views or expertise that are unlikely to be represented through our
other engagement.
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Purpose
1.
This aide memoire provides you with background information and talking points for
your meeting with the Minister of Revenue, Hon David Parker, on 2 June 2021.
Background
2.
One of the ways Government supports charities is through providing favourable tax
treatment. This includes income tax deductions and exemptions, tax concessions for
donations, GST concessions, and fringe benefit tax concessions for certain employees.
3.
You recently wrote to Hon Parker informing him that work had resumed on
modernising the Charities Act 2005 (the Act) as a top priority in your portfolio. You
identified topics that he may have interest in because of the relationship with the tax
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regime. These are:
3.1
Charities with business activities;
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3.2
Charities accumulating funds; and
3.3
Reporting requirements for small charities.
4.
The purpose of the meeting is to tell him the matters that are in scope of these topics,
and how they are progressing. You wil be supported at the meeting by Department
officials Sela Finau (Policy Director) and Jayne Beggs (Policy Manager).
5.
9(2)(f)(iv)
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Topics for discussion
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Charities with business activities
6.
Business activities are a well-established way for charities to raise funds. For example,
the
universities requiring tuition fees from students to advance education, or a hospice
using funds from an opportunity shop to provide palliative care to terminally ill
patients. For iwi charities, like Ngāi Tahu and Waikato Tainui, business operations are
considered critical for generating a sustainable financial return to support the long-
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term economic and social development of their iwi members. Around 20 per cent of
registered charities may have business activities.1
7.
While we are not considering fundamental issues like whether charities should be able
to engage in business activities, we have identified that the regulator’s approach to
determining if a charitable business meets registration requirements is not transparent
enough. There is also a perception that the approach lacks legitimacy. We are currently
consulting wit
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8.
We are also exploring possible issues that may warrant amendments to the Act
including officers of charities using business activities for private profit, poor business
decisions putting charitable funds at risk, and whether consolidated financial reporting
obscures these problems.
1 Based on filed self-reported annual returns for 1 July 2019 – 30 June 2020. Includes charities that have
reported at least $100,000 for service trading income associated with trading operations, cost of trading
operations, and/or other revenue from exchange transactions. Refer CVS202100103 for more information.
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9(2)(f)(iv)
9.
9(2)(f)(iv)
10. 9(2)(f)(iv)
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11. 9(2)(f)(iv)
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Charities accumulating funds
12. The topic on charities accumulating funds stems from the Government’s response to
the Tax Working Group recommendations in 2019. The Tax Working Group took the
view that to qualify for tax exemption, accumulated funds should be used for
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charitable purposes. However, the Group also recognised that charities have many
valid reasons to accumulate funds.
13. We recently advised you that we consider there is a problem with a lack of
transparency around if, when and how fundraising charities will distribute
accumulated funds to charitable purpose. Fundraising charities are different to other
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charities in that they only further charitable purpose once they distribute funds. There
is evidence of considerable variance in funding distribution by some fundraising
charities, but no clarity on why this
the is the case.
14. We are currently consulting with targeted stakeholders on what they think about this
problem and a range of draft options to address it. These options are:
14.1 no change;
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14.2 guidance from Charities Services on furthering charitable purpose;
14.3 reporting more on accumulation in the annual return;
14.4 requiring a distribution plan; and
14.5 setting minimum distribution requirements.
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9(2)(f)(iv)
15. 9(2)(f)(iv)
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16. 9(2)(f)(iv)
The appeals topic may also be of interest
17. You noted in your letter to Hon Parker that you would also be in touch about the
appeals topic due to his role as Attorney-General. He may wish to discuss where this
work is heading.
18. We recently provided background information to you on the Act’s appeals framework,
noting that we are looking at:
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18.1 what decisions are available for appeal under the Act;
18.2 what type of appeal may be appropriate; and
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18.3 what body should hear the appeals.
19. We got feedback from the sector on issues relating to the appeals framework as part
of the 2019 consultation. Feedback was about the inability to appeal decisions made
by Charities Services, the inability to provide both new evidence and oral evidence at
appeals hearings, and the inaccessibility of the High Court for most charities, given the
significant costs involved. We wil brief on you on problem definitions and options to
test with targeted stakeholders on these matters in mid-June.
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Next steps
20. Continued coordination and engagement with the Minister of Revenue will be
important as you progress this work, particularly if tax policy matters affecting
charities are also progressed under the Revenue portfolio. You may wish to meet with
Official
Hon Parker again, during consultation on the draft Cabinet paper, to discuss his views
on the proposals.
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Talking points
21. Suggested talking points for the meeting are provided in
Appendix A.
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Appendix A: Suggested talking points
Overview of work to modernise the Charities Act
•
I am keen to ensure progress is made to modernise the Charities Act and intend to
deliver an amendment bill this term.
•
I have directed officials to address issues that will have practical impacts on the day-to-
day running of charities, rather than looking at more fundamental matters.
•
I want to support charities, so they can get on with their good work, but I also want to
ensure that they are transparent to the public and other interested parties.
•
The topics of focus are reporting requirements for small charities, charities
accumulating funds, charities engaging in business activities, obligations of charities,
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the regulator, and the appeals mechanism.
•
I recognise the strong connection between the Charities Act and the tax system a
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am keen to discuss how things are tracking on areas of mutual interest.
Charitable business
•
Business activities are a well-established way for charities to raise funds – I am not
seeking advice on whether charities should be able to engage in business activities.
•
Looking at practical matters, my officials have advised me that there is a lack of
transparency around what the regulator considers when registering charitable
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businesses. Officials have just finished consulting with targeted stakeholders on how
that could be addressed.
•
Officials have also advised me there may be some issues with charities using business
for private profit or making business decisions that risk charitable funds. I note the Tax
Working Group considered this in the context of pr
Official ivate foundations.
•
I will keep you up to date on how work on private benefit and conflicts of interest in
charities progresses and wil be ke
the en to hear your views.
Charities accumulating funds
•
Accumulating funds is an important way for charities to do good work. However, for
some charities, the need to
under accumulate is less clear.
•
My officials have advised me that it is not clear that fundraising charities, like
charitable businesses and private foundations, will distribute their accumulated funds.
•
Officials have just finished consulting with targeted stakeholders on options to
improve transparency of fundraising charities.
•
There are a range of draft options on the table which I have not yet made decisions on.
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•
The options are status quo, guidance from Charities Services on furthering charitable
purpose, more reporting on accumulation, requiring a distribution plan, or setting
minimum distribution requirements.
•
I am awaiting advice from officials on a preferred option following targeted
stakeholder engagement. I wil let you know where I land on that and seek your views.
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Next steps
•
Officials will advise me on preferred options for the business and accumulation topics
now that targeted engagement has been completed.
•
My officials will continue to work closely with your officials, and I will keep you up to
date on how work is progressing ahead of taking proposals to Cabinet in September.
•
You will have further opportunity to input when I consult on the Cabinet paper. I
would be keen to talk with you again in September to get your views on the proposals.
•
I note you may consider changes to tax policy settings that could impact charities - it
will be important for us to remain coordinated.
Back pocket talking points on the appeals work if raised by Hon Parker
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•
Officials have advised me there may be issues with:
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o only being able to appeals decisions of the Charities Registration Board (and
not Charities Services);
o that new evidence and oral evidence cannot be heard at appeals hearings; and
o that appealing to the High Court is inaccessible for most charities given the
costs involved.
•
I am awaiting further advice from officials and look forward to getting your input on
this.
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Purpose
1.
This briefing provides you with a Communications Plan (refer
Appendix A) to support you
to announce Cabinet decisions on the work to modernise the Charities Act 2005. The Plan
contains the fol owing elements:
1.1
a draft press release;
1.2
talking points;
1.3
questions and answers;
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1.4
issues that may be raised by stakeholders and suggested mitigations;
1.5
a list of stakeholders involved in the work; and
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1.6
the list of policy decisions to modernise the Charities Act.
Background
2.
Cabinet agreed to the policy decisions for the work to modernise the Charities Act on
14 February 2022 [CAB-22-MIN-0021 refers]. The Department have since briefed you on
potential announcement approaches in February 2022 (CVS02200019 refers) and about
proactive release of the Cabinet paper and associated documents in March 2022
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(CVS202200040 refers). The Department is now providing you with a Communications
Plan that reflects our likely success in the Budget 2022 process.
3.
The Department considers that the work to modernise the Charities Act is of greatest
interest to the charitable and not-for-profit sectors. Therefore, we are providing a
Communications Plan that will suit these stakeholders. As part of the plan, we have liaised
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with relevant agencies (Inland Revenue and Ministry of Business, Innovation and
Employment) to ensure consistency of communications. Some potential Q&A related to
those agencies’ work is provided in the attached plan.
the
Communications Plan
4.
The Department recommends that you make your announcement via press release
fol owing Budget Day (19 May 2022). We advise liaising with the Minister of Finance and
under
the Prime Minister’s Office to confirm timing. When your press release goes live, we will
update the Department’s website with information about the policy decisions along with
the proactively-released Cabinet paper and associated documents.
5.
The talking points and Q&A within the plan are intended to support additional
communications on the announcement. The list of policy decisions is also attached for
your reference when communicating the policy decisions. The Communications and Policy
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teams at the Department wil also support your office with media inquiries as needed.
The Department will share your announcement through our social media channels and
we suggest that you use your social media channels to enhance the distribution of your
message.
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Potential stakeholder risks and mitigations
6.
The objective of the work to modernise the Charities Act was to ‘encourage and support
charities to continue their trusted and vital contribution to community wel being, while
ensuring that contribution is sufficiently transparent to interested parties and the public’.
The policy decisions provide a balanced package that meet this objective, with a focus on
practical improvements. However, the balanced approach means there will be people
who may disagree with some of the decisions.
7.
The potential issues that people may raise along with suggested mitigations are detailed
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in Section 4 of the Plan. In Section 5, we have also provided you with a comprehensive list
of stakeholders that were involved in the engagement process and are likely to be
interested in the announcements. There is a risk some people will feel their views hav
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not been heard, or that they did not have the opportunity to contribute. This can be
mitigated by emphasising the Select Committee stage is another opportunity for
feedback.
8.
To avoid the potential for incorrect reporting of this work among the charitable sector,
we can also provide an update through the Charities Services newsletter to ensure
accurate information reaches these stakeholders. The newsletter is sent to all registered
charities and any additional interested parties who have signed up to receive the
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information.
Next steps
9.
Subject to your availability and agreement from your colleagues, we suggest an
announcement on the work to modernise the Charities Act is made in late May 2022
Official
fol owing Budget 2022 announcements.
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Recommendations
10. We recommend that you:
a)
Agree to announce the Cabinet decisions on the work to modernise
Yes/No
the Charities Act fol owing Budget Day 2022; and
b)
Note the Department will proactively release the Cabinet paper and
associated documents fol owing the announcement and update our
website with supporting information.
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Sela Finau
Policy Director
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Hon Priyanca Radhakrishnan
the
Minister for the Community
and Voluntary Sector
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Appendix A: Communications Plan
Announcing decisions on modernising the Charities Act
Section 1: Draft press release
Charities and communities to benefit from changes to the Charities Act
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Making it easier to help the community is the focus of changes being made to the Charities Act, says
Community and Voluntary Sector Minister Priyanca Radhakrishnan.
“Charities are a valued part of our society, and the past two years have crystal ised why we need t
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care of them in the same way they take care of our communities,” says Minister Radhakrishnan.
The newly announced changes wil include introducing increased transparency on accumulated funds,
reduced reporting requirements for very small charities, clarifying the role of officers of charities, and a
more accessible judicial appeals body.
“We are working to help support charities to thrive while also ensuring trust and confidence by the
public in our charitable sector.”
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For very small charities, the benefit will come from an easing of financial reporting requirements to the
regulator.
“I want to lighten the burden on our smallest charities, who are often the ones volunteering to provide
important services in our communities.
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“This will lessen their operating costs and al ow volunteers to spend more time doing the mahi they
love. It is estimated that 12 percent of all registered charities will benefit from this proposal.”
the
Minister Radhakrishnan is also proposing to improve transparency and fairness by requiring larger
charities to be more transparent to the public about why they have accumulated funds such as cash,
assets or other resources.
“It is well established that a number of New Zealand’s largest charities have significant accumulated
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funds they use to achieve their charitable purpose. There is an interest in these funds and what they are
used for, so we want to make this information more readily available.
“Transparency builds trust, and the public need to be able to trust charities to be responsible with their
tax-free income.”
These increased transparency efforts will also extend to the responsibilities of the regulator.
The Charities Registrat
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provide a clear process for formal objections.
Charities will be able to appeal a wider range of decisions and where appeals are made to significant
decisions, they wil now be made to an expanded Taxation Review Authority instead of the High Court,
which was legally complex, time-consuming, and expensive, disadvantaging smaller charities.
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The new appeals process will be less formal, allow charities to self-represent, and have more relaxed
rules of evidence. The timeframe for lodging an appeal will be extended from 20 days to two months.
“I want to make it easier and less costly for charities to appeal decisions. It is important that our system
doesn’t just work for those who have the resources to navigate it. It must provide the same service and
the same access for everyone,” says Minister Radhakrishnan.
To enable this, $2.6 million is being made available as part of Budget 2022.
These changes are expected to come into effect in 2023 fol owing amendments to the Charities Act. The
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public wil have an opportunity to provide feedback through the Select Committee process.
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Background
• The Charities Act provides a registration, reporting and monitoring system for entities that carry out
charitable purposes, and therefore has a clear public benefit.
• The system helps approximately 28,000 registered charities to retain the public’s trust and
confidence that charitable funds are being managed appropriately. While registering for charitable
status is voluntary, it brings benefits, including eligibility for tax exemptions and funding
opportunities.
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• The charitable sector is diverse, ranging from large iwi organisations, churches, and education
providers to local providers of social services, toy libraries, and sports clubs.
• Charities contribute greatly to New Zealand society, spending over $19 billion over the past financial
year.
• They benefit a range of communities by providing services that directly respond to community need.
Official
This was highlighted during the COVID-19 pandemic when charities provided a wide variety of
support such as food parcels and emergency accommodation.
• Since the Charities Act was introduced in 2005, the sector’s operating environment has changed.
the
Crown entity reforms resulted in the disestablishment of the Charities Commission in 2012. The
Commission’s functions were transferred to the Charities Registration Board and the Chief Executive
of Te Tari Taiwhenua Department of Internal Affairs.
• Changes to reporting requirements in 2015 required charities to report to financial reporting
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standards specified by the External Reporting Board (a Crown entity) for greater transparency and
consistency.
• Changes to reporting requirements for very small charities will complement the work being done by
the External Reporting Board to reduce and simplify the existing Tier 4 standard for small charities.
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Section 2: Talking points
Cabinet has approved policy proposals for work to modernise the Charities Act
•
In 2018, Cabinet agreed to a review of the Charities Act to with the aim of modernising the Act.
•
Public consultation occurred in 2019 on a range of issues, however, work was put on hold in 2019
due to COVID-19 and resumed in late 2020.
•
Policy development on a range of topics was completed at the end of 2021. In February 2022,
Cabinet approved the policy proposals.
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•
I expect to introduce the Charities Amendment Bil to Parliament this year with the aim of passing
the Bil by 2023. The public wil have an opportunity to provide feedback through the Select
Committee process.
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The charitable sector is diverse and makes a great contribution to New Zealand society
•
The sector is diverse and includes sports clubs, churches, providers of education, and social
services. There are about 28,000 registered charities in New Zealand.
•
Over half of charities in New Zealand are smal and often volunteer run.
•
Charities benefit communities by providing services that respond to community need. This was
demonstrated during the COVID-19 pandemic when charities provided support such as food
parcels and emergency accommodation.
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•
Charities spent over $19 billion over the last financial year.
Significant changes since the Charities Act’s commencement in 2005 prompted the Modernising the
Charities Act work programme
•
The Charities Commission was disestablished in 2012 and its functions were transferred to the
Official
Charities Registration Board and the Chief Executive of the Department of Internal Affairs,
delegated to Charities Services (the charities regulator).
the
•
From 2015, charities were required to report to financial reporting standards specified by the
External Reporting Board.
The objective of the work programme is to deliver real world benefits to charities
•
The aim of the Modernising the Charities Act work is to support charities to continue contributing
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to community wellbeing while ensuring public transparency.
•
The Government considers the fundamentals of the Charities Act (which is a registration,
reporting and monitoring system for charities) to be sound.
•
I am proposing practical improvements to address challenges charities face. These challenges
include the compliance burden, inaccessibility of the current appeals framework, and lack of
clarity of the role of charities’ officers.
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Improving the accessibility of appeals and expanding the decisions available for appeal
•
Currently many charities, particularly smaller ones, find the High Court appeal process to be
inaccessible due to the legal complexity and costs involved.
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•
I propose to use the Taxation Review Authority to hear appeals under the Charities Act. The
Authority will provide greater accessibility and the updated appeals framework will allow charities
to self-represent, reducing costs.
•
The appeals process wil become less formal with more relaxed rules of evidence so that more
evidence can be potential y considered.
•
I also seek to expand the range of decisions that can be appealed. This change wil include
significant decisions of the Chief Executive of Internal Affairs.
•
Further, I propose to extend the timeframe for lodging an appeal to two months making it easier
for small charities that might not meet frequently.
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Increasing the regulator’s transparency, accountability and decision-making processes Act
•
I propose to require the charities regulator to publish all decline and deregistration decisions and
provide a clear process for charities to object to significant decisions.
•
Additionally, I propose to extend the timeframe for submitting information to the regulator from
20 working days to two months, increasing the Charities Registration Board’s composition from
three to five members, and require the Department of Internal Affairs to consult with the
charities sector about guidance material.
•
Increasing the number of Board members to five will improve the diversity of the Board and
address potential quorum and conflict of interest issues.Information
•
These changes acknowledge that many charities are volunteer run and need time to engage in the
decision-making process. These changes also support participation in the charities system, provide
greater clarity, and allow charities to focus on their important mahi.
Requiring larger charities to report reasons for accumulated funds
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•
Larger charities (tiers 1, 2 and 3) will be required to report the reasons for their accumulated
funds, to provide clarity on why funds are held to help improve public trust and confidence.
•
Charities Services will co-design with iwi changes to the annual return form so that te ao Māori
the
views of accumulation are reflected.
Easing reporting requirements for very small charities
•
Currently, very small charities have disproportionate reporting requirements relative to the level
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of transparency and accountability required.
•
I am proposing to exempt very small charities from the External Reporting Board’s financial
reporting standards. Very small charities will still be required to file an annual return containing
basic financial information.
•
This will balance transparent reporting while reducing the compliance burden faced by very small
charities. Around 12 percent of all registered charities will benefit from this exemption. The
exemption threshold wil be set through regulations.
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Improving the compliance and enforcement function
•
This work will make three improvements to the compliance and enforcement function for
charities.
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I propose to make explicit the currently implicit obligations for charities to remain qualified for
registration.
•
The definition of serious wrongdoing will be clarified to include an offence punishable by at least
two years imprisonment.
•
I propose to enable the Charities Registration Board to disqualify an officer for serious
wrongdoing or a significant/persistent breach of obligations,
without deregistering the charity.
Four changes wil be made to clarify the role of an officer of a charity
•
I intend to clarify the role of an officer as someone who supports the charity to meet its
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obligations and holds responsibility for governing the charity.
•
I propose to amend the definition of officer to include anyone with significant influence regardless
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of the type of charity.
•
I propose that charities must review their rules document every year to encourage a closer look at
their governance arrangements.
•
I propose to update the disqualifying factors for becoming an officer to include financing of
terrorism offences and one officer in a charity must be 18 or over (people can currently hold
officer positions from the age of 16).
•
These four changes will improve the accountability and governance of charities and produce
better alignment with other legislation that charities might be governed by such as the Companies
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Section 3: Questions and answers
General Q&A
What is the purpose of this work?
The objective of modernising the Charities Act is to support charities to continue their contribution to
community wellbeing while ensuring sufficient public transparency. I am making practical improvements
to address the challenges that charities face.
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What prompted the Modernising the Charities Act work programme?
There has been significant change since the Charities Act was introduced in 2005. We have seen changes
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in the wider operating environment for charities, the disestablishment of the Charities Commission, and
charities being required to report to financial standards set by the External Reporting Board.
What is the charitable sector like in New Zealand?
The sector is diverse with around 28,000 registered charities in New Zealand across the width and
breadth of community services. Over half of charities in New Zealand are small and are often volunteer
run.
How do charities contribute to New Zealand society?
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Charities provide services which respond to community need. During the COVID-19 pandemic, charities
provided wide-ranging support such as food parcels and emergency accommodation. Charities also
spent over $19 billion over the last financial year.
How wil the changes help charities to support their communities?
Official
This is a balanced approach; I propose to make it easier for charities to do their work while considering
the need for accountability in managing tax-free funds. We have focused on practical improvements
the
that will make the day to day running of charities easier, especially our smallest charities.
What wil change for charities in practice?
The changes I am proposing will have practical benefits for charities and the communities they serve.
under
Some changes are operational and will be implemented over the coming year, while other changes
require amendments to the Charities Act.
Additional detail:
I propose to reduce the burden of financial reporting for our smallest charities, which means more time
focusing on their important mahi. Large charities will now share why they have accumulated funds,
giving more context to how their financial position contributes to the goals of the charity and its
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community.
All charities will have a better idea of how the regulator makes decisions affecting them, be more
involved in regulatory decision-making, and not have to go to the High Court to chal enge a decision,
which wil save time and money.
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Who did you consult with to develop the policy changes?
Targeted engagement with key stakeholders in 2021 built on a solid foundation of feedback from public
consultation in 2019. The targeted engagement was representative of the sector and included a Core
Reference Group, the Charities Sector group, iwi and others.
Timeframes
When do you expect the Charities Act to be amended?
I intend to introduce a Charities Amendment Bill to Parliament this year and will aim to pass the Bill in
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2023.
Why has the work to modernise the Charities Act taken so long?
Act
Work was interrupted and placed on hold due to COVID and the need to redeploy resources.
Fundamental matters – out of scope
What happened with al the other issues raised in the 2019 public consultation?
The changes I have proposed will make practical improvements. I was keen to focus on these areas to
make a difference to how charities operate in the short to medium term.
Information
Additional detail:
Other more fundamental matters raised in the public consultation, like how te ao Māori principles could
be considered in the Act, where the line is for political advocacy by charities, and the definition of
charitable purpose could be considered at a later stage.
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Why didn’t you look at advocacy by charities?
I have focused on practical improvements for charities. More fundamental issues like advocacy by
the
charities could be considered at a later stage. This approach allows us to make it easier for charities to
operate sooner.
Wil the changes affect the ‘four heads of charity’?
No, this work did not consider the de
under finition of charitable purpose. The four heads of charity (relief of
poverty, advancement of education and religion, and any other purposes beneficial to the community)
have not changed.
Did you consider the business activities of charities in this work?
Business activity is a well-established way for charities to raise funds. I considered matters relevant to
charitable businesses, like accumulation of funds and governance. Deciding whether business should be
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charitable wasn’t something I considered as part of this review as it links to more fundamental issues
such as charitable purpose.
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Are you going to do more work to improve the Charities Act?
Government may consider further changes to the Charities Act to consider the other matters raised
during public consultation in 2019. No decisions have been made yet on further work.
Submissions
Did submissions to the 2019 consultation inform this work?
Yes, the submissions were very important in developing these changes.
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I don’t agree with the proposed changes – how can I make a submission?
As part of the legislative process, there will be an opportunity for anyone to make submissions during
the Select Committee stage.
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Charities Commission
Why aren’t you re-establishing the Charities Commission, like the sector is asking for?
We heard from consultation that some parts of the sector would have more trust in the regulator if it
was an independent Crown entity.
I am confident with the independent Charities Registration Board and Charities Services within the
Department of Internal Affairs making decisions under the Act. However, I am proposing to enhance the
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regulator’s transparency, accountability, and decision-making processes.
9(2)(f)(iv)
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Judicial appeals
How are you going to improve the appeals process for charities?
By expanding the jurisdiction of the Taxation Review Authority to hear appeals from charities it removes
the need to engage the High Court which is complex and expensive. The Authority wil be more
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accessible as charities will be able to self-represent and rules of evidence will be more relaxed. These
changes will reduce costs for charities.
Additional detail:
I am also expanding the range of decisions that can be appealed and increasing the timeframe for
lodging an appeal. The timeframe for lodging an appeal is proposed to be extended from 20 working
days to two months. This will provide smaller, volunteer-run charities more time to hold a governance
board meeting to consider their options.
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Regulatory decision-making
How are you going to improve regulatory decision-making?
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Many charities are volunteer run and often need time to engage in the decision-making process, and
information about the decision-making process could be more readily available to support charities.
The changes will require the Charities Registration Board to publish all decline and deregistration
decisions and provide a clear process for charities to object to significant decisions made by the Board.
I want to increase the number of Charities Registration Board members from 3 to 5 to increase diversity
and avoid potential quorum issues. I will also require Charities Services to consult with the sector about
guidance material.
Information
Role of charities regulator in work
Did Charities Services provide advice that led to the changes?
Policy advice was provided to me by officials from the Department. While the regulator, Charities
Services, is based in the Department, it is not leading this work.
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Reporting requirements
How are the changes going to impact on the financial reporting of charities?
the
I propose to reduce reporting requirements for very smal charities. This wil reduce the burden they
currently face trying to comply with an accounting standard.
Larger charities will still have to report according to accounting standards and will now have to also
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report their reasons for accumulating funds. The public are interested in how larger charities manage
their money, so this change will provide greater transparency and public trust and confidence.
How wil you maintain public trust and confidence in smal charities if they don’t have to report as
much information?
Very small charities that are covered by the exemption will still be required to file an annual return
containing basic financial information. This will provide enough transparency relative to the risk these
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How does this link to External Reporting Board’s review of tier 3 and 4 reporting standards?
I am enabling the Chief Executive of the Department of Internal Affairs to exempt a class of small
charities from the tier 4 reporting standard. The Chief Executive wil not use the exemption if the
External Reporting Board’s work aligns with my intent to reduce reporting requirements for small
charities.
How many very smal charities wil benefit from the exemption from the accounting standard?
The financial threshold for exemption will be set in regulations and developed through consultation.
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Based on targeted consultation, officials suggested reducing reporting requirements for tier 4 charities
with annual payments under $10,000 and total assets under $30,000. Around 12 per cent of al
registered charities which are very small charities will benefit from the exemption.
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Accumulation of funds How wil te ao Māori views of accumulation of funds be considered?
Charities Services will co-design changes to the annual return with iwi so that te ao Māori views of
accumulation are reflected in the new requirement. This work is ongoing.
Do you think accumulation of funds by charities is problematic?
Information
Accumulation of funds demonstrates the charity is growing its resources. Some charities accumulate
significant amounts of funds and this is often necessary for future investment. I do not consider
accumulation of funds problematic unless the funds are not used for charitable purpose, which could
constitute serious wrongdoing and the charity may be deregistered.
What can be problematic is that it is not always clear why charities are accumulating funds. Requiring an
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explanation in the annual return will address this and it wil be up to users such as donors and Inland
Revenue to draw their own conclusions.
the
Compliance and enforcement
Are you proposing any changes to the compliance and enforcement functions of the Charities Services
or the Board?
I am proposing to make improvements to the regulator’s compliance and enforcement functions, firstly
under
by making explicit the currently implicit obligations for charities to remain qualified for registration.
I am also clarifying part of the definition of serious wrongdoing to include an offence punishable by at
least two years imprisonment. The Charities Registration Board will also be able to disqualify an officer
for serious wrongdoing or a significant or persistent breach of obligations, without deregistering the
charity.
Governance
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How wil you improve the governance of charities?
I am clarifying who should be an officer and that their role is to support the charity to meet its
obligations. I am also requiring charities to review their rules document annually and updating the
factors that might disqualify an officer.
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This isn’t about coming down hard on charities, but about improving the public confidence in the people
who run our charities.
Are you planning to change who can be an officer?
I am broadening the definition of an officer to include anyone with significant influence over the charity,
regardless of the type of charity. This will give Charities Services a full view of the people operating the
charity.
I am planning to disqualify persons with a criminal conviction for financing of terrorism from becoming
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officers of charities.
Link to the Incorporated Societies Act
Act
How does the new Incorporated Societies Act affect the proposed Charities Amendment Bil ?
Officials at the Department worked closely with MBIE to ensure that the Bill and the new Incorporated
Societies Act would align in the areas that matter. Common areas include the definition of officer, less
financial reporting requirement for small entities and alignment around disqualifying officers.
9(2)(f)(iv)
Information
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the
Are you looking at whether charities should stil receive tax benefits?
Charities make important contributions to the wellbeing of New Zealanders. One of the ways the
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Government supports charities is by providing favourable tax treatment. Tax issues are matters for the
Minister of Revenue and Inland Revenue to consider. Favourable tax treatment of charities is subject to
monitoring and review by Government to ensure its effectiveness.
9(2)(f)(iv)
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Sector Group
Volunteering New Zealand is an association of volunteer centres,
member: Volunteering and national and regional organisations with a commitment to
New Zealand
volunteering in Aotearoa New Zealand.
Tier 1 and 2 charities
Some tier 1 and 2 charities had an interest in the business and
and representative
accumulation policy proposals. Examples of tier 1 and 2 charities
bodies
include: SPCA NZ, Medical Assurance Services, Plunket, St George’s
Hospital, NZ Col ege of Midwives and representative bodies like
the InterChurch Bureau.
Private foundations (a Accumulation can be important to private foundations, who had
subset of Tier 1 and 2
an interest in both the business and accumulation policy
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charities)
proposals.
Specific individuals
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Small Charities involved in smal
We engaged with individuals involved in smal charities. We
charities
identified these individuals from public submissions in 2019.
Charities Services and
Regulator
Charities Registration
Charities Services and the Charities Registration Board together
Board
comprise the regulator.
Charities’ registration status connects to their tax treatment. The
Government Response to the Tax Working Group’s final report was
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Inland Revenue (IR)
that business and accumulation issues would be considered as part
of IR’s Tax Policy Work Programme and through work to
modernise the Charities Act.
The External
XRB set the reporting standards for not-for-profits and provided
Reporting Board (XRB) input on recommendations relating to reporting/transparency of
funds.
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Government
Ministry of Business,
MBIE advised on the Incorporated Societies Act. This Act affects
Innovation and
the significant proportion of charities that are also incorporated
Employment (MBIE)
societies.
the
Te Puni Kokiri (TPK)
We consulted TPK and Te Arawhiti on the impact of the proposals
and Te Arawhiti
on Māori charities/iwi/post-settlement governance groups.
Ministry of Justice
(MoJ) and Crown Law
MoJ and Crown Law were key contributors in the policy proposals
under
Office
regarding the appeals process.
Iwi, particularly mature post-settlement groups such as Waikato
Waikato Tainui
Tainui and Ngāi Tahu, had interests in the business and
Raupatu Lands Trust
accumulation topics. This is because these groups tend to maintain
and Group and Ngāi
substantial levels of assets and surplus funds and operate several
Iwi and Māori Tahu Charitable Group businesses to grow settlement funding and provide benefits for
future generations.
Te Hunga Rōia Māori o
Released Aotearoa – The Māori Te Hunga Rōia Māori o Aotearoa provides te iwi Māori
Law society
representation in the legal profession.
Academics
Ian Murray
Ian Murray is an academic based in Australia who has published
research on charity law and accumulation.
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Michael Gousmett
Michael Gousmett is an independent researcher who has written
extensively about charitable business.
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Purpose
1.
This briefing provides you information on the recently released research fellowship
report “What does a world-leading framework of charities law look like?”, including
how the recommendations of the report compare to policy decisions to modernise the
Charities Act 2005 (the Act).
Background
The New Zealand Law Foundation research fellowship report on charities law reform has
been released
2.
The 2019 New Zealand Law Foundation International Research Fellowship Te Karahipi
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Rangahau a Taiao (the Fellowship) was awarded to Sue Barker to answer the question
“What does a world-leading framework of charities law look like?”. The final report
was released on 19 April 2022.1
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3.
Sue Barker leads a boutique Wellington law firm specialising in charities law and public
tax law and is a director of the Charity Law Association of Australia and New Zealand.
As a key stakeholder in the charitable sector, Ms Barker is a member of the Core
Reference Group for work to modernise the Act and a member of the Charities
Services’ Sector Group.
The research was undertaken in parallel with your work to modernise the Charites Act
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4.
Work to modernise the Act was initiated in 2018, followed by a public consultation on
key issues in 2019. The Fellowship started in March 2020, with a view to providing an
independent perspective of charities law reform that could feed into the
Government’s work. However, the release of the final research report was extended to
April 2022.
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5.
Ms Barker’s research explored charities law in Australia, Canada, England, Wales,
Ireland and the United States of America, and was informed by hui, interviews and
the
workshops with stakeholders. The 2019 public consultation submissions we received
were also an input into the report.
6.
While policy decisions to modernise the Act have already been made by Cabinet, Ms
Barker was able to share relevant research findings as part of targeted engagement in
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2021. As such, Ms Barker’s work helped to inform our policy development.
Recommendations of the report
Most of the report’s recommendations relate to matters out of scope of current work to
modernise the Charities Act
7.
The report makes 70 recommendations and proposes a draft amendment bill. The
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proposals are consistent with what we heard from Ms Barker during the 2019 public
consultation and targeted engagement in 2021.
8.
Most of the recommendations relate to matters out of scope of this stage of the
modernisation work. This includes proposals to amend the purposes of the Act,
restructure the Charities Registration Board and Charities Services into an independent
1 Due to the length of the report we have not attached it to this briefing. The report can be accessed at
https://www.lawfoundation.org.nz/wp-content/uploads/2022/04/Charities-Law-Reform-Report-April-
2022.pdf.
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Crown entity, and introduce new requirements around fundraising standards. There
are also several tax related proposals for the Income Tax Act 2007 and Tax
Administration Act 1994.
9.
The primary recommendation is to transfer the Government’s work on the Act to Te
Aka Matua o te Ture, the Law Commission, for an independent first principles review.
The report proposes that this review consider the definition of charitable purpose,
adopting Australian charities’ advocacy law, government contracting arrangements
with not-for-profits and other wide-ranging matters. 9(2)(f)(iv)
The remaining recommendations are generally broader than Cabinet policy decisions 1982
10.
Some of the recommendations are consistent with Cabinet policy decisions. For
example, the report recommends that the Taxation Review Authority be empowered
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to hear charities appeals. The report also recommends that Charities Services publicly
consult on draft guidance material and that the timeframe to lodge an appeal is
extended from 20 working days to 60 days. Cabinet has agreed to require Charities
Services to consult with sector representatives on guidance and to provide charities
two months to lodge an appeal.
11.
The remaining recommendations look to address issues that we did not identify
through the policy process or propose changes that we do not support. For example,
providing for appeals
de novo, introducing a new duty on officers to manage conflicts
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of interest, and undertaking a public awareness campaign to restore confidence in
charities running businesses and accumulating funds.
12.
We have outlined our position on these proposals, and the other recommendations, in
Appendix A. This includes some recommendations that could be minor changes to
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improve the workability of the Act. We will consider whether it is possible to include
them in the amendment bill being drafted and advise you accordingly.
the
The report may be submitted to the select committee for the draft amendment bill
13.
We anticipate that Ms Barker will make a submission to the select committee that
considers the bill we are currently drafting, based on the proposals in her report. Ms
Barker’s submission may be supported by other stakeholders as there was some
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endorsement of Ms Barker’s views in the 2019 and 2021 consultations. We will be
prepared to respond to queries raised by the select committee as required.
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Recommendation
14.
We recommend that you
note that the research fellowship report on
charities law reform has been released with the recommendations
outlined in Appendix A.
Jayne Beggs
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Policy Manager
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Hon Priyanca Radhakrishnan
Minister for the Community
and Voluntary Sector
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3.3
That the legislation clarify that the charitable purpose
Out of scope.
test applies to an entity’s purposes, as ascertained
under normal rules of construction of its constituting
This could be considered as part of a review
document, not to activities and not to the entity itself.
looking at charitable purpose.
4.1
That the legislation clarify that a charity may carry out
Out of scope.
advocacy activities in furtherance of its stated
charitable purposes, with only three restrictions: (i)
9(2)(f)(iv)
Those contained in the general law. (ii) Those
contained in the charity’s constituting document. (iii)
Advocacy is also being considered
Otherwise, charities may not be partisan: that is,
by the Courts in the context of the Family
charities may not engage in activities promoting or
First Supreme Court appeal. The outcome of
opposing a political party, elected official, or
the appeal will provide additional case law on
candidate for political office.
advocacy activities.
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4.2
That the legislation clarify that potential fiscal
Out of scope.
consequences of registration are not relevant to the
question of whether a purpose is charitable.
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This could be considered as part of a review
looking at charitable purpose.
4.3
That, as part of the independent first principles
Out of scope.
charities law review recommended in
recommendation 1.0, consideration be given to
This could be considered as part of a review
implementing legislation similar to the Not-for-profit
looking at advocacy by charities.
Sector Freedom to Advocate Act 2013 in Australia, to
respect the independence of charities by specifically
prohibiting government contracts from including
clauses that prevent or restrict charities from
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commenting on, advocating support for or opposing
changes to law, policy or practice.
5.1
That Charities Services’ approach, set out in its
It is the role of the Charities Registration
October 2017 ICE Foundation case report, which
Board and Charities Services to apply the law
includes requiring a social enterprise to demonstrate
when considering registration applications.
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viability at the outset as a precondition to charitable
However, we considered whether it was clear
registration, is discontinued and eligibility for
enough how they were applying the law to
registration is instead assessed according to normal
make decisions and found that there is a need
the
principles.
to improve transparency of decision-making.
You agreed operational changes for Charities
Services to publish decision-making
processes.
5.2
That a public awareness campaign is conducted to
While the public sometimes raise concerns
under
restore public confidence that running a
about charities running businesses and
business/carrying out social enterprise is a legitimate
potentially having a competitive advantage
and important activity for charities.
over other businesses, we do not consider it
necessary to run public awareness campaign.
Business is a legitimate charitable activity.
5.3
That, as part of the public awareness-raising campaign As above.
recommended in recommendation 5.2, awareness is
also raised of the non-distribution constraint and the
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destination of funds test: charities running businesses
do not have a competitive advantage over their for-
profit counterparts and there is no basis to remove
their income tax exemption. Charities running
businesses are in fact social enterprises and their work
should be enabled rather than inhibited.
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5.4
That, as part of the independent first principles
Out of scope.
charities law review recommended in
recommendation 1.0, the issue of whether imputation Imputation credits are a tax matter.
credits should be refundable to registered charities is
comprehensively assessed, taking into account the
comprehensive transparency and accountability
requirements to which registered charities are now
subject, and the benefits that would accrue from
removing a significant barrier to the investment of
philanthropic funds in New Zealand companies.
6.1
That charities’ access to a de novo oral hearing of
De novo hearings provide for a new decision-
evidence is reinstated.
maker to assess the matter afresh, without
taking into consideration the decision that
the Charities Registration Board or Charities
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Services came to. This typically allows for new
evidence to be presented. We did not
recommend de novo hearings for charities
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appeals. De novo hearings are expensive and
time consuming for all parties. The appeals
body can also currently consider new
evidence if it sees fit.
6.2
That, to ameliorate current significant delays in
We did not identify a problem with
making registration decisions (sometimes extending
registration timeframes. During the 2020–21
to several years), the charities’ legislation specifically
financial year, registration decisions, on
allow a registered charity, or an applicant for
average, were made within 32 business days
registration, to treat their registration as having been
of receiving all necessary information. This
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denied if a decision has not been made within 6
was down from 58 days on average in 2019-
months, thereby allowing the matter to progress to an 20.
independent judicial authority for determination on
If appeals take time, the registration can be
the basis of a full oral hearing of evidence.
backdated to the time of application.
6.3
That charities are given the option of appealing
Cabinet has agreed to empower the Taxation
decisions made under the Charities Act to either the
Review Authority to hear Charities Act
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Taxation Review Authority or the High Court at their
appeals. We considered whether there should
choice, as was the case prior to the Charities Act,
be a choice to appeal to the Authority or to
remains the case under tax legislation, and is also the
the High Court. Having an option is not
the
case in other jurisdictions.
standard or recommended practice. The
Authority will have the power to refer appeals
to the High Court.
6.4
That the jurisdiction of the Taxation Review Authority
Cabinet has agreed to empower the Taxation
under
to hear appeals under the Charities Act is further
Review Authority to hear Charities Act
extended to hear appeals under other legislation
appeals. It was not in scope to consider
applicable to charities, such as the new Incorporated
appeals frameworks for other legislation
Societies Act, the Charitable Trusts Act 1957, and the
applicable to charities.
Trusts Act 2019.
6.5
That the timeframe for appealing decisions under the
Cabinet has agreed to extend the timeframe
Charities Act is extended to 60 days, in line with
to two months, which is equal to
Australia.
approximately 60 days.
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6.6
That the legislation clarifies that charities remain able
Cabinet has agreed that all decisions of the
to appeal substantively, to an independent judicial
Charities Registration Board and certain
body, all decisions made under the Charities Act. If,
significant decisions of Charities Services
following an open consultation process, any specific
should be subject to appeal. The draft
decisions are identified as genuinely not amenable to
amendment bill will be clear which decisions
appeal, these should be specifically carved out by
are included.
statute (following the approach taken in s 249 of the
We note that we consulted on the decisions
Incorporated Societies Act 2022).
available for appeal during targeted
engagement. Based on feedback, we advised
expanding appealable decisions to include
significant Charities Services decisions.
7.1
That the agency responsible for administering
Out of scope.
charities legislation is restructured as an independent
Crown entity that reports directly to Parliament.
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7.2
That, while access to registration turns on the
The Charities Registration Board and Charities
definition of charitable purpose, the agency
Services has broad knowledge of the
Act
responsible for administering charities legislation has
legislation affecting charities and continue to
and continuously develops deep expertise in trust law. keep abreast of relevant case law.
7.3
That a Māori Advisory Committee is established to
Out of scope.
assist the agency responsible for administering
charities legislation to give effect to the principles of
The Charities Services Sector Group includes
Te Tiriti o Waitangi and tikanga principles.
members from Māori organisations, and
there is Māori representation on the Charities
Registration Board.
7.4
That the issue of how best to ensure the charitable
Out of scope.
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sector has representative and adequately funded pan-
charity policy capacity, and meaningful input into
policy development, is specifically consulted upon as
part of the independent first principles review
recommended in recommendation 1.0.
7.5
That a “home in government” is created for the
Out of scope.
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charitable sector, separate from the agency
responsible for administering the Charities Act, and
centrally located, for example within the Department
the
of Prime Minister and Cabinet.
8.1
That use of the term “regulator” is discontinued in a
We did not identify a problem with the use of
charities law context, and the term “registrar” used
the term “regulator” in the charities context.
instead.
under
8.2
That the purpose of the Charities Act is clarified as
Out of scope.
being “to enable and support a diverse, robust,
vibrant, independent, innovative, and sustainable
charitable sector, in recognition of the direct and
indirect benefits such a charitable sector provides in a
free and democratic society” (based on the second
object of the Australian legislation adapted for the
New Zealand context). That the current purpose to
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promote public trust and confidence in the charitable
sector (section 3(a)) is returned to a function of the
agency responsible for administering the Charities Act.
That the current purpose to encourage and promote
the effective use of charitable resources (section 3(b))
is repealed.
8.3
That the legislation explicitly preserves recourse to
Out of scope.
equitable principles in a charities law context, in a
similar manner to that provided for trusts more
generally by the Trusts Act 2019.
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8.4
That the legislation explicitly provides for recourse to
Out of scope.
tikanga principles in a charities law context, where
appropriate.
8.5
That the legislation uses the term “registered charity”
This is not a technical matter we considered
instead of the term “charitable entity”.
but could be a minor drafting change that
improves the clarity of the Act. We will
consider this further and advise you
accordingly.
8.6
That the legislation uses the term “responsible
We did not identify a problem with the term
person” instead of the term “officer”, and that the
“officer”. However, we did find that it is not
substance of the definition clearly limits its scope to
always clear who is included in the definition.
members of the charity’s governing body (extended to Cabinet has agreed to amend the definition of
include the directors of a corporate trustee).
officer to clarify that it includes anyone with
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significant influence over the charity.
8.7
That the definition of “serious wrongdoing” is
Cabinet has agreed to amend the definition of
reworked to better support the overarching legal duty
“serious wrongdoing” to improve its
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of every registered charity, and every responsible
workability, by replacing the reference to an
person of a registered charity, to act in good faith to
offence with a reference to an offence that is
further the charity’s stated charitable purposes in
punishable by imprisonment for a term of
accordance with its rules.
two years or more.
Cabinet has also agreed that the Act make
more explicit the ongoing requirements for
charities.
8.8
That the legislation does not preclude the promotion
Out of scope.
of amateur sport from being a charitable purpose in
Information
its own right in appropriate circumstances (an
This could be considered as part of a review
outcome which is currently precluded by section 5(2A) looking at charitable purpose.
of the Charities Act 2005).
8.9
That the legislation does not incorporate the words
Out of scope.
“for example, advocacy” within the ancillary purpose
rule (currently contained in section 5(3) of the
This could be considered as part of a review
Official
Charities Act 2005).
looking at advocacy by charities.
8.10
That the description of an ancillary purpose (currently
Out of scope.
the
contained in section 5(4) of the Charities Act 2005)
does not include references to “incidental” and
This could be considered as part of a review
“independent” purposes, in order to ensure
looking at charitable purpose.
consistency with the underlying common law in New
Zealand and to reduce the scope for subjectivity.
under
8.11
That the legislation clarify the reasons for which
Out of scope.
regard is to be had to a charity’s activities (s 18(3) of
the Charities Act 2005).
This could be considered as part of a review
looking at charitable purpose.
8.12
That, as part of the independent first principles review Out of scope.
recommended in recommendation 1.0, a
comprehensive data project is undertaken to analyse
Released
what improvements could be made to the contents of
the charities register, and how better use could be
made of charities register information.
8.13
That a public awareness campaign is conducted to
Out of scope.
raise awareness, within the public and government, of
the existence, purpose and benefits of the charities
register.
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8.14
That the ability for charities to seek binding rulings
A binding ruling is Inland Revenue’s
from Inland Revenue is retained but that, in the
interpretation of how a tax law applies to a
interests of transparency, binding rulings relating to
person or entity. Binding rulings can be used
charitable registration are disclosed on the charities
to clarify how taxation law applies to income
register, to help people understand why some
derived by, or for the benefit of, charities.
charities are registered when similar charities are not.
This could include an interpretation of
charitable purpose. The Charities Registration
Board/ Charities Services are required to
follow these rulings under section 13 of the
Act. We did not propose any changes to
binding rulings. Binding rulings are
infrequent.
8.15
That section 20(2)(a) of the Charities Act, which
We will consider this further as it may be an
relates to now-repealed gift duty, is removed as
appropriate minor and technical amendment
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otiose.
to the Act.
8.16
That sections 44 - 49 of the Charities Act 2005, which
Out of scope.
enable affiliated or closely related entities to be
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treated as a single entity for the purposes of
We did not consider whether any
charitable registration, are removed as they have
fundamental changes were required to the
been superseded by the financial reporting rules for
single entity framework.
charities introduced from 2015.
8.17
That, as part of the independent first principles review We considered the reporting requirements
recommended in recommendation 1.0, the financial
framework for small charities. Cabinet agreed
reporting requirements for charities are
to provide an exemption power and
comprehensively reviewed, incorporating multi-
associated regulations to reduce reporting
disciplinary expertise, including in standard-setting,
requirements for the smallest charities. We
Information
accounting, auditing, information technology, data,
also note that the External Reporting Board,
tikanga, trust law, as well as coalface experience of
as the agency responsible for reporting
charities, to ensure a balance is struck between
standards, is consulting on simplified and
visibility and accountability on the one hand, and not
reduced reporting standards for tier 3 and 4
undermining small charities’ ability to deliver on their
charities.
charitable purposes on the other.
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8.18
That the review of the financial reporting
We considered the option of improved
requirements recommended in recommendation 8.17
reporting tools for charities as part of policy
the
include the design of an online financial reporting tool
development on reporting requirements for
for charities that would reduce duplication and
small charities. We identified that reducing
facilitate data collection.
the reporting standard would better address
the problem, given the support and education
Charities Services already provide to help
charities with their reporting requirements.
under
An online financial reporting tool may have
further benefits but would require funding.
8.19
That the review of the financial reporting
Out of scope.
requirements recommended in recommendation 8.17
consider the extent to which annual information
provided by charities could also be widely used by
government agencies and other funders in a “report
Released
once, use often” framework.
8.20
That the review of the financial reporting
Out of scope.
requirements recommended in recommendation 8.17
looks beyond outputs and outcomes to ways to
We note that nothing precludes charities
identify, measure and report on the impact generated
from reporting on the impact they have
by charities, taking into account international research made.
and development in this area.
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8.21
That the review of the financial reporting
Out of scope.
requirements recommended in recommendation 8.17
includes analysis of the concept of fund accounting, as
The External Reporting Board is responsible
that concept is dealt with in the SORP (FRS 102
for preparing and issuing accounting
(Accounting and Reporting by Charities: Statement of
standards for not for profit entities.
Recommended Practice applicable to charities
preparing their accounts in accordance with the
Financial Reporting Standard applicable in the UK and
Republic of Ireland)).
8.22
That the timeframe for notifying changes under
We did not identify a problem with the
section 40 of the Charities Act 2005 is amended to 20
timeframe for notifying changes.
working days for consistency with other applicable
legislation, to encourage a practice of notifying
changes to all applicable registrars as part of the
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process by which they are made and to improve the
accuracy of the charities register.
8.23
That, as part of the independent first principles review We did not identify a problem here. Charities
Act
recommended in recommendation 1.0, consideration
Services regularly work to support and
is given to other measures that would improve
educate charities on how to comply with the
compliance with the important duty to notify changes, Act.
which is currently widely observed in the breach.
Suggestions include potential technological
We also note on that the suggestion to
improvements, raising awareness of the importance
establish a Charitable Incorporated
of complying with the duty, setting key performance
Organisation structure adds yet another
indicators for the Charities Registrar, and potentially
entity structure when the new Incorporated
establishing a Charitable Incorporated Organisation
Societies Act 2022 has just been enacted.
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structure (which would eliminate the need for dual
Further not all incorporated societies are
registration).
charitable.
8.24
That section 39 of the Charities Act, which currently
We did not consider this matter, but it could
requires only telephone and internet collectors to
be a minor and technical amendment that
disclose a charity’s registration number on request, is
improves consistency. We will consider this
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extended to all types of fundraising carried out by or
further and advise accordingly.
on behalf of a registered charity.
8.25
That the Charities Act articulates a new duty, requiring Out of scope.
the
every registered charity, and every fundraiser acting
on behalf of a registered charity, to adhere to
We note that the Gambling Act 2003 sets out
professional fundraising standards when carrying out
rules/standards for some of the activities
a “fundraising activity” (widely defined to include any
noted.
activity seeking to raise funds, such as requesting
under
funds, canvassing for subscriptions, selling raffle or
lottery tickets, selling tickets to a fundraising event,
selling merchandise, and appealing for grants,
donations, or sponsorship).
8.26
That the current system of self-regulation of
Out of scope.
fundraising provided by the Fundraising Institute of
New Zealand and the Public Fundraising Regulatory
Association is better supported, including by provision
Released
of reliable, untagged, core operational funding to
allow them to focus on maintaining and strengthening
fundraising standards in New Zealand.
8.27
That the charities law framework articulates a broad
We did not recommend introducing new
high-level duty on responsible persons of registered
duties for officers as duties are provided for
charities to disclose and manage perceived or actual
in the prevailing legislation most officers are
conflicts of interest.
subject to, such as the Trusts Act 2019,
Companies Act 1993 and the Incorporated
Societies Act 2022.
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8.28
That, in the interests of transparency and
We did not identify an issue with the
accountability, the agency responsible for
decision-makers conflicts of interests.
administering charities’ legislation is required to
Charities Registration Board members must
publish its own procedures for managing actual or
declare and manager their conflicts, and
perceived conflicts of interest.
Charities Services staff must do the same with
their employer. Cabinet has also agreed to
multiple changes to improve the transparency
of the decision-makers.
8.29
That, as part of the independent first principles review Cabinet has agreed for significant decisions of
recommended in recommendation 1.0, section 43 of
Charities Services to be subject to appeal. This
the Charities Act, which currently provides Charities
includes decisions to grant, vary or revoke an
Services with a unilateral and apparently
exemption from compliance requirements.
unappealable power to exempt charities from
compliance with a wide range of statutory provisions,
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is subject to a comprehensive review as to its
continuing appropriateness.
8.30
That whatever agency is responsible for administering
The Department of Internal Affairs, which
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charities’ legislation is required to prepare a
includes Charities Services, is already subject
statement of intent, at least every three years, and to
to annual reporting requirements. Charities
make a draft statement of intent available for public
Services voluntarily publish a separate annual
consultation before finalising.
report. Work is also underway to review the
Department’s performance measures as they
relate to Charities Services.
8.31
That in order to improve transparency and
The Department of Internal Affairs is subject
accountability of decision-making, the agency
to annual reporting requirements, and
responsible for administering charities’ legislation is
Charities Services also publish a separate
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required to prepare its own annual report, and that
annual report. This includes information on
certain information is specifically required to be
the number of withdrawn applications. Work
included within it, such as the numbers of applications
is also underway to review the Department’s
for registration that have been voluntarily withdrawn,
performance measures as they relate to
the numbers of entities that have been deregistered,
Charities Services.
and the reasons why.
Official
8.32
That refinements are made to the requirement to
We did not identify a problem with the
hold an annual meeting in order to strengthen its
annual meeting requirements.
the
utility as an accountability mechanism.
8.33
That test case litigation funding is made available to
Cabinet agreed to introduce a more
develop the law in matters of public interest.
accessible appeals body for charities. Test
litigation funding was an option we
considered but addressing the problem of
under
inaccessible appeals was more important.
8.34
That the question of whether persons other than the
Cabinet agreed that the decision-maker and
person directly affected by a decision should have
the charity should be party to the appeal. It is
standing to bring an appeal is considered as part of
not best practice to allow a person or entity
the independent first principles review recommended
to appeal a decision that does not directly
in recommendation 1.0
impact them.
8.35
That sections 54 and 55 of the Charities Act, which
We did not identify an issue with warning
relate to the power to issue and publish warning
notices.
Released
notices, are repealed and replaced with a specific
The status quo does not preclude the use of
power to enter into compliance agreements.
compliance agreements.
8.36
That, in the absence of a rationale for its retention,
We did not identify an issue with section 75.
section 75 of the Charities Act, which provides that
Charities are self-governing entities.
there is no duty or obligation on the Charities
Registration Board or Charities Services to supervise
the affairs of or exercise any powers in respect of any
person, is removed.
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8.37
That no further piecemeal amendments are made to
A Charities Act amendment bill is planned to
legislation affecting charities pending the independent be introduced this year, that focuses on
first principles review of the charities law framework
making practical changes before potentially
recommended in recommendation 1.0 above.
looking at more fundamental matters at a
later stage.
8.38
That the circumstances in which the public interest
Out of scope.
test (currently set out in section 35(1) of the Charities
Act) might protect a charity from deregistration are
clarified and made publicly available.
8.39
That the legislation makes clear the exercise of any
The Charities Registration Board can make an
power to ban persons from being officers or
order to disqualify an officer on
responsible people of a registered charity cannot be
deregistration of the charity, which does not
exercised in the absence of an order of a court.
require an order by the Court. Cabinet has
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agreed to expand the status quo to allow the
Board to disqualify an officer without
deregistering a charity. The charity or officer
could appeal this decision. Act
8.40
That the government co-designs with the charitable
Out of scope.
sector a civil society strategy, along the lines adopted
in the United Kingdom and proposed in Australia,
articulating a vision for maximising the potential of
the charitable sector, and the wider civil society in
which it sits, to deliver benefits for Aotearoa New
Zealand
8.41
That the legislation requires a post-implementation
After implementation of the Act changes, we
Information
review after five years, following the model of
will continue to monitor its effectiveness and
Australia, England and Wales, and Ireland.
provide advice accordingly.
8.42
That section 72A of the Charities Act is repealed, and
We did not identify a problem with Charities
the power to prescribe forms and other requirements
Services prescribing forms. The status quo
is returned to regulations.
provides flexibility to ensure the forms are
always user friendly for charities. Charities
Official Services must consult on the annual return
form before making changes.
8.43
That section 32E(1A) of the Tax Administration Act
Out of scope (tax matter).
the
1994 is amended so that all registered charities are
automatically included on the RWT exemption
register, not just those structured as charitable trusts
8.44
That any guidance issued by Charities Services (or
Cabinet has agreed that the Act require
whatever agency is responsible for administering the
Charities Services to consult with sector
under
Charities Act) is required to follow a public
representatives (not the public) on significant
consultation process, similar to the Generic Tax Policy
guidance.
Process, before being finalised.
8.45
That the criteria for inclusion on schedule 32 of the
Out of scope (tax matter).
Income Tax Act 2007 (“overseas donee status”) are
revisited to better support charities working to tackle
pressing global challenges such as climate change,
Released
biosecurity, pandemic risk, global safety and stability,
and the like.
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Te kaupapa | Purpose
1.
This aide memoire provides you with key information about the changes to modernise
the Charities Act to support you with any media or stakeholder questions about the
work. The aide memoire contains
Talking points and potential questions and answers
(Appendix A) and a
Summary of the policy decisions, options considered and
stakeholder views (Appendix B).
Key points about modernising the Charities Act 2005
Objective of the work
2.
The objective of the work to modernise the Charities Act is to encourage and support
1982
charities to thrive, while ensuring sufficient transparency. If the objective is met, we
should see ongoing trust and confidence in charities who continue to drive initiatives
Act
that support community wel being.
Scope of the work
3.
In May 2018, Cabinet agreed to a review to modernising the Charities Act to ensure it
remained fit for purpose and suited the needs of the diverse charitable sector. The
fundamentals of the Charities Act as a registration, reporting and monitoring system
were noted to be sound. Cabinet agreed to consider substantive issues with the Act
but not first principles. In March 2021, you confirmed the scope of the review with a
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focus on practical issues with fundamental issues to potentially be considered later.
Stakeholders and consultation
4.
Public consultation on a range of issues was undertaken from February to May 2019.
Official
Targeted engagement during 2021 with government agencies, the Charities
Registration Board, and key stakeholders such as iwi and sector representatives
informed the development of polic
the y options for practical improvements to the
Charities Act. Stakeholders were particularly supportive of the improved appeals
framework and the reduced reporting requirements for smaller charities.
5.
The proposals being announced address many, but not al , of the issues canvassed in
the review commissioned b
under y Cabinet in 2018. The Charities Act Amendment Bill will
mark the completion of a significant phase of work, making practical improvements to
resolve many of the issues raised in 2019.
6.
The 2019 New Zealand Law Foundation International Research Fel owship Te Karahipi
Rangahau a Taiao was awarded to Sue Barker to answer the question “What does a
world-leading framework of charities law look like?”. The research was undertaken in
parallel with your work to modernise the Charities Act. The final report was released
Released
on 19 April 2022. The report will likely be part of Sue Barker’s submission to the select
committee that considers the draft bil and may be endorsed by other stakeholders
7.
Many of her recommendations relate to matters out of scope of this stage of the
modernisation work. This includes proposals to amend the purposes of the Act,
restructure the Charities Registration Board and Charities Services into an independent
Crown entity, and introduce new requirements around fundraising standards. There
are also several tax related proposals for the Income Tax Act 2007 and Tax
Administration Act 1994.
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8.
The primary recommendation is to transfer the Government’s work on the Act to Te
Aka Matua o te Ture, the Law Commission, for an independent first principles review.
The report proposes that this review consider the definition of charitable purpose,
adopting Australian charities’ advocacy law, government contracting arrangements
with not-for-profits and other wide-ranging matters.
Impact of the work for the sector
9.
In February 2022 Cabinet agreed to policy changes to modernise the Charities Act in
five areas – reporting requirements for very small charities, regulatory decision-making
and judicial appeals, governance and officers of charities, compliance and enforcement
powers, and charities accumulating funds. These changes will have several benefits for
charities and the public:
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9.1
Empowering the regulator to exempt very small charities from the financial
reporting standards wil
reduce the compliance burden for these mostly
Act
volunteer-run organisations, supporting them to focus on their important mahi
(while still providing public transparency from the requirement to provide basic
financial information);
9.1
Improving the process for charities to object to decisions that affect them, and
requiring the regulator to publish decisions and consult with the sector on
guidance, will
improve transparency, fairness and accountability of regulatory
decision-making and promote confidence in the regulatory system;
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9.2
Empowering the Taxation Review Authority, a tribunal, to hear first appeals
under the Charities Act will
improve access to justice for charities by reducing
the costs and formalities associated with the courts;
9.3
Clarifying who officers of charities are and what their role is, and requiring
charities to review their rules annually, wil help to
improve the governance of
Official
charities, giving the public more confidence that their donations are being used
effectively. This is also supported by changes enhancing the regulator’s
compliance and enforceme
the nt tools, as it will mean problem behaviour in
charities can be more easily addressed; and
9.4
Requiring large charities to report the reasons for their accumulated funds wil
improve transparency for funders and the public, which may encourage more
under
support for charities.
Next steps and timing
10. The amendment bil is currently being drafted by Parliamentary Counsel Office (PCO)
and the Department. When the bil is finalised, it wil be considered by Cabinet
Legislation Committee and then introduced into the House for consideration.
Released
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11. Non-legislative changes are already being worked on by the Department with some
likely to be ready to implement before the Bill is passed. More information on this will
be available for the sector to ensure they are aware of future implementation dates in
due course. The Ministry of Justice has advised it will require 6-12 months to
implement the changes enabling the Taxation Review Authority to hear charities
appeals after the Bill is passed.
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Hon Priyanca Radhakrishnan
Minister for the Community Act
and Voluntary Sector
/
/
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Appendix A: Talking points and questions and answers
General: about the sector and work programme
Cabinet has approved policy proposals for work to modernise the Charities Act
• In 2018, Cabinet agreed to a review of the Charities Act with the aim of modernising the
Act. Public consultation occurred in 2019 on a range of issues, however, work was put on
hold due to COVID-19 and resumed in late 2020. In February 2022, Cabinet approved the
policy proposals.
• I expect to introduce the Charities Amendment Bill to Parliament this year with the aim
of passing the Bill in 2023. The public wil have an opportunity to provide feedback 1982
through the Select Committee process.
Act
The charitable sector is diverse and makes a great contribution to New Zealand society
• The sector is diverse and includes sports clubs, churches, providers of education, and
social services. There are about 28,000 registered charities in New Zealand.
• Over half of charities in New Zealand are small and often volunteer run.
• Charities benefit communities by providing services that respond to community need.
This was demonstrated during the COVID-19 pandemic when charities provided support
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such as food parcels and emergency accommodation.
• Charities spent over $19 billion over the last financial year.
Significant changes since the Charities Act’s commencement in 2005 prompted the
Official
Modernising the Charities Act work programme
• The Charities Commission was disestablished in 2012 and its functions were transferred
the
to the Charities Registration Board and the Chief Executive of the Department of Internal
Affairs, delegated to Charities Services (the charities regulator). From 2015, charities
were required to report to financial reporting standards specified by the External
Reporting Board.under
The objective of the work programme is to deliver real world benefits to charities
• The aim of the Modernising the Charities Act work is to support charities to continue
contributing to community wel being while ensuring public transparency. I am making
practical improvements to address challenges charities face. These challenges include
the compliance burden, inaccessibility of the current appeals framework, and lack of
Released
clarity of the role of charities’ officers.
• The Government considers the fundamentals of the Charities Act (which is a registration,
reporting and monitoring system for charities) to be sound.
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Potential questions: General
What wil change for charities in practice?
The changes will have practical benefits for charities and the communities they serve. Some
changes are operational and will be implemented over the coming year, while other changes
require amendments to the Charities Act.
I am reducing the burden of financial reporting for our smallest charities, which means more
time focusing on their important mahi. Large charities wil now share why they have
accumulated funds, giving more context to how their financial position contributes to the
goals of the charity and its community.
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All charities will have a better idea of how the regulator makes decisions affecting them, be
more involved in regulatory decision-making, and not have to go to the High Court to
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challenge a decision, which will save time and money.
How can people have a say or make a submission on the proposals?
As part of the legislative process, there wil be an opportunity for anyone to make
submissions during the Select Committee stage.
Potential questions: Fundamental matters out of scope
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What happened with al the other issues raised in the 2019 public consultation?
The changes I have proposed wil make practical improvements. I was keen to focus on these
areas to make a difference to how charities operate in the short to medium term.
Official
Other more fundamental matters raised in the public consultation, like how te ao Māori
principles could be considered in the Act, where the line is for political advocacy by charities,
and the definition of charitable purpose c
the ould be considered at a later stage.
Why didn’t you look at advocacy by charities?
I have focused on practical improvements for charities. More fundamental issues like
under
advocacy by charities could be considered at a later stage. This approach allows us to make it
easier for charities to operate sooner.
Wil the changes affect the ‘four heads of charity’ (Charitable purpose)?
No, this work did not consider the definition of charitable purpose. The four heads of charity
(relief of poverty, advancement of education and religion, and any other purposes beneficial
Released
to the community) have not changed.
Did you consider the business activities of charities in this work?
Business activity is a well-established way for charities to raise funds. I considered matters
relevant to charitable businesses, like accumulation of funds and governance. Deciding
whether business should be charitable wasn’t something I considered as part of this review
as it links to more fundamental issues such as charitable purpose.
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•
Further, I am extending the timeframe for lodging an appeal to two months making it
easier for small charities that might not meet frequently.
Increasing the regulator’s transparency, accountability, and decision-making processes
•
I am requiring the charities regulator to publish al decline and deregistration decisions
and provide a clear process for charities to object to significant decisions.
•
Additionally, I am extending the timeframe for submitting information to the regulator
from 20 working days to two months, increasing the Charities Registration Board’s
composition from three to five members, and requiring the Department of Internal
Affairs to consult with the charities sector about guidance material.
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•
Increasing the number of Board members to five will improve the diversity of the
Board and address potential quorum and conflict of interest issues.
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•
These changes acknowledge that many charities are volunteer run and need time to
engage in the decision-making process. These changes also support participation in the
charities system, provide greater clarity, and allow charities to focus on their important
mahi.
Potential questions: decision-making and appeals
Why aren’t you re-establishing the Charities Commission?
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Officials heard in consultation that some parts of the sector would have more trust in the
regulator if it was an independent Crown entity.
I am confident with the independent Charities Registration Board and Charities Services
Official
within the Department of Internal Affairs making decisions under the Act. However, I am
proposing to enhance the regulator’s transparency, accountability, and decision-making
processes.
the
Accumulation of funds
Requiring larger charities to repo
under
rt reasons for accumulated funds
•
Larger charities (tiers 1, 2 and 3) wil be required to report the reasons for their
accumulated funds, to provide clarity on why funds are held to help improve public
trust and confidence.
•
Charities Services will co-design with iwi changes to the annual return form so that te
ao Māori views of accumulation are reflected.
Released
Potential questions: accumulation of funds
Do you think accumulation of funds by charities is problematic?
Accumulation of funds demonstrates the charity is growing its resources. Some charities
accumulate significant amounts of funds which is often necessary for future investment. I do
not consider accumulation of funds problematic unless the funds are not used for charitable
purpose, which could constitute serious wrongdoing leading to the charity being
deregistered.
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What can be problematic is that it is not always clear why charities are accumulating funds.
Requiring an explanation in the annual return wil address this and it wil be up to users such
as donors and Inland Revenue to draw their own conclusions.
Financial reporting requirements for small charities
Easing reporting requirements for very smal charities
•
Currently, very small charities have disproportionate reporting requirements relative
to the level of transparency and accountability required.
•
I am proposing to exempt very small charities from the External Reporting Board’s
financial reporting standards. Very small charities will still be required to file an annual
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return containing basic financial information.
•
This wil balance transparent reporting while reducing the compliance burden faced by
very small charities. Around 12 percent of all registered charities will benefit from
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exemption. The exemption threshold wil be set through regulations.
Potential questions: financial reporting for small charities
How wil you maintain public trust and confidence in smal charities if they don’t have to
report as much information?
Very small charities that are covered by the exemption will still be required to file an annual
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return containing basic financial information. This wil provide enough transparency relative
to the risk these charities pose.
How does this link to External Reporting Board’s review of tier 3 and 4 reporting
standards?
Official
I am enabling the Chief Executive of the Department of Internal Affairs to exempt a class of
small charities from the tier 4 reporting standard. The Chief Executive will not use the
the
exemption if the External Reporting Board’s work aligns with my intent to reduce reporting
requirements for small charities.
How many very smal charities wil benefit from the exemption from the accounting
standard?
under
The financial threshold for exemption wil be set in regulations and developed through
consultation. Based on targeted consultation, officials suggested reducing reporting
requirements for tier 4 charities with annual payments under $10,000 and total assets under
$30,000. Around 12 per cent of all registered charities which are very small charities will
benefit from the exemption.
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Officers of charities and governance
Changes wil be made to the governance of charities
•
I am amending the definition of officer to include anyone with significant influence
regardless of the type of charity and clarifying the role of an officer as someone who
supports the charity to meet its obligations and holds responsibility for governing the
charity.
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Charities will need to review their rules document every year to encourage a closer
look at their governance arrangements.
•
I am updating the disqualifying factors for becoming an officer to include financing of
terrorism offences and one officer in a charity must be 18 or over (people can
currently hold officer positions from the age of 16).
•
These four changes wil improve the accountability and governance of charities and
produce better alignment with other legislation that charities might be governed by
such as the Companies Act and Trusts Act.
Potential questions: officers of charities and governance
How do I know if I have significant influence over a charity?
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Significant influence is already used in the Charities Act. If you are involved in the decisions
about the management of the charity, or the use of funds, you are likely to have significant
Act
influence and be counted as an officer. You will also be an officer if you are a trustee or a
trust, or a member of the board or governing body of your charity.
It is important that the right people are included as officers to provide surety over the
governance of the charity. An officer role will usually involve a high level of financial and
legal responsibility to make sure that the public’s funds are being used towards the
charitable purpose. People can still be involved in a charity without holding an officer
position, if that is what they want.
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What wil it mean to review the rules document?
The review of the rules document is a way to encourage charities to regularly consider its
governance arrangements. It may include making sure the charity’s processes are up to date.
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For example, the charity may check that its funds and activities are still achieving its
charitable purpose and check that any conflicts of interest are up to date.
the
Why have you not included other serious offences as disqualifying factors?
Officials heard that some people want more serious offences to be included as disqualifying
factors for officers. However, there was strong feedback that charities are best placed to
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decide who should be involved in the charity as they know the people, the kaupapa, and the
community best.
Compliance and Enforcement
Improving the compliance and enforcement function
•
I am making explicit the currently implicit obligations for charities to remain qualified
Released
for registration.
•
The definition of serious wrongdoing wil be clarified to include an offence punishable
by at least two years imprisonment.
•
I am enabling the Charities Registration Board to disqualify an officer for serious
wrongdoing or a significant/persistent breach of obligations,
without deregistering the
charity.
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Potential questions: compliance and enforcement
Wil this mean more charities can be caught for serious wrongdoing?
The change to the definition of serious wrongdoing is a small change that is unlikely to lead
to more charities being caught engaging in serious wrongdoing. Rather, the change is
intended to capture a more consistent level of serious poor behaviour.
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