issues paper - socialink.org.nz · web viewa similar issue of “regulatory over-reach” arises...

The Review of the Charities Act 2005 ISSUES PAPERprepared by Sue Barker and Dave Henderson, with support from a consortium of philanthropic trustsFebruary 2019

ISSUES PAPER – THE REVIEW OF THE CHARITIES ACT


OVERVIEW Picture this scenario:

You are a charity, registered under the Charities Act, passionate about [insert your charitable purpose here], and working hard to further your charitable purposes.

The Government introduces a Bill into Parliament that would be very detrimental to your charity’s charitable purposes. The governing body of your charity makes a considered decision that, in the best interests of the charity’s charitable purposes, the charity must make a submission to Parliament pointing out why the Bill should not proceed.

The charity makes the submission. However, the submission is not accepted and the Bill ultimately proceeds into law.

Charities Services then conducts an investigation into your charity on the basis of its “advocacy” work. Charities Services decides that your charity’s purposes are “no longer charitable” and issues your charity with a notice of intention to deregister it.

You are shocked by this. Your charity has always worked hard to ensure all requirements under the Charities Act are fully complied with.

You file an objection under section 34 of the Charities Act, pointing out that your charity has done nothing “wrong”, and has been faithfully acting in the best interests of its charitable purposes at all times.

Charities Services declines your objection and advises that it will recommend to the Charities Registration Board (“the Board”) that your charity be deregistered. Charities Services also advises you that you have 1 month to “file any further submissions”, and also that you have the option to voluntarily deregister, if you wish.

You know a little bit about charities law: you know that your charity’s stated purposes are charitable, and that all the activities have been faithfully undertaken in the best interests of those charitable purposes. You dutifully make submissions in support of your charity remaining on the register.

Several months later, you receive a lengthy written decision from the Board. The Board has accepted Charities Services’ decision to deregister your charity. The decision refers to material that Charities Services found on the internet, which does not appear to be correct. The decision also states that your charity has a “purpose” of advocacy, which is surprising because your charity does not have a purpose of advocacy. The Board goes on to state that it is unable to see public benefit in that purpose, essentially because your charity made submissions opposing a government bill. On that basis, it decides that your charity should be deregistered.

The decision states that you have 20 working days from the date of the Board’s decision to file an appeal to the High Court. You did not receive the decision until a few days after it was made, which means that your charity now has 17 working days to reach a decision to fund High Court proceedings, to find and instruct a lawyer, and to lodge a notice of appeal.

SUE BARKER CHARITIES LAW

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The governing body of your charity considers the issues carefully. It knows that if it is removed from the register, it will not be able to access funding and, as a result, it will likely not be able to survive. It considers it has no option but to file an appeal in the Wellington High Court.

You have seen a number of high profile criminal cases on TV. The cases seem to take weeks as various witnesses give their evidence in Court. You look forward to the opportunity to similarly “have your day in Court”: to stand up in the witness box and explain what your charity’s purposes are, and how they do in fact operate for the public benefit. You are surprised when Charities Services opposes your application to stand up in Court, arguing that any evidence you wanted to give should have been given to Charities Services in writing before the Board made its decision (even though Charities Services only asked you to provide “submissions”). The Judge does not let you say anything in Court: your charity is permitted to speak in Court only through its lawyer.

Two years later, the High Court issues its decision: the High Court is quite critical of the Board, and orders that it reconsider its decision to deregister your charity.

The Board does so, and two years later, issues another lengthy written decision, again deciding that your charity should be deregistered, essentially for the same reasons as before. Your charity appeals again, and so it goes on.

More than 7 years after your charity first made submissions on the Bill, and many thousands of dollars of taxpayer and charitable funds later, your charity still does not have a final decision as to whether it can stay on the register.

While this scenario might sound extreme, it is in fact exactly what happened to Family First NZ, after it made submissions opposing the gay marriage bill.1

While you may or may not agree with Family First’s position on gay marriage, consider this: Family First’s stated purposes are in fact charitable, by analogy with purposes for the mental and moral improvement of society (it was of course originally accepted for charitable registration). All of Family First’s advocacy work was carried out in furtherance of its stated charitable purposes. In other words, Family First has done nothing “wrong” except advocate for its charitable purposes, as every charity has a duty to do.

It is a case of “I may not agree with what you say, but I will defend to the death your right to say it”.

This scenario could happen to any charity. Every charity should be concerned. At some stage, your charitable purposes may require you to point out deficiencies in government policy.

The situation is not limited to advocacy. Good charities are being deregistered in many other areas, including: social enterprise, economic development, sport, social housing, art, charities that further their charitable purposes by helping individuals, and many others.

1 Which ultimately became the Marriage (Definition of Marriage) Amendment Act 2013.


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The review of the Charities Act is a once-in-a-generation opportunity to create a world-leading framework of charity law in New Zealand: one that facilitates, rather than frustrates, charitable work.

However, it will not happen by accident: it is essential that charities get engaged with the review.

In our view, some of the key messages might be summarised as follows:The importance of the charitable sector

The charitable sector can help with almost every aspect of what the Government wants to achieve; housing, education, health, poverty reduction, closing the wealth gap, protecting the environment, wellbeing, etc.

However, currently, the framework of charity law, and the way it is being administered, are “getting in the way” of charities’ ability to do that.

It is in all our interests to take the time needed to get the framework of charity law right.

The issues discussed below affect all charities, whether they realise it or not. We should strive to achieve pan-charity solutions, in preference to creating artificial distinctions that will only serve to create further complexity and complication.

The nature, scope and timing of the review

The Minister wants the review to be completed within this term of Government, including legislation: this will require all policy work to be completed by the middle of this year (2019).

This timeframe is too short. Many of the issues involved in this area of law are complex, and their impact far-reaching. It is in all of our interests, and likely to be more cost-effective (and prudent) in the long run, to take the time needed to carry out a comprehensive review of the legislative framework, as occurred with the Law Commission’s review of the law of incorporated societies and trusts.

A review team that was genuinely independent of Charities Services would also assist significantly with rebuilding trust.

Purpose

We need to consider what is, or should be, the purpose of the Charities Act regime: there has never been a proper look at what we are trying to achieve with the Charities Act regime and why.

The charitable sector originally supported the regime on the basis that it would allow “bad” charities (those that engage in fraud, tax avoidance, money laundering and the like), to be “weeded out”, so that the public could have trust and confidence in those that remained.

Beyond “serious wrongdoing” as defined,2 the Charities Act establishes a “registration, information and disclosure” regime: it requires the disclosure of information by registered charities, so that stakeholders such as members of the

2 “Serious wrongdoing” is defined in section 4 of the Charities Act in the following terms: (a) an unlawful or a corrupt use of the funds or resources of the entity; (b) an act, omission, or course of conduct that constitutes a serious risk to the public interest in the orderly and appropriate conduct of the affairs of the entity; (c) an act, omission or course of conduct that constitutes an offence; or (d) an act, omission, or course of conduct by a person that is oppressive, improperly discriminatory, or grossly negligent, or that constitutes gross mismanagement.


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public can determine which charities they wish to support, and identify legitimate charities as opposed to sham operations.3

The regime was not intended to be used by government as a means to “colonise and control”4 the charitable sector.

The purpose of promoting the “effective use of charitable resources”5 appears to be encouraging “regulatory over-reach” in the name of promoting public trust and confidence. Such a purpose has been rejected in most comparable jurisdictions.6

Activities

Section 18(3)(a) of the Charities Act is giving rise to unintended consequences. The reason Charities Services is required to “have regard” to charities’ activities

under section 18(3)(a), is to determine whether the charity is continuing to act in furtherance of its stated charitable purposes over time.7

Section 18(3)(a) was not intended to be a means for Charities Services’ to “vet” charities’ legitimate activities, and to ration the privileges of charity based on changes in government policy.

Charities are independent entities that are intended to exist into perpetuity. It is for charities to determine how best to further their stated charitable purposes, and they should be able to do so free from undue government interference.

Appeals

Most charities who are deregistered or declined registration or otherwise adversely affected by decisions of Charities Services are unable to access justice under the current framework; this is causing New Zealand charities law to become distorted.

Charities need to be able to access an oral hearing of evidence (a “trier of fact”), like everybody else.

Charities need to be able to appeal all decisions made under the Charities Act,8 not just those relating to registration and deregistration.

The burden of developing the law of charities in New Zealand currently falls on individual charities challenging decisions under the Charities Act. There is a case for test case litigation funding,9 as well as judicial specialisation, preferably through a specialist Charity Tribunal.

3 Report by the Working Party on Registration, Reporting and Monitoring of Charities, 28 February 2002 (the precursor to the Charities Act 2005), page 2.4 Charities Bill 108-1, 1R, NZPD, Vol 616, 30 March 2004, from p12108, per Sue Bradford (Green). 5 Section 3(b) of the Charities Act 2005 (which was originally a function of the Charities Commission, see section 10(1)(b) of the Charities Act as originally enacted). 6 See for example the recent review of the Australian Charities legislation Strengthening for Purpose: Australian Charities and Not-for-profits Commission Legislative Review 2018 (22 August 2018), pages 25-26 (see: https://static.treasury.gov.au/uploads/sites/1/2018/08/p2018-t318031.pdf, last accessed 19 February 2019). 7 Report by the Working Party on Registration, Reporting and Monitoring of Charities, 28 February 2002 (the precursor to the Charities Act 2005), page 12.8 As is the case with comparable registers, see for example: section 34B of the Incorporated Societies Act 1908; clause 187 of the Exposure Draft Incorporated Societies Bill; section 151 of the Friendly Societies and Credit Unions Act 1982; section 13B of the Industrial and Provident Societies Act 1908; and section 370 of the Companies Act 1993. See also Charities Bill 108-2 (select committee report) page 13: https://www.parliament.nz/resource/en-NZ/47DBSCH_SCR2973_1/d8233a6a17a3faa906bd28c0b1571b3894ab53de. 9 As is the case in Australia: the Australian Tax Office has a Test Case Litigation Program which provides financial assistance to taxpayers to help them meet some or all of their reasonable litigation costs in cases that have broader implications beyond an individual dispute, see Strengthening for purpose: Australian Charities and Not-for-profits Commission Legislation Review 2018, 31 May 2018, at pages 82, 83, 91 and 92.


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https://www.parliament.nz/resource/en-NZ/47DBSCH_SCR2973_1/d8233a6a17a3faa906bd28c0b1571b3894ab53de


https://static.treasury.gov.au/uploads/sites/1/2018/08/p2018-t318031.pdf


The Attorney-General also needs to be involved in Charities Act litigation in a capacity of parens patriae, the “protector of charities”, as is the case in England and Wales. It is important to “look after” the definition of charitable purpose and ensure it is developing correctly. This is particularly important because Charities Services appears to be focused on reducing the number of charities on the basis of “fiscal cost” (even though if the empirical analysis were done, charities would probably be found to provide net fiscal benefits when all factors are taken into account).

Advocacy

Charities Services’ interpretation of the Supreme Court decision in Greenpeace10 is complex, highly subjective and unworkable in practice.11

Yet, the terms of reference for the review appear to be heading towards codifying Charities Services’ interpretation of the Supreme Court decision. This would be disastrous for charities’ ability to advocate for their charitable purposes and our democracy.

It would also be inconsistent with both Labour and Green Party policy, which is to support the independence of community sector advocacy, and to ensure that charities can engage in advocacy without fear of losing their registered charitable status.12

It is accepted around the common law world that charities cannot engage in partisan political activity (that is supporting political parties or candidates for public office). Beyond that, advocacy is an important and legitimate part of charities’ role and a sign of a healthy democracy:13 seeking peaceful orderly change is itself in the public interest in a participative democracy like New Zealand.14

Advocacy is an activity, not a purpose.15 The question with respect to advocacy is whether it is carried out in furtherance of the charity’s stated charitable purposes. If it is, then there is no difficulty.16 That is the law of New Zealand, and it should be applied by Charities Services.17

10 Re Greenpeace of New Zealand Inc [2015] 1 NZLR 169 (SC).11 See Krystian Siebert Could the Charities Act 2013 pose a problem for advocacy charities? Pro Bono News, 18 December 2018, https://probonoaustralia.com.au/news/2018/12/charities-act-2013-pose-problem-advocacy-charities/. 12 See https://d3n8a8pro7vhmx.cloudfront.net/nzlabour/pages/8546/attachments/original/1504489890/Community___Voluntary_Sector_Manifesto.pdf?1504489890, pages 1 and 4; and https://www.greens.org.nz/sites/default/files/community_and_voluntary_sector_2011_0.pdf, pages 1, 2, 4, and 5.13 House of Lords Select Committee on Charities, Report of Sessions 2016-17 Stronger charities for a stronger society, HL Paper 133, 26 March 2017, paragraph 495. 14 See section 12(1)(l) and (2) of the Charities Act 2013 (Cth), codifying the decision of the High Court of Australia in Aid/Watch Inc v Commissioner of Taxation [2010] HCA 42, (2020) 241 CLR 539. Australia has also specifically legislated to make it clear that charities are not prevented from advocating against government policy (see the Not-for-profit sector Freedom to Advocate Act 2013: https://www.legislation.gov.au/Details/C2013A00056).15 It would be extremely rare for advocacy to constitute a charity’s “purpose”, see Re The Foundation for Anti-Aging Research and The Foundation for Reversal of Solid State Hypothermia [2016] NZHC 2328 (30 September 2016) at [82]-[89].16 Re The Foundation for Anti-Aging Research and The Foundation for Reversal of Solid State Hypothermia [2016] NZHC 2328 (30 September 2016) at [88]. 17 After many years of restrictions, it is also in the process of becoming the law of Canada, see: https://www.millerthomson.com/en/publications/communiques-and-updates/social-impact-newsletter-formerly-the/may-5-social-impact/cra-political-activities-report-released/ and https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/policies-guidance/public-policy-dialogue-development-activities.html,


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https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/policies-guidance/public-policy-dialogue-development-activities.html

https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/policies-guidance/public-policy-dialogue-development-activities.html

https://www.millerthomson.com/en/publications/communiques-and-updates/social-impact-newsletter-formerly-the/may-5-social-impact/cra-political-activities-report-released/

https://www.millerthomson.com/en/publications/communiques-and-updates/social-impact-newsletter-formerly-the/may-5-social-impact/cra-political-activities-report-released/

https://www.legislation.gov.au/Details/C2013A00056

https://www.greens.org.nz/sites/default/files/community_and_voluntary_sector_2011_0.pdf

https://d3n8a8pro7vhmx.cloudfront.net/nzlabour/pages/8546/attachments/original/1504489890/Community___Voluntary_Sector_Manifesto.pdf?1504489890


https://probonoaustralia.com.au/news/2018/12/charities-act-2013-pose-problem-advocacy-charities/



Note that the terms of reference are framed incorrectly in another respect also: charities advocate for their charitable purposes, not their “causes or points of view”.

Businesses

A similar issue of “regulatory over-reach” arises in the context of charities running businesses.

Under New Zealand law, charities are able to run businesses to raise funds for their charitable purposes: the question is not how the funds are raised, but rather that all funds raised must always be destined for charitable purposes.

Despite this, Charities Services applies the following rule:18

Charities that seek to raise funds through business activities need to clearly distinguish their business activities from their charitable purposes. They must also: (a) Show that the business is capable of making a profit to go to charitable purposes; and (b) Show that the charity does not provide any resources to the trading body at less than market rates.

There is no legal authority for this rule. It is simply a rule that Charities Services has decided to apply.

Charities Services’ approach sees many good charities deregistered or declined registration, even though they meet all the legal criteria for registration. This in turn severely hampers charities in their efforts to raise funds for their charitable purposes, and ultimately to become self-sustaining. In an environment of increasing costs, increasing demand for services, and diminishing revenue streams, Charities Services’ approach is unhelpful, and counterproductive for New Zealand society as a whole.

Charities Services’ approach is also not lawful. New Zealand is governed by the rule of law. Laws are promulgated by Parliament following a democratic process. They are not made by Charities Services. Charities that meet the legal requirements for registration should be able to register.

Accountability and structure of the agency administering the Charities Act

It is Labour Party policy to consult with the community and voluntary sector on whether the disestablishment of the Charities Commission in 2012 and the transfer of its functions to the Department of Internal Affairs has resulted in “effectiveness and improved services and information for the sector”.19

As predicted, the disestablishment of the Charities Commission has resulted in charities-related functions that are less accessible to the public, and charities sector work is being carried out less transparently.20

There is also no meaningful accountability of Charities Services to the charitable sector or the public. Lack of adequate checks and balances can and does lead to poor decision-making.

A government department classification for the agency administering the Charities Act was originally rejected on the basis that it “fails to recognise the

last accessed 9 February 2019. 18 See Charities Services’ decision in the International Centre for Entrepreneurship (ICE) Foundation case: https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/international-centre-for-entrepreneurship-foundation-ice-foundation, last accessed 9 February 2019. 19 See https://d3n8a8pro7vhmx.cloudfront.net/nzlabour/pages/8546/attachments/original/1504489890/Community___Voluntary_Sector_Manifesto.pdf?1504489890, page 5. 20 Crown Entities Reform Bill 2011 (332-2) select committee report at 4-5.


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https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/international-centre-for-entrepreneurship-foundation-ice-foundation



independence and importance of the charitable…sector”,21 which would in turn impact significantly on its ability to carry out its role. This has indeed turned out to be the case.

The Charities Commission was originally proposed to be structured as a Crown agent.22 Of the 3 types of Crown entities established by the Crown Entities Act 2004 (Crown agents, autonomous Crown entities, and independent Crown entities), Crown agents have the closest connection to government: they are required to give effect to government policy when directed to do so by the responsible Minister.23

The classification was changed to that of an autonomous Crown entity during Select Committee consideration of the original Charities Bill in response to submissions: submitters were concerned that a Crown agent classification “might allow the Government to interfere with, direct, or control the Commission, and would not reflect the independence from the Government of the charitable sector. Particular concern was expressed at the prospect that the Government might be able to directly or indirectly influence the registration or deregistration of particular charities to reflect government policy”.24 Submitters would have preferred an independent Crown entity but an autonomous Crown entity was nevertheless a significant improvement.

However, in 2012, without consultation, the Charities Commission was controversially disestablished and its functions transferred to Charities Services, a business unit within a government department (the Department of Internal Affairs). The Charities Act is now being administered by an agency even closer to government than the original Crown agency classification that was so resoundingly rejected in the first place.

Charities should not be asked to fund this regime, which has turned out to be much more costly than the Commission it replaced.

The Department of Internal Affairs should not have a monopoly on providing advice to the Minister about issues affecting the charitable sector. An Advisory Board should be established, to advise Government on policy and advance the interests of the charitable sector.

We expand on these issues below.

21 Report by the Working Party on Registration, Reporting and Monitoring of Charities, 28 February 2002 (the precursor to the Charities Act 2005), page 11.22 Charities Bill 108-1.23 Section (1)(a) and part 1 of schedule 1 of the Crown Entities Act. 24 Charities Bill 108-2, page 2.


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INTRODUCTION 1. This issues paper is prepared by SUE BARKER and DAVE HENDERSON, who would

like to acknowledge with much thanks the generous support of the following organisations who have made this work possible:


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About the authors

2. Sue Barker is the director of Sue Barker Charities Law, a boutique law firm based in Wellington specialising in charities law and public tax law. Since its founding in 2012, the firm has won a number of awards, including Boutique Law Firm of the Year at the New Zealand Law Awards. Sue is a director of the Charity Law Association of Australia and New Zealand, and a member of the Core Reference Group for the review of the Charities Act: https://www.dia.govt.nz/charitiesreview. Sue is also a co-author of the text, The Law and Practice of Charities in New Zealand (LexisNexis, 2013),25 and a contributor to Regulating Charities: the Inside Story (Routledge, 2017),26 Corporate Governance – A Practical Handbook (2ed) (Wolters Kluwer, 2016),27 and Balancing Work and Life: a Practical Guide for Lawyers (LexisNexis, 2015).28 In 2016, Sue was made an Honorary National Life Member of the National Council of Women of New Zealand Incorporated for her work assisting the Council to regain their charitable registration. Examples of Sue’s specific experience can be found here: www.charitieslaw.co.

3. Dave Henderson has worked in leadership roles in the Community and Voluntary Sector since 1974, including undertaking national projects and then the CEO role for Disabled Persons’ Assembly, as New York-based Secretary General of the global network Rehabilitation International, and back in New Zealand as Coordinator for ANGOA, the Association of NGOs of Aotearoa. In parallel Dave has been a board member and Chair of a range of not-for-profits, and stepped down as Chair of Kidney Health NZ (formerly NZ Kidney Foundation) in 2018. Throughout, Dave has had a strong focus on rights; he played a key role in advocacy, working with Heads of Government in very many countries and at the United Nations, leading to establishment of the UN Convention on the Rights of Persons with Disability. This document has been signed by 160 countries and is credited with improving worldwide the lives of people with disability, including especially their access to healthcare and education.

Abbreviations 4. The following abbreviations are used in this document:

(i) Australian Charities and Not-for-profits Commission (“ACNC”); (ii) Charitable Trusts Act 1957 (“Charitable Trusts Act”);(iii) Charities Act 2005 (“Charities Act”);(iv) Core Reference Group (“CRG”);(v) Department of Internal Affairs (“DIA”);(vi) Department of Internal Affairs – Charities Services Ngā Rātonga Kaupapa

Atawhai (“Charities Services”);(vii) Inland Revenue Department (“IRD”);

25 https://store.lexisnexis.co.nz/product?product=the-law-and-practice-of-charities-in-new-zealand&meta_F_and=9781927183373 26 https://www.routledge.com/Regulating-Charities-The-Inside-Story/McGregor-Lowndes-Wyatt/p/book/9781138680548 27 https://books.wolterskluwer.co.nz/items/1571ZS 28 https://store.lexisnexis.co.nz/product?product=balancing-work-and-life-a-practical-guide-for-lawyers&meta_F_and=9781927248027


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http://www.charitieslaw.co/

https://store.lexisnexis.co.nz/product?product=balancing-work-and-life-a-practical-guide-for-lawyers&meta_F_and=9781927248027

https://store.lexisnexis.co.nz/product?product=balancing-work-and-life-a-practical-guide-for-lawyers&meta_F_and=9781927248027

https://books.wolterskluwer.co.nz/items/1571ZS

https://www.routledge.com/Regulating-Charities-The-Inside-Story/McGregor-Lowndes-Wyatt/p/book/9781138680548


https://store.lexisnexis.co.nz/product?product=the-law-and-practice-of-charities-in-new-zealand&meta_F_and=9781927183373

https://store.lexisnexis.co.nz/product?product=the-law-and-practice-of-charities-in-new-zealand&meta_F_and=9781927183373

https://www.dia.govt.nz/charitiesreview


(viii) Sector User Group (“SUG”);(ix) the 1979 Report of the Property Law and Equity Reform Committee into the

Charitable Trusts Act 1957 (“the 1979 Report”).

Background 5. In November 2017, shortly following the 2017 general election, the new Minister for

the Community and Voluntary Sector, Hon Peeni Henare, announced that a review of the Charities Act would take place.29

6. Draft terms of reference for the review were circulated to the Sector User Group (a 25-member group of representatives of the charitable sector convened by Charities Services) on 16 January 2018. The SUG collectively provided comments, following which an updated draft was circulated on 26 February 2018.

7. Most of the SUG’s comments were not taken into account in the updated draft. The SUG collectively responded that they could not support the terms of reference in their current form and asked that their previous comments be considered.

8. On 7 March 2018, the Minister announced that a “comprehensive review” of the Charities Act was now under way.30 The terms of reference were finalised on 24 May 2018, in essentially the form that the SUG said they could not support. The terms of reference can be found here: https://www.dia.govt.nz/vwluResources/CharitiesReviewTOR/$file/CharitiesReviewTOR.pdf.

9. A Core Reference Group comprising 6 persons was established in August 2018.31 Three of the CRG (Anaru Fraser, Dave Henderson and Sue Barker) were elected by the Sector User Group. The other 3 (Charmaine Brown, Donna Flavell and Everdina Fuli) were appointed by the Department of Internal Affairs. The purpose of the Core Reference Group is to “work with DIA to identify problems and suggest solutions”.32

10. A draft discussion document was circulated to the Core Reference Group for comment on 22 August 2018. Updated drafts were circulated on 23 October 2018 and 3 December 2018. Significant effort went into making substantive comments on behalf of the Sector User Group.

11. However, for the most part, these comments have not been taken into account in the final version of the discussion document, which was publicly released on 22 February 2019.33

12. On the basis of the above background, the authors have been asked to prepare a draft issues paper for circulation.

Key issues 13. This paper raises the following preliminary issues:

(i) The terms of reference for the review of the Charities Act are too narrow and

29 https://www.radionz.co.nz/national/programmes/checkpoint/audio/2018622826/government-wants-to-be-able-to-punish-uncooperative-charities. 30 https://www.tvnz.co.nz/one-news/new-zealand/comprehensive-review-charities-act-now-underway-minister-peeni-henare-says-calls-change-tax-treatment-religious-grow?variant=tb_v_1. 31 https://www.dia.govt.nz/charitiesreview#CRG. 32 https://www.dia.govt.nz/vwluResources/CharitiesReview-FAQ-PDF/$file/Q-and-A-240518.pdf, page 2. 33 See https://www.dia.govt.nz/charitiesreview, last accessed 16 December 2018.


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https://www.dia.govt.nz/charitiesreview

https://www.dia.govt.nz/vwluResources/CharitiesReview-FAQ-PDF/$file/Q-and-A-240518.pdf

https://www.dia.govt.nz/charitiesreview#CRG

https://www.dia.govt.nz/vwluResources/CharitiesReviewTOR/$file/CharitiesReviewTOR.pdf


https://www.tvnz.co.nz/one-news/new-zealand/comprehensive-review-charities-act-now-underway-minister-peeni-henare-says-calls-change-tax-treatment-religious-grow?variant=tb_v_1

https://www.tvnz.co.nz/one-news/new-zealand/comprehensive-review-charities-act-now-underway-minister-peeni-henare-says-calls-change-tax-treatment-religious-grow?variant=tb_v_1

https://www.radionz.co.nz/national/programmes/checkpoint/audio/2018622826/government-wants-to-be-able-to-punish-uncooperative-charities

https://www.radionz.co.nz/national/programmes/checkpoint/audio/2018622826/government-wants-to-be-able-to-punish-uncooperative-charities


will not enable key concerns to be addressed. (ii) The proposed timeframe for the review is too tight, with the Minister wanting

the full review, including legislation, to be completed within this term of government. This means that all policy work would need to be completed by mid-2019.

(iii) The review is being carried out by the Department of Internal Affairs Policy Team, which is housed in the same government department as Charities Services. The final version of the discussion document that has been released reflects Charities Services’ perspective, and demonstrates that the review team is not independent of Charities Services. With no disrespect intended to the review team, a review team that is genuinely independent of Charities Services would assist significantly with rebuilding trust.

14. In addition, as discussed above, key issues might be summarised as follows: (i) The purpose of the Charities Act regime needs to be clearly articulated. It is

an information and disclosure regime, not a means for government to “colonise and control” the charitable sector.

(ii) The reason Charities Services are required to “have regard to” a charity’s activities is to ascertain whether the charity is continuing to act in furtherance of its stated charitable purposes over time, not to exercise a subjective vetting process in an attempt to ration the privileges of charity.

(iii) Charities must be able to access a trier of fact, that is, an oral hearing of evidence, in determining important questions of fact, such as what their purposes are and whether they operate for the public benefit.

(iv) Charities also must be able to appeal all decisions of the agency administering the Charities Act, not just those relating to registration and deregistration.

(v) Charities’ independence, and their right and duty to advocate in furtherance of their charitable purposes, without fear of loss of registration must be protected.

(vi) Charities’ ability to raise funds for their charitable purposes, including by way of running businesses, must also be protected and supported.

(vii) Whatever agency administers the Charities Act must be accountable to the charitable sector in a meaningful way.

15. We expand on these points below.


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Table of ContentsISSUES PAPER – THE REVIEW OF THE CHARITIES ACT........................................................2OVERVIEW..........................................................................................................................2

The importance of the charitable sector.....................................................................4Purpose.......................................................................................................................4Activities.....................................................................................................................4Appeals.......................................................................................................................5Advocacy....................................................................................................................5Businesses..................................................................................................................6Accountability of the agency administering the Charities Act.....................................7

INTRODUCTION..................................................................................................................9Abbreviations...................................................................................................................10Background......................................................................................................................11Key issues........................................................................................................................12DISCUSSION.....................................................................................................................16PRELIMINARY ISSUES – THE NATURE, PURPOSE AND SCOPE OF THE REVIEW..................16The purpose of the Charities Act......................................................................................16The original Charities Bill.................................................................................................18A first principles review....................................................................................................19Unintended consequences...............................................................................................22The terms of reference....................................................................................................22Timeframe.......................................................................................................................23Review team....................................................................................................................24Discussion........................................................................................................................24TERMS OF REFERENCE BULLET POINT 1 - MATTERS RELATING TO ADDITIONAL PURPOSES OF THE ACT......................................................................................................................25Begging the question.......................................................................................................25Consideration of the current purposes.............................................................................27TERMS OF REFERENCE BULLET POINT 1 - MATTERS RELATING TO ADDITIONAL PURPOSES OF THE ACT (CONTINUED)...............................................................................................29Additional purpose...........................................................................................................29Additional advocacy purpose...........................................................................................29TERMS OF REFERENCE BULLET POINT 2 - MATTERS RELATING TO THE LEGAL FRAMEWORK....................................................................................................................31The structure of the agency tasked with administering the Charities Act........................31

Gestation of the Charities Act...................................................................................31The 2002 Working Party Report................................................................................34The disestablishment of the Charities Commission...................................................36


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The framework for registration decisions under the new regime..............................39Is the Board required to follow natural justice...........................................................43Independence...........................................................................................................45Decisions not being referred to the Board.................................................................45Fiscal costs................................................................................................................48An Advisory Board.....................................................................................................49Issues........................................................................................................................50

TERMS OF REFERENCE BULLET POINT 2 - MATTERS RELATING TO THE LEGAL FRAMEWORK (CONTINUED)..............................................................................................52APPEALS...........................................................................................................................52Clarifying the nature of the hearing to be conducted on appeal......................................52

Issue.........................................................................................................................56Charities should be able to appeal all decisions, not just those relating to registration...56

The original intention of the legislation.....................................................................57The Crown Entities Reform Bill..................................................................................57The Statutes Amendment Bill 71-1............................................................................59Have charities’ appeal rights been removed?...........................................................59Issue.........................................................................................................................61

Other issues.....................................................................................................................61TERMS OF REFERENCE BULLET POINT 3 - MATTERS RELATING TO REGISTRATION AND DEREGISTRATION.............................................................................................................63ADVOCACY.......................................................................................................................63The importance of advocacy by charities.........................................................................63Charities Services’ approach............................................................................................64

Identifying the “true purpose”..................................................................................65What is the test that should be applied?..........................................................................68

The benefit limb........................................................................................................69The public limb..........................................................................................................69The Foundation for Anti-Aging Research decision.....................................................72Comparison with other jurisdictions..........................................................................73A suggested solution.................................................................................................74

TERMS OF REFERENCE BULLET POINT 3 - MATTERS RELATING TO REGISTRATION AND DEREGISTRATION (CONTINUED)......................................................................................76BUSINESSES.....................................................................................................................76Current law and Charities Services’ approach..................................................................76Competitive advantage?..................................................................................................77Accumulations.................................................................................................................77Disclosure........................................................................................................................78


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TERMS OF REFERENCE BULLET POINT 4 - MATTERS RELATING TO THE OBLIGATIONS OF REGISTERED CHARITIES...................................................................................................79GOVERNANCE STANDARDS..............................................................................................79OTHER ISSUES.................................................................................................................80

Ongoing 5-yearly reviews..........................................................................................80Qualifications of officers of registered charities........................................................80Section 35 – public interest test................................................................................81


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DISCUSSIONPRELIMINARY ISSUES – THE NATURE, PURPOSE AND SCOPE OF THE REVIEW 16. There are 3 key difficulties with the nature, purpose and scope of the review:

(i) The terms of reference are too narrow and will not enable key concerns to be addressed.

(ii) The proposed timeframe is too tight, with the Minister wanting the full review, including legislation, to be completed within this term of government. This means that all policy work would need to be completed by late 2019.

(iii) The review is being carried out by the Department of Internal Affairs Policy Team, which is housed in the same government department as Charities Services.

17. Those who do not remember history are condemned to repeat it: first, we consider the background context to the review. A key issue is the purpose of the legislation – what is the problem the Charities Act was trying to fix?

The purpose of the Charities Act 18. Prior to the enactment of the Charities Act 2005, there was no requirement, nor any

formal process, for registering charities. Even the Inland Revenue Department did not have a complete list of entities claiming the charitable income tax exemptions, because the New Zealand tax system operates on a self-assessment basis, which meant it was possible to claim the tax exemptions without IRD’s knowledge.

19. The reporting requirements for charities were also minimal under the pre-Charities Act regime. IRD could require charities to furnish an income tax return on request under section 58 of the Tax Administration Act 1994. However, this power was rarely used, and charities were generally not required to file income tax returns. Charities structured as charitable trusts were not required to file any annual financial statement, even if their trustees were incorporated as a board under the Charitable Trusts Act 1957. Charities structured as incorporated societies were required to file an annual financial statement with the Registrar of Incorporated Societies under section 23 of the Incorporated Societies Act 1908, setting out basic financial data. However, no accounting standards governed this reporting and a wide variety of practices were used.

20. As a result of the lack of registration and reporting, there was also very little monitoring of whether charities continued to pursue their charitable purposes over time. Complaints about charities could be made to the Attorney-General, who has power to inquire into charities under section 58 of the Charitable Trusts Act. The Attorney-General, or a member of the public, can also commence proceedings to enforce a charitable trust, or to have a scheme formulated under section 60 of the Charitable Trusts Act. However, in practice, these mechanisms were not proving effective, because neither the Attorney-General nor members of the public had any means of obtaining information about the operation of existing trusts or indeed any means of ensuring knowledge of their existence.

21. Similarly, although IRD has wide powers of audit, this process too had its limitations:34

...the Commissioner of Inland Revenue’s role is to ensure that income not entitled to 34 Charities Bill 3R (12 April 2005) 625 NZPD Vol 625 19973 per Hon Judith Tizard, Associate Minister of Commerce.


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an exemption is taxed. The role is not about ensuring that the charitable sector is generally accountable to the public. Holding the officers of a charitable organisation to account for an organisation’s administration expenses, for example, is well beyond the ambit of the commissioner’s current responsibilities. It is also not the role of the Registrar of Incorporated Societies.

22. Further, at that stage, the definition of charitable purpose in the income tax legislation referred only to entities “established” for charitable purposes.35 This caused IRD to doubt whether it had legislative authority to challenge the tax exemption of an organisation that was established for, but no longer pursuing, the relevant charitable purposes in any event.36 As the Privy Council noted:37

In New Zealand (unlike the United Kingdom) the relevant tax exemption does not depend on income actually being applied for the intended charitable purposes. Any alleged deviation from the terms of the Trust would be a matter for the Attorney-General…

23. Instead, if IRD considered the funds of a charitable body were being applied for other than charitable purposes, the statutory mechanism was for IRD to inform the Minister of Revenue under section 89 of the Tax Administration Act.38 It is not clear to what extent section 89 was ever used.

24. Even if IRD did have power to remove an income tax exemption in any particular case, the absence of obligatory reporting requirements meant there was generally no information available to IRD on which it could make a decision to conduct an audit: there was “no means by which the government can measure the cost of the income tax exemption, nor monitor the nature or activities of those entities benefiting from it”.39 Charitable trusts in particular were considered to be “uniquely free from supervision” (see the 1979 Report of the Property Law and Equity Reform Committee into the Charitable Trusts Act 1957 at page 2, and IRD, Policy Advice Division, Tax and Charities: A government discussion document on taxation issues relating to charities and non-profit bodies, June 2001, paragraphs 7.4 and 7.5).

25. The lack of registration, reporting and monitoring of charities meant that the public had “no protection against charities in New Zealand”: anyone could seek to raise funds for “almost any appeal one cares to name”; the ordinary citizen had no means of finding out the legitimacy of the appeal, or of what happened to the funds raised (1979 report, page 7).

26. As a result, the integrity and reputation of the entire charitable sector was vulnerable to the inevitable presence of a small number of rogue charities. By the time the original Charities Bill was introduced into Parliament in 2004, there was overwhelming support within the charitable sector for a Charities Commission to be established to address this concern.

The original Charities Bill27. The original Charities Bill that was introduced into Parliament in 2004 was preceded

35 See for example section CB 4(1)(c) of the Income Tax Act 1994, prior to its amendment by section 7(1) of the Taxation (Annual Rates, Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003.36 Inland Revenue Department Tax and Charities, paragraph 4.4.37 Latimer v Commissioner of Inland Revenue [2004] 3 NZLR 157 (PC) at [20].38 Dick v CIR [2003] 1 NZLR 741 (HC) at [51] and Inland Revenue Department, Tax and Charities, paragraph 6.6.39 Inland Revenue Department, Tax and Charities, Part III.


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by a number of reports.40 Yet, despite having been many years, even decades, in gestation, the original Charities Bill was widely regarded as fundamentally flawed.41 While the concept of establishing a Charities Commission had the overwhelming support of the charitable sector, submitters expressed considerable concern with specific provisions contained in the bill.42 For example, the Bill was heavily criticised for having been “conceived…in Treasury, and…designed by the Ministry of Economic Development”;43 it was almost completely rewritten at Select Committee stage in response to hundreds of submissions.44

28. However, the rewritten Bill was not subject to proper consultation. Instead, Ministry of Economic Development officials wrote to approximately 25 selected entities to seek their views on the proposed amendments.45 National Party members of the Select Committee expressed concern at the lack of consultation on such substantial changes:46

The consultation process was inadequate with the original [charities] bill and we have major concerns that the redrafted sections of the bill should have been made available for a further period of sector wide consultation. We all know the devil is in the detail and if the bill gets it wrong, as the first draft definitely did the charitable sector will pay the price and we will see many charitable organisations close. There is the possibility that there are a number of structural issues in the bill remaining unaddressed and without a further period of consultation with the sector it is difficult to fully identify these. [Emphasis added]

29. There are indeed a number of structural issues in the Charities Act as passed, and the New Zealand charitable sector is indeed paying the price, as discussed further below.

30. The final amendments to the Charities Bill (including further minor, but extensive, changes made by Supplementary Order Paper)47 were passed through under urgency, with all final stages occurring on one day (12 April 2005). The comment was made in Parliament that “we do not really know what we are passing tonight, or what the implications are”:48

40 See the: Report on the Charitable Trusts Act 1957, Property Law and Equity Reform Committee, Wellington, New Zealand, February 1979; the November 1989 Report of the Working Party on Charities and Sporting Bodies to the Ministers of Finance and Social Welfare (the Sir Spencer Russell report); the 2001 report of the Accountability of Charities and Sporting Bodies Working Party, a voluntary group led by Philanthropy New Zealand and the New Zealand Federation of Voluntary Welfare Organisations; the Report of the Committee of Tax Experts, March 1998; Tax and charities: A government discussion document on taxation issues relating to charities and non-profit bodies, Inland Revenue Department, June 2001; The taxation of Māori organisations; a Government discussion document, Inland Revenue Department August 2001; the Report of the Working Party on Registration, Reporting and Monitoring of Charities, February 2002; the Second Report of the Working Party on Registration, Reporting and Monitoring of Charities, March 2002.41 Charities Bill 2004 (108-2) select committee report at 21; Charities Bill 3R (12 April 2005) 625 NZPD 19980 per Sue Bradford, Green.42 Charities Bill 2004 (108-2) select committee report at 1; Charities Bill 3R (12 April 2005) 625 NZPD 19982 per Gordon Copeland, United Future.43 NZPD Vol 625, page 19940, Charities Bill, 3R, (12 April 2005) per Sue Bradford (Green).44 Charities Bill 2004 (108-2) select committee report at 21; Charities Bill (12 April 2005) 625 NZPD 19944 per Georgina Beyer, Labour.45 Charities Bill 2004 (108-2) select committee report at 1 and 21; Charities Bill 2R (12 April 2005) 625 NZPD 19940 per Hon Judith Tizard, Associate Minister of Commerce.46 Charities Bill 2004 (108-2) select committee report at 20.47 Charities Bill 2R (12 April 2005) 625 NZPD 19950 per Sue Bradford, Green.48 Charities Bill 3R (12 April 2005) 625 NZPD 19981, and Charities Bill 2R (12 April 2005) 625 NZPD 19948 and 19950, per Sue Bradford, Green.


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…it is a real pity that we are seeing the Charities Bill come back to the House tonight for its second reading and all further stages under urgency. The community and voluntary sector has seen this as a really significant piece of legislation and I think it is unfortunate that we now have to deal with it in such haste. A complex bill such as this deserves the time and care needed for last-minute consultation and discussion, especially during the Committee stage, yet with such short notice it is virtually impossible to do that…In a way, the fact that we are dealing with the bill with such unnecessary dispatch in the House tonight typifies the whole unsatisfactory process on the bill from its conception to its delivery. The facts that the bill was conceived, evidently in Treasury, and was designed by the Ministry of Economic Development show just how out of touch the originating Minister or Ministers were with the realities of the community sector in this country today…The bill should not have been the responsibility of a ministry far more accustomed to working with “for profit” business than with the vast diversity that comprises the world of non-government organisations. [Emphasis added]

31. The Bill was also criticised for containing no regulatory impact statement or compliance cost statement, in breach of Cabinet guidelines:49

…there has not been, at any point, comprehensive analysis of the genuine need for or real cost of the proposed legislation, nor has the Government really ever had a clear understanding of what the bill seeks to achieve and how

32. Concerns that “fast law does not make good law” were appeased by a promise, by then Minister of Finance, Hon Sir Michael Cullen (currently the Chair of the Tax Working Group),50 that the Charities Act would be subject to a comprehensive first principles post-implementation review.51

A first principles review 33. A first principles review was announced by then Minister for the Community and

Voluntary Sector, Hon Tariana Turia, co-leader of the Māori party and a Minister outside Cabinet, in November 2010. The Minister expressed her hope that the first principles review “will help us all to determine whether the existing legislation is fit for purpose and reflects the needs and composition of the charitable sector”. The Minister also wanted to see the review expanded to provide for a “simpler, more cohesive regulatory framework for the wider sector”, noting that the Law Commission was expected to carry out a review of the Charitable Trusts Act as part of its review of trust law.52

34. However, before the review had really commenced, Hon Tariana Turia was succeeded as Minister for the Community and Voluntary Sector by Hon Jo Goodhew. A year later, in November 2012, only 4 months after the Charities Commission had been controversially disestablished, and precisely 21 minutes after the Court of Appeal handed down its decision in Greenpeace,53 the new Minister controversially,

49 Charities Bill 1R (30 March 2004) 616 NZPD 12111 per Richard Worth, National, and Charities Bill 3R (12 April 2005) 625 NZPD 19981 per Sue Bradford, Green.50 https://taxworkinggroup.govt.nz/what-is-the-tax-working-group/memberprofiles, last accessed 16 December 2018. 51 For a fuller discussion, see Regulating Charities: the Inside Story, Edited by Myles McGregor-Lowndes, Bob Wyatt, Routledge 2017, chapter 10: https://www.routledge.com/Regulating-Charities-The-Inside-Story/McGregor-Lowndes-Wyatt/p/book/9781138680548. 52 http://pacific.scoop.co.nz/2010/11/turia-charities-commission-annual-general-meeting/, last accessed 20 November 2018. 53 Re Greenpeace New Zealand Incorporated [2013] 1 NZLR 339 (CA).


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and without consultation, cancelled the promised review of the Charities Act.54 The review of the Charitable Trusts Act also appears to have been removed from the Law Commission’s work programme.

35. Three reasons were given for cancelling the review:55 (i) that the definition of charitable purpose was “working reasonably well”; (ii) that a review might lead to more charities being eligible for registered charitable status which “could result in increased fiscal costs”; and (iii) with the disestablishment of the Charities Commission and the transfer of its functions to the Department of Internal Affairs, a first principles review was considered “no longer appropriate”.

36. However, these reasons do not bear critical examination.56 37. While the definition of charitable purpose has the potential to work well, as

demonstrated by its longevity over hundreds of years, the current narrow interpretation of the definition could not be said to be “working reasonably well” for the many hundreds of worthy charities that are currently being denied access to charitable registration.

38. Further, the argument that a review might lead to “increased fiscal costs” does not appear to have been critically analysed. While registration as a charitable entity is a gateway to the charitable income tax exemptions, many charities do not earn significant “income”. The impact of interpreting the definition of charitable purpose in accordance with the law as it was prior to the Charities Act may in fact be small from the perspective of fiscal cost. At the same time, the “other side of the ledger”, namely the benefits to the public that charities provide, appear to have been overlooked, as has the loss to the public of those benefits if charities are forced to close through being denied access to registered charitable status and therefore, often, funding. Similarly, the fiscal costs involved in trying to “work around” the consequences of the current narrow approach, such as those involved in trying to work around interpretations of the charitability of social housing,57 also appear to have been overlooked. The net fiscal effect from interpreting the definition of charitable purpose in a manner more consistent with the community’s expectations may in fact be positive. The point is that the empirical analysis has not been done.

39. There also appears to be an assumption that interpreting the definition of charitable purpose in a manner more consistent with the community’s expectations would result in a “widening” or a “liberalisation” of the definition. This assumption overlooks the fact that the interpretation taken by the Charities Commission, and continued by the Department of Internal Affairs and the Charities Registration Board, has changed the law, narrowing the definition of charitable purpose without mandate.

40. Further still, the definition of charitable purpose is not an appropriate tool for addressing “fiscal consequences”. As the High Court has noted, Parliament has seen fit, in section 5 of the Charities Act, to adopt the common law definition of

54 https://www.beehive.govt.nz/release/no-review-charities-act-time. The reasons given for cancelling the review have been heavily criticised as not making sense, see for example The Law and Practice of Charities in New Zealand (LexisNexis, 2013), chapter 10.55 Hon Jo Goodhew, No review of the Charities Act at this time, 16 November 2012 http://www.beehive.govt.nz/release/no-review-charities-act-time . See also SOC Min (12) 24/3 7 November 2012, background paper, paragraphs 5 and 29(7).56 See also the discussion in Barker et al The Law and Practice of Charities in New Zealand, paragraphs 10.14 to 10.22.57 See discussion in Barker, Fiscal consequences, The New Zealand Law Journal, April 2016 at 102.


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charitable purpose. To the extent that Parliament has elsewhere legislated so that taxation consequences are determined by reference to charitable status, “those consequences must follow the application of the common law principles which govern charitable status. The taxation consequences should not play a part in the application of those common law principles”.58

41. Finally, to not conduct the much-anticipated review on the basis of a controversial and hotly-contested decision to disestablish the Charities Commission was merely to add insult to injury.

42. The net result is a framework of charity law that appears, in practice, to be materially frustrating, rather than facilitating, charitable work.59 The position falls in sharp contrast to the following comments made by the Minister on the 3rd reading of the original Charities Bill:60

The establishment of the Charities Commission will significantly improve the current framework under which charities operate. It will provide the Government, the sector and the public with more comprehensive information about the charitable sector. From the Government’s perspective, that information will be utilised to assess whether its support for the charitable sector is as well targeted as it can be or whether changes should be made. For the sector, the information on the register is likely to prove to be useful in a number of ways – for example, as a means of tracking funding trends within the sector, which may help organisations to develop more effective fundraising campaigns, or for determining what service providers are established in a particular locality. The creation of the commission will also allow the public to undertake closer scrutiny of all organisations, purposes, and activities, and the way in which those are delivered to the public. It should help to increase public trust and confidence in the charitable sector.…Charities make an important contribution to the social wellbeing of many New Zealanders, by providing valuable services that help to strengthen and support local communities. The Government recognises and values that work.The Charities Bill is a significant step forward for the New Zealand charitable sector. As a means to increase the sector’s public accountability and transparency, it represents a positive move toward helping to develop a culture of philanthropy and giving in this country. The establishment of the commission is one of a number of projects that the Government is advancing to strengthen its relationship with the community and voluntary sector. The passing of this bill will help to ensure that New Zealand’s charitable sector is able to operate effectively and efficiently to deliver important services for the betterment and benefit of our communities. [Emphasis added]

Unintended consequences 43. The Charities Act as passed is replete with unintended consequences. 44. Some of the worst offenders include section 5(3), section 18(3), section 20, section

59, and what is now section 3(b), but there are many others. 45. To make matters worse, in the 13 years since the Charities Act has been passed,

the Act has been subject to a series of amendments which have generally been put forward by Statutes Amendment Bill, and/or rushed through under urgency without

58 Queenstown Lakes Community Housing Trust [2011] 3 NZLR 502 (HC) at [78].59 See the comments of Dobson J in National Council of Women of New Zealand Incorporated v Charities Registration Board [2015] 3 NZLR 72 (HC) at [53].60 Charities Bill 3R (12 April 2005) 625 NZPD 19974 per Hon Judith Tizard, Associate Minister of Commerce.


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proper consultation, often against the strong opposition of the charitable sector. Many of these amendments are also replete with unintended consequences, such as section 5(2A), the disestablishment of the Charities Commission in 2012, section 18(3A), and officials’ attempt to remove charities’ rights of appeal by Statute Amendment Bill in 2015/2016.

46. Fortunately, Labour and Green members of the 2015 Government Administration Committee were instrumental in removing the latter amendment from the relevant Bill. It also then became Labour Party policy to:61 prioritise the long-promised review of the Charities Act that National

abandoned, beginning with a first principles review of the legislation, including examining, updating and widening rather than narrowing the definition of charitable purpose; and

to consult with the community and voluntary sector on whether the disestablishment of the Charities Commission and transfer of functions to the Department of Internal Affairs has resulted in effectiveness and improved services and information for the sector.

47. This policy formed part of the manifesto that led to the election of the current Government in September 2017.

The terms of reference 48. As discussed above, draft terms of reference for the Charities Act review were

circulated to the Sector User Group in January 2018. Despite providing comments, the terms of reference that were finalised in May 2018 are in more or less the form the SUG said they could not support.

49. A key issue is that the terms of reference are too narrow, and will not enable key issues to be addressed. The “frequently asked questions” section of the Department of Internal Affairs’ official Charities Act review webpage includes the following comment:62

The review will cover substantive issues and not go back to first principles. A first principles review is not currently needed. The fundamental aspects of the Act, such as a registration system and public access to information about charities, are sound. A first principles review would also be costly and time-consuming. [Emphasis added]

50. Accordingly, it is fair to say that this review is not the first principles review that was promised and has been sought.

51. There is concern that, behind the scenes, officials are pushing for a significantly attenuated review, with a view to increasing their regulatory powers, and most likely charging charities for the privilege; there is concern that this process is occurring, as has so often been the case in the past, without due respect or regard for long-standing concerns held within the charitable sector.

52. The terms of reference appear to be based on an assumption that the Act is already fit for purpose. But that begs the question of what the purpose of the Act is, or should be, an important issue that is currently outside the scope of the review. The original intention of the Charities Act was to provide an information and disclosure

61 https://d3n8a8pro7vhmx.cloudfront.net/nzlabour/pages/8546/attachments/original/1504489890/Community___Voluntary_Sector_Manifesto.pdf?1504489890, page 5. 62 https://www.dia.govt.nz/vwluResources/CharitiesReview-FAQ-PDF/$file/Q-and-A-240518.pdf, last accessed 20 November 2018.


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regime: a mechanism for the registration, reporting, and monitoring of charities so that members of the public can access sufficient information to enable them to make informed decisions about which charities they wish to support. However, in the hands of a government department, an agency even closer to government than the original Crown agency classification for the Charities Commission that was so resoundingly rejected in 2004,63 concerns that the regime would instead be used as a means to “colonise and control” the charitable sector appear to be coming to pass.64

Timeframe 53. In addition, the writers understand the Minister wishes to have the review

completed within this term of government, including legislation. This means that all policy work on the review will need to be completed in a few months’ time, with legislation to be passed before the next general election in 2020.

54. At one level, the review is the best offer we have had for 13 years and arguably we should try to make the most of it in the limited time available. However, many of the issues involved in this area of law are complex, and their impact far-reaching. The work of the New Zealand charitable sector reaches into every aspect of New Zealand society, and is a key factor in New Zealand having one of the highest levels of social capital in the world. The New Zealand charitable sector could help the Government with every aspect of its proposed Wellbeing Budget,65 most likely more efficiently and effectively than government.

55. While the review of the Charities Act 2005 has the potential to be a once-in-a-generation opportunity to create a world-leading framework of charity law in New Zealand, with the constraints described it seems highly unlikely that we will be able to create the world-leading framework that New Zealand is capable of, and which New Zealand and its charities so desperately need, within a timeframe of only a few months.

56. It would be in New Zealand’s interests, and most likely more cost-effective overall when all costs are taken into account, to take the time needed to carry out the review properly.

Review team 57. Another issue is that the team tasked with carrying out the review is the policy

team within the Department of Internal Affairs. With no disrespect intended to the review team, a review that is genuinely independent of the Department of Internal Affairs - Charities Services, along the lines of the approach recently adopted in Australia,66 would also assist significantly with rebuilding trust.

58. In the writers’ view, the importance of the charitable sector is such that the review would be best carried out by the Law Commission, as was the case with the law of

63 See Charities Bill 108-2 (Select Committee Report) at page 2: https://www.parliament.nz/resource/en-NZ/47DBSCH_SCR2973_1/d8233a6a17a3faa906bd28c0b1571b3894ab53de.64 Charities Bill 1R, NZPD Vol 616, 30 March 2004, p12108 per Sue Bradford, Greens.65 https://www.budget.govt.nz/budget/2018/economic-fiscal-outlook/budget-2019-focus-on-wellbeing.htm, last accessed 27 November 2018. 66 https://treasury.gov.au/publication/p2018-t318031/, last accessed 20 November 2018.


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incorporated societies,67 and with the law of trusts.68 59. It is also important that consultation with the charitable sector is carried out before

decisions are made, rather than after. If a discussion document that mostly reinforces Charities Services’ perspectives is issued in February 2019, thinking is likely to be more or less set, and will be much more difficult to change. The recent review of Australia’s charities legislation provides an example of national consultation being carried out before the review team issued their report.69 Changes are much more likely to be supported by the charitable sector if it feels it has been meaningfully consulted on them.

Discussion60. There is a saying that in a democracy you get the leaders you deserve. Arguably,

you also get the legislation you deserve. It is essential that those involved/concerned with New Zealand’s charities get engaged with the review, and that we collectively try to create the best framework of charity law that we can, even if that means pushing Ministers to take the time needed to carry out the review properly.

TERMS OF REFERENCE BULLET POINT 1 - MATTERS RELATING TO ADDITIONAL PURPOSES OF THE ACT 61. Under the current terms of reference,70 the first substantive policy matter listed as

being within the scope of the review is as follows:71

“Whether any additional purposes of the Act are necessary (while recognising that the Government considers the fundamentals of the Act are fit for purpose).”

62. The terms of reference state that the Government considers the fundamentals of the Act are “fit for purpose”. However, that begs the question of what the purpose of the Charities Act is, or should be, as discussed above. Not to address this issue is a significant lost opportunity: there does not ever appear to have been a clear understanding of what the Charities Act regime is seeking to achieve and why. A clear articulation of the purpose of the regime would assist materially with decision-making, which in turn could be expected to reduce the costs of administering the regime significantly.

Begging the question 63. The current purposes of the Charities Act are set out in section 3 in the following

terms:(a) To promote public trust and confidence in the charitable sector:(b) To encourage and promote the effective use of charitable resources:(c) To provide for the registration of societies, institutions, and trustees of trusts as

charitable entities:(d) To require charitable entities and certain other persons to comply with certain

obligations(e) To provide for the Board to make decisions about the registration and

deregistration of charitable entities and to meet requirements imposed in relation to those functions:

67 https://www.lawcom.govt.nz/sites/default/files/projectAvailableFormats/NZLC%20R129.pdf, last accessed 16 December 2018. 68 https://www.lawcom.govt.nz/our-projects/law-trusts, last accessed 16 December 2018. 69 See for example https://static.treasury.gov.au/uploads/sites/1/2018/08/p2018-t318031.pdf, page ii. 70 https://www.dia.govt.nz/vwluResources/CharitiesReviewTOR/$file/CharitiesReviewTOR.pdf, page 2. 71 https://www.dia.govt.nz/vwluResources/CharitiesReviewTOR/$file/CharitiesReviewTOR.pdf.


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https://www.lawcom.govt.nz/sites/default/files/projectAvailableFormats/NZLC%20R129.pdf


(f) To provide for the chief executive to carry out functions under this Act and to meet requirements imposed in relation to those functions.

64. In the Charities Act as originally passed, purposes (a) and (b) (to promote public trust and confidence in the charitable sector and to encourage and promote the effective use of charitable resources) were listed in section 10 as functions of the Charities Commission.72 The charitable sector strongly supported the Charities Commission having a function of promoting public trust and confidence, envisaging that the Charities Commission would be able to draw on data about the sector using the register, so as to respond in a balanced way to negative media focus on a particular charity or group of charities. This would enable a more balanced public perception of the sector. However, this has not happened.

65. Promoting public trust and confidence and encouraging and promoting the effective use of charitable resources were elevated to purposes of the Act when the Charities Commission was disestablished in 2012. At this time, the Charities Commission’s functions transferred to the Department of Internal Affairs - Charities Services and the Charities Registration Board.73 Now the concepts of “promoting public trust and confidence in the charitable sector” and “promoting the effective use of charitable resources” appears to have been taken by Charities Services as a driver to impose greater controls on the sector

66. There is a significant question internationally about whether purposes to promote public trust and confidence and encourage the effective use of charitable resources are appropriate purposes for a charity regime. The concern is that they may in fact be encouraging over-reaching exercises of governmental power in the name of enhancing trust and confidence. A recent commentator described the issue this way:74

But it seems to me that the sectors’ affirmative purposes and roles in and contributions to their respective societies should precede regulation [sic] thereof, especially in common law jurisdictions.Stated differently, why…increase public trust and confidence? Why pursue effectiveness and accountability? Even in a tax- and compliance-based system such as in the US, a prerequisite should be ensuring that respect for boundaries protects against harmful regulation and regulators infringing on or interfering with the fundamental roles and purpose of the charitable sector and its members.Foundational principles seem especially important for jurisdictions in which the charitable sector is an organic outgrowth of freedoms of speech, assembly, religion, and petitioning the government and, by extension, especially of any societal culture that encourages and protects individual and community initiative, self-reliance, and the right to try to mobilize others towards charitable purposes. Those principles shape even the definition of that which is or should be deemed “charitable”…Without that grounding at the forefront, there are non-tenuous risks that the charitable sector gets perceived and regulated as if a “loophole” or as a means for government abdicating its responsibilities and/or using the sector to address fiscal deficits. It may be that ...regulatory purposes of ensuring effectiveness and accountability threaten to morph into over-reaching exercises of

72 See section 10(1)(a) and (b) of the Charities Act as originally passed: file:///C:/Users/User/Downloads/Charities%20Act%202005%20(14).pdf. 73 See Charities Amendment Act (No 2) 2012: http://www.legislation.govt.nz/act/public/2012/0043/latest/DLM4484614.html 74 John E Tyler III from the Ewing Marion Kauffman Foundation, review of Regulating Charities: the Inside Story: https://www.degruyter.com/downloadpdf/j/npf.2018.9.issue-1/npf-2018-0002/npf-2018-0002.pdf, last accessed 16 December 2018.


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https://www.degruyter.com/downloadpdf/j/npf.2018.9.issue-1/npf-2018-0002/npf-2018-0002.pdf

http://www.legislation.govt.nz/act/public/2012/0043/latest/DLM4484614.html


governmental power in the name of enhancing trust and confidence. “At what cost,”…may be important to have as an ever-present policy and regulatory question about the sector, especially with regard to intangible, non-financial costs to common law, rule of law rather than rule of power, and other contributions of the sector and its member organisations to individuals and society.” [Emphasis added]

67. As discussed above, the terms of reference appear to be based on an assumption that the Act is already fit for purpose, which begs the question of what the purpose of the Act is, or should be. The original intention of the Charities Act was to provide an information and disclosure regime: a mechanism for the registration, reporting, and monitoring of charities, to improve the accountability and transparency of the charitable sector to the donating public, funders, and the government,75 enabling them to make informed decisions about which charities they wish to support. There was overwhelming support within the charitable sector for a Charities Commission to be established so that “bad” charities (those that engaged in “serious wrongdoing” such as fraud, money laundering, tax avoidance and the like) could be “weeded out”, and the public could have trust and confidence in those that remained.76 This, in turn, was intended to help foster a culture of philanthropy and giving in New Zealand, by increasing the public’s trust and confidence in charitable organisations.77

68. However, to the contrary, the current framework in New Zealand does indeed appear to be encouraging “regulatory over-reach”. Over-regulation works against participation and progress, including the opportunities to be innovative and responsive to changes.78

69. In the hands of a government department, an agency even closer to government than the original Crown agency classification for the Charities Commission that was so resoundingly rejected in 2004,79 the regime does indeed appear to be being used as a means to “colonise and control” the charitable sector.80

Consideration of the current purposes 70. It is important that the regime accurately reflects the true purpose of the Act. The

purposes of the Act inform behaviour and decision-making of the agency tasked with administering the Charities Act, and provide context and boundaries to protect against harmful over-reach. It is important that the legislation protects against harmful regulation, and does not interfere unduly with the fundamental role and purpose of the charitable sector and its members. Accurately articulating the purposes of the legislation would also provide the best possible framework from which the provisions of the Act would be interpreted

71. For the review not to include a careful examination of whether the current purposes are adequate, and/or what should be the purposes of the Act, is a significant lost opportunity.

72. Considering the current purposes would not necessarily require any reshaping of or 75 Charities Bill 2004 (108-1) explanatory note at 1 and (108-2) select committee report at 1.76 Charities Bill 3R and In Committee (12 April 2005) 625 NZPD 19982 per Gordon Copeland, United Future and 19967 per Hon Judith Tizard, Minister of Consumer Affairs.77 Charities Bill 1R (30 March 2004) 616 NZPD 12108 per Hon Margaret Wilson, Minister of Commerce.78 Australian review, page 18: https://static.treasury.gov.au/uploads/sites/1/2018/08/p2018-t318031.pdf. 79 See Charities Bill 108-2 (Select Committee Report) at page 2: https://www.parliament.nz/resource/en-NZ/47DBSCH_SCR2973_1/d8233a6a17a3faa906bd28c0b1571b3894ab53de.80 Charities Bill 1R, NZPD Vol 616, 30 March 2004, p12108 per Sue Bradford, Greens.


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addition to the other provisions of the Act. However, it would encourage them to be interpreted more appropriately.

73. We note that the terms of reference for Australian review of its charities legislation specifically included whether the objects of the current legislation “continue to be relevant”.81

74. The recent review of the equivalent Australian charities legislation also considered a submission by the Australian Charities and Not-for-profits Commission to include an additional purpose of “promoting the effective use of resources” (broadly equivalent to our section 3(b)).

75. Inclusion of a purpose along these lines was rejected, however, as unnecessary, an over-reach of power by the ACNC, and because an entity’s governing board should be responsible for determining effectiveness, not the ACNC.82

76. An equivalent object in England and Wales was also found not to have had any positive impact on the charities sector in the UK.83

77. Consideration should be given to whether sections 3(a) and (b) should remain purposes of the New Zealand charities legislation.

78. Consideration should also be given to clarifying that the purpose of the Charities Act regime is to establish and information and disclosure regime: it requires the disclosure of information by registered charities, so that stakeholders such as members of the public can determine which charities they wish to support, and identify legitimate charities as opposed to sham operations.84

79. The reason Charities Services is required to “have regard” to charities’ activities, under section 18(3)(a) of the Charities Act, is to determine whether the charity is continuing to act in furtherance of its stated charitable purposes over time.85 This is the purpose of the monitoring function in the Charities Act. Section 18(3)(a) was not intended to be a means for Charities Services’ to “vet” charities’ legitimate activities, and to ration the privileges of charity based on changes in government policy.

80. Charities are independent entities that are intended to exist into perpetuity. It is for charities to determine how best to further their stated charitable purposes, and they should be able to do so free from undue government interference.

81. The legislation should clarify that the regime was not intended to be used by government as a means to “colonise and control”86 the charitable sector.

81 https://static.treasury.gov.au/uploads/sites/1/2018/08/p2018-t318031.pdf, page 2. 82 See https://static.treasury.gov.au/uploads/sites/1/2018/08/p2018-t318031.pdf, pages 25-29. 83 https://static.treasury.gov.au/uploads/sites/1/2018/08/p2018-t318031.pdf, page 27.84 Report by the Working Party on Registration, Reporting and Monitoring of Charities, 28 February 2002 (the precursor to the Charities Act 2005), page 2.85 Report by the Working Party on Registration, Reporting and Monitoring of Charities, 28 February 2002 (the precursor to the Charities Act 2005), page 12.86 Charities Bill 108-1, 1R, NZPD, Vol 616, 30 March 2004, from p12108, per Sue Bradford (Green).


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TERMS OF REFERENCE BULLET POINT 1 - MATTERS RELATING TO ADDITIONAL PURPOSES OF THE ACT (CONTINUED)Additional purpose 82. As discussed above, the current terms of reference include the question of

“whether any additional purposes of the Act are necessary”.87 83. Consideration should be given to including an additional purpose along the lines of

the second object in the Australian legislation. 84. Section 15-5(1)(b) of the Australian Charities and Not-for-profits Commission Act

2012 provides the following as an object of that Act:88

“to support and sustain a robust, vibrant, independent and innovative Australian not-for-profit sector”.

85. We understand that this purpose was included in the Australian legislation as a result of strong lobbying by the Australian charitable sector. It appears to have been instrumental in creating a world-leading charities regime for Australia.89

86. The reference to the “Australian not-for-profit” sector reflects the fact that the Australian regime has been designed specifically with extension beyond charities to other not-for-profits in mind. The New Zealand regime is designed for charities only. On that basis, an equivalent New Zealand purpose might read as follows:

“to support and sustain a robust, vibrant, independent and innovative charitable sector”.

87. We recommend that New Zealand specifically consider inclusion of a purpose along these lines.

Additional advocacy purpose 88. In addition, consideration should be given to including an additional purpose to

support charities’ advocacy. It is Labour Party policy to: Ensure that community and voluntary organisations can engage in advocacy

without fear of losing their charitable status; Continue to support the independence of community sector advocacy; Reinstitute the four well-beings in the Local Government Act and

investigate how they can become a greater focus in the work of the sector at central government level.

89. It is Green Party policy to: Recognise the independence of the groups which make up the Tangata

Whenua, Community and Voluntary sector, and their right to play an advocacy role for those individuals, communities and issues in whose interests they work;

Require all Government departments and agencies to accept the right of NGOs to advocate for those individuals, communities and issues in whose interests they work, without prejudice in regards to funding, contracting or tax status.

90. In recognition of the above policies, consideration should be given to including an additional purpose along the following lines:

87 https://www.dia.govt.nz/vwluResources/CharitiesReviewTOR/$file/CharitiesReviewTOR.pdf, page 2. 88 https://www.legislation.gov.au/Details/C2012A00168. 89 https://static.treasury.gov.au/uploads/sites/1/2018/08/p2018-t318031.pdf, pages 17-18.


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“to respect the autonomy of charities, and charities’ rights to freedom of expression, in particular their right and duty to advocate in furtherance of their charitable purposes”.

91. This purpose, in combination with other proposed amendments discussed below in the “Advocacy” section, would be consistent with section 14 of the New Zealand Bill of Rights Act 1990, and would help to clarify the law surrounding charities’ ability to advocate in furtherance of their charitable purposes.


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TERMS OF REFERENCE BULLET POINT 2 - MATTERS RELATING TO THE LEGAL FRAMEWORK 92. Under the current terms of reference, the second substantive policy matter listed

as being within the scope of the review is as follows:90

“The role, functions, structure, powers, accountability and appeal ability of [the agency tasked with administering the Charities Act]”.

93. Issues relating to the accountability and appeal ability of the agency tasked with administering the Charities Act are discussed further below under Appeals. A key issue for current purposes is the structure of the agency tasked with administering the Charities Act.

The structure of the agency tasked with administering the Charities Act 94. Following the disestablishment of the Charities Commission in 2012, the functions

of the former Charities Commission were split between two bodies: the Charities Registration Board and the Department of Internal Affairs - Charities Services.

95. As discussed above, it is Labour Party policy to:91 consult with the community and voluntary sector on whether the

disestablishment of the Charities Commission and transfer of functions…to the Department of Internal Affairs has resulted in effectiveness and improved services and information for the sector.

96. Again, those who do not remember history are condemned to repeat it. Analysis of this issue is assisted by an understanding of the history to the current legislation.

Gestation of the Charities Act

97. The process of initially establishing a Charities Commission took over 16 years.98. Subsequent to the report of the Property Law and Equity Reform Committee in

1979, on 17 December 1987, then Minister of Finance, Hon Roger Douglas, had announced an intention to impose a “flat tax” of 15%, including on the income of charities.92

99. The proposal was highly controversial and ultimately did not proceed; the issue was “kicked into touch” through the appointment of the Working Party on Charities and Sporting Bodies in 1988 to conduct a major review of the law of charities in New Zealand.93 When the working party reported in 1989 (“the Spencer Russell report”), its major recommendation was that a Commission for Charities be established in New Zealand, to register, advise and supervise (rather than “regulate”) charities, and to increase the accountability of charities to the public.94

100. That initiative did not proceed following the change of government from Labour to National in 1990.95 However, the charitable sector continued to ask Governments to provide greater support.96 For example, the charitable sector consistently asked the

90 https://www.dia.govt.nz/vwluResources/CharitiesReviewTOR/$file/CharitiesReviewTOR.pdf. 91 https://d3n8a8pro7vhmx.cloudfront.net/nzlabour/pages/8546/attachments/original/1504489890/Community___Voluntary_Sector_Manifesto.pdf?1504489890, page 5. 92 Charities Bill 1R (30 March 2004) 616 NZPD 12117-8, and Charities Bill 2R (12 April 2005) 625 NZPD 19950, per Gordon Copeland, United Future.93 Charities Bill 1R (30 March 2004) 616 NZPD 12118 per Gordon Copeland, United Future.94 Sir Spencer Russell, Working Party on Charities and Sporting Bodies (Wellington, New Zealand, 1989).95 Charities Bill 1R (30 March 2004) 616 NZPD 12118 per Gordon Copeland, United Future.96 Charities Bill 3R (12 April 2005) 625 NZPD 19973 per Hon Judith Tizard, Associate Minister of Commerce.


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Government to lift the maximum level of tax relief available for people who donate to donee organisations. At that time, the maximum tax relief available for donations by individuals was “capped” at $500 per year (subsequently increased to $630, providing tax relief for a maximum of $1,890 in donations per year). Deductions for donations by companies were similarly capped.97

101. Successive Ministers of Revenue made agreeable noises about “lifting the cap”, but continually verbalised unease about doing so because of anecdotal evidence that “some charities were involved in tax avoidance arrangements”.98 Also, it had traditionally been difficult for any Government to assess how much lifting the cap would cost, because of the absence of robust information about the size and scope of the charitable sector in New Zealand. There was also no specific law, standard procedure, or Government department concerned with ensuring the accountability of organisations that receive donations in cash or kind.99

102. In 2000, then Minister of Finance, Hon Dr Michael Cullen expressed a willingness to look at a more generous donations regime provided a means could be found to ensure that those benefits extended only for bona fide charities.100 Shortly afterwards, the Government undertook a review of the tax treatment of charities, drawing on all of the preceding work.101 During the consultation stage of the review, the Government issued a discussion document, Tax and charities, a government discussion document on taxation issues relating to charities and non-profit bodies, in June 2001 (“the 2001 discussion document”).102 The 2001 discussion document dealt only with issues relating to taxation, but contained a range of proposals for improving the accountability of organisations receiving government assistance, as well as for updating the definition of “charitable purpose”.103

103. The 2001 discussion document noted that the definition of charitable purpose had “broadened over the years”, and expressed concern that the charitable income tax exemptions may have become “too widely available”.104 In support of this proposition, the 2001 discussion document cited two Court of Appeal decisions, in which the purposes of the New Zealand Council of Law Reporting, and the purposes of the New Zealand Medical Council, respectively, had been found to be charitable: Commissioner of Inland Revenue v New Zealand Council of Law Reporting [1981] 1 NZLR 682 (CA) and Commissioner of Inland Revenue v Medical Council of New Zealand [1997] 2 NZLR 297 (CA)).

104. The 2001 discussion document then put forward a range of proposals for changing the definition of charitable purpose, so that the “fiscal privileges” accorded to charities would be limited to those charitable purposes that “[accord] with society’s current objectives”.105

105. The 2001 discussion document considered 3 options for the definition of “charitable purpose” (paragraphs 5.7-5.20):

97 At 5% of company net income, see: Barker et al, The Law and Practice of Charities in New Zealand, paragraph 3.677; Charities Bill 2R (12 April 2005) 625 NZPD 19950 per Gordon Copeland, United Future.98 Charities Bill 1R (30 March 2004) 616 NZPD 12118 per Gordon Copeland, United Future.99 Charities Bill 3R (12 April 2005) 615 NZPD 19973 per Hon Judith Tizard, Associate Minister of Commerce.100 Charities Bill 1R (30 March 2004) 616 NZPD 12118 per Gordon Copeland, United Future.101 Inland Revenue Department, Tax and Charities, foreword and paragraphs 1.1 and 1.5 to 1.7.102 Inland Revenue Department, Tax and Charities.103 Inland Revenue Department, Tax and Charities, foreword and paragraphs 1.1 to 1.4.104 2001 discussion document, paragraphs 38 and 4.1105 2001 discussion document, chapter 5 and paragraph 4.3.


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(a) Maintaining the current definition, but allowing the Government to “deem” a particular entity not to be charitable, so that “decisions about government resources [could] be made in a manner consistent with evolving views on what constitutes a charitable purpose”;

(b) Replacing the current definition with a new definition to “move away from existing case law, which may have expanded the boundaries of what is charitable to such an extent that it is now too easy to become a charity”; and

(c) Limiting the definition to the relief of poverty. However, the Government acknowledged that this would exclude a significant number of charities that had community support, and did not recommend this option.

106. There was extensive consultation across the charitable sector on the 2001 discussion document, led by a sector-appointed working group. More than 1,700 submissions on the 2001 discussion document were received, which, in turn, persuaded the Government to set up a Working Party on Registration, Reporting and Monitoring of Charities (“the Working Party”). The Working Party was to look at the establishment of a registration, annual return, and monitoring system in relation to all New Zealand charities. The Working Party reported in February and March 2002, recommending that a Charities Commission be established, with responsibility for establishing and maintaining a registration, reporting and monitoring (not “regulating”) regime for New Zealand charities. The Government accepted those recommendations, and began work, through an establishment group, to set up the Charities Commission.106

107. Finally, after a 2-year review and consultation process and a drafting period, first with the Treasury and then with the Ministry of Economic Development, the Charities Bill was introduced in 2004.107 The Bill was described as the “climax…of a 16-year attempt by the charitable sector to bring about a fundamental change in its status in New Zealand society”.108

108. After such a long gestation process, “[o]ne would have hoped that… they would have got it right”. However, concern was expressed that that may not have been the case.109

109. As discussed above, the original Charities Bill that was introduced in March 2004 was widely regarded as fundamentally flawed, and was substantially rewritten at Select Committee stage. Importantly, however, the Select Committee made it clear that the definition of charitable purpose was not intended to be changed:110

The majority is concerned that amending this definition would be interpreted by the Courts as an attempt to widen or narrow the scope of charitable purposes, or change the law in this area, which was not the intent of the bill.

110. The Courts have confirmed that the Charities did not alter the definition of charitable purpose.111 Accordingly, IRD’s suggestions for changing the definition

106 Charities Bill 1R (30 March 2004) 616 NZPD 12118 per Gordon Copeland, United Future.107 Charities Bill 1R (30 March 2004) 616 NZPD 12113 per Sue Bradford, Green.108 Charities Bill 1R (30 March 2004) 616 NZPD 12118 per Gordon Copeland, United Future.109 Charities Bill 1R (30 March 2004) 616 NZPD 12113 per Sue Bradford, Green.110 Charities Bill 108-2 (Select Committee report) page 3.111 Re Greenpeace of New Zealand Incorporated [2015] 3 NZLR 72 (SC) at [16]-[17]. See also Latimer v Commissioner of Inland Revenue [2002] 1 NZLR 535 (HC) at [5], referring to the definition of “charitable purpose” in the income tax legislation, which was then in essentially identical terms to section 5(1) of the Charities Act. See also Re Family First New Zealand [2015] NZHC 1493 at [21]; Re Education New Zealand Trust


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were not accepted by Parliament: the definition of charitable purpose that IRD acknowledged was very broad should have survived the passing of the Charities Act.

The 2002 Working Party Report

111. As touched on above, in its February 2002 report (“the Working Party Report”) the Working Party considered there should be a transparent system of accountability to the public and government to reinforce the integrity of the charitable sector, and concluded that there should be a single body, a Charities Commission, responsible for the registration of charities and for investigating complaints.

112. The Charities Commission’s functions of supporting and advising the charitable sector were at the core of the Working Party’s recommendations.112 The Working Party considered that the relationship between the government and the charitable sector should be based on a positive culture of collaboration and support.

113. The Working Party Report also considered that the Charities Commission should be responsible for the administration of the Charitable Trusts Act 1957, and for the “defender of charities” role currently carried out by the Attorney-General.

114. The Working Party concluded that the Charities Commission should be a Crown entity: the Crown would appoint the Commissioners, with a majority drawn from the charitable sector. The Charities Commission would be required to report annually to the sector, and to the government through the Minister of Finance and the Minister for the Community and Voluntary Sector. In addition to its written report, the Charities Commission would convene an annual workshop or conference to specifically examine the work of the Commission over the previous year and its plans for the future, including those issues raised by the sector itself.113 Decisions of the Charities Commission would be able to be challenged through normal judicial processes.

115. In concluding that the Charities Commission should be a Crown entity, the Working Party also considered two other options: (i) a semi-autonomous body within an existing government department with a

statutory advisory board from the charitable sector; and(ii) a business unit within an existing government department.

116. However, the Working Party expressed a strong view that a Charities Commission would be most acceptable to the charitable sector:114

This is important as it would mean the costs of monitoring and enforcement are likely to be less if the sector supports and has confidence in the organisation. Any lesser alternative would fail to adequately recognise the importance and independence of the charitable sector. [Emphasis added]

117. With respect to the first option, the Working Party considered a semi-autonomous body would be considerably inferior to a Charities Commission, as it would not have “sufficient status and independence to gain the support and sense of ownership

(2010) 24 NZTC 24,354 (HC) at [13]; and Foundation for Anti-Aging Research v Charities Registration Board [2015] NZCA 449 (21 September 2015) at [10].112 Working Party Report, p11.113 Working Party Report, p10.114 Working Party Report, p9.


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required from the charitable sector”; this would in turn impact significantly on its ability to carry out its role. The disadvantage of locating the agency within the Department of Internal Affairs in particular would include a possible perception of conflict of interest given its funding role and the approval and monitoring role it would be required to undertake.115

118. The Working Party also rejected the second option of having the registration, reporting and monitoring functions carried out by a non-autonomous business unit located within a government department for 3 reasons:1. It would have the same disadvantages as a semi-autonomous body described above;2. The charitable sector would have less opportunity to provide feedback than within the

semi-autonomous body; and3. The business unit would not have the advantage of reporting independently to

Ministers on policy.119. The Working Party considered these disadvantages would not necessarily be

overcome by creating a statutory advisory body to assist the business unit. 120. These recommendations were generally accepted by Government in the original

Charities Bill that was introduced into Parliament in March 2004. 121. In the original Charities Bill, the Charities Commission was structured as a Crown

agent. Of the three types of statutory entity created by section 7(1)(a) of the Crown Entities Act 2004 (Crown agents, autonomous Crown entities, and independent Crown entities), Crown agents have the closest connection with the Government. Crown agents are subject to a high degree of Ministerial control: members of Crown agents are appointed by the responsible Minister, and may be removed at the responsible Minister’s discretion; although Ministers are not authorised to give directions to any Crown entity in respect of a particular person, Crown agents must give effect to Government policy when properly directed to do so by their responsible Minister.116 Crown agents are established in situations when Government wishes to retain close control over an entity (akin to a Department), but does not want to play a role in making specific funding decisions.117

122. A large number of submitters on the original Charities Bill expressed concern with the classification of the Charities Commission as a Crown agent: 118

They were concerned that this classification might allow the Government to interfere with, direct, or control the Commission, and would not reflect the independence from the Government of the charitable sector. Particular concern was expressed at the prospect that the Government might be able to directly or indirectly influence the registration or deregistration of particular charities to reflect government policy. [Emphasis added]

123. In light of these concerns, the classification of the Charities Commission was changed at select committee stage to that of an autonomous Crown entity.119 Although not as independent as an independent Crown entity, the autonomous Crown entity classification meant that Ministers would only be able to direct the Charities Commission to have regard to government policy, following which the Commission and its Board would decide how best to exercise their powers to

115 Working Party Report, p11.116 Crown Entities Act 2004, sections 7(1)(a), 28(1)(a), 36(1), 103(1) and 113(b).117 Barker et al, The Law and Practice of Charities in New Zealand, paragraphs 3.1409 to 3.1416.118 Charities Bill 2004 (108-2) select committee report at 2.119 Section 9(1) of the Charities Act as originally enacted, and schedule 1 part 2 of the Crown Entities Act 2004.


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perform their statutory functions.120 The disestablishment of the Charities Commission

124. However, in May 2011, less than 6 years after the Charities Act had commenced and less than 3 years after the tax provisions had come into force,121 the government announced a proposal to disestablish the Charities Commission.122 The stated reason was that, in the “current period of fiscal and economic restraint”, the Government wished to reduce the number of government agencies as it seeks better value for money.123 However, one may be forgiven for wondering whether the real reason in fact related to growing public controversy that had arisen over the narrow approach that the Charities Commission had taken to the definition of charitable purpose.124 Whatever the reason, the proposal was to transfer the functions of the Charities Commission to the Department of Internal Affairs, while ensuring that registration decisions remained separate from Ministers.

125. The proposal was confirmed in August 2011,125 and legislation to effect this change was introduced into Parliament a month later on 29 September 2011: part 3 of the Crown Entities Reform Bill proposed to disestablish the Charities Commission, and transfer its functions to the Department of Internal Affairs, with registration decisions to be made by a statutory board.126 Part 1 of the Bill proposed to disestablish the Alcohol Advisory Council of New Zealand, the Health Sponsorship Council, and the Crown Health Financing Agency. Part 2 proposed to bring forward the disestablishment of the Mental Health Commission.

126. The Crown Entities Reform Bill had its first reading on 4 October 2011 and was referred to the Government Administration Select Committee. However, a general election took place on 26 November 2011 and the Bill lapsed. Although the Bill was reinstated by the new Parliament, submissions were not clearly called for. Despite this, many submissions were made, and those that did comment on Part 3 were overwhelmingly opposed to the proposal to disestablish the Charities Commission: while many disagreed with the Charities Commission’s narrow approach and many of its decisions, getting rid of the infant Charities Commission altogether was seen as a significantly backward step that was unlikely to address any of the problems being experienced.

127. Reporting back on the Bill on 30 March 2012, the Select Committee reported a split:127

We acknowledge the strong concern expressed by submitters in relation to the disestablishment of the Charities Commission, an autonomous Crown entity, and the transfer of its functions to an independent board within the Department of Internal Affairs, which would compromise the commission’s independence and

120 Crown Entities Act 2004, section 104.121 From 1 July 2008, it became necessary to be registered as a charity in order to access the charitable income tax exemptions (sections CW 41 and CW 42 of the Income Tax Act 2007). 122 http://www.scoop.co.nz/stories/PA1105/S00611/government-reviews-more-state-agencies.htm. 123 Tony Ryall, 11 August 2011 Reduction in State Agencies confirmed, http://www.beehive.govt.nz/release/reduction-state-agencies-confirmed . 124 See for example Moving the charitable goal posts, Mark von Dadelszen, NZLawyer magazine, issue 155, 11 March 2011, and Charities Act review, S Barker and K Yesberg, NZLawyer magazine, issue 157, 8 April 2011. 125 Tony Ryall, 11 August 2011 Reduction in State Agencies confirmed, http://www.beehive.govt.nz/release/reduction-state-agencies-confirmed . 126 Crown Entities Reform Bill 2011 (332-1).127 Crown Entities Reform Bill 2011 (332-2) select committee report at 4-5.


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http://www.beehive.govt.nz/release/reduction-state-agencies-confirmed

http://www.beehive.govt.nz/release/reduction-state-agencies-confirmed

http://www.scoop.co.nz/stories/PA1105/S00611/government-reviews-more-state-agencies.htm


autonomy.The bill was introduced at the end of the previous Parliament and submissions were called without a closing date. We were unable to call for further submissions due to time constraints. We had requested an extension of three months, but were granted an extension of one month. This led to confusion about the status of submissions. We further acknowledge the frustration felt by submitters, some of whom were unaware of submissions being called. This highlights a problem with the process associated with bills at the end of Parliament, because they cease being an item of business until reinstated in the new Parliament. We gave consideration to all written submissions. We note that Part 3 of the bill contains a number of provisions designed to support the independence of the charities registration function. Clause 45 of the bill as introduced would insert a new section 8(4) into the Charities Act 2005, requiring each board member to act independently in exercising their professional judgment, without direction from the Minister. Nevertheless, some of us are convinced that the legislative safeguards provided in the bill would be insufficient to maintain the degree of independence that the Charities Commission provides. We also believe that the charities-related functions will be less accessible to the public, and that the charities sector work will be carried out less transparently if the commission’s functions are transferred to the Department of Internal Affairs. Review of the Charities Act 2005

A review of the Charities Act is due to take place following the current review of the Incorporated Societies Act 1908. Government members believe that transferring the commission’s current functions to the Department of Internal Affairs will create a more robust, resilient agency, and endorse the intention to do so now rather than after the review of the Charities Act. Labour and Green members believe that the transfer of the functions from the Charities Commission to the Department of Internal Affairs should not occur. No decisions on either legislative or operational change should be made until the review of the Charities Act and the Incorporated Societies Act are completed. Further, the independence and integrity that the Charities Commission has given to the process must be retained and we do not believe that this is possible under the proposal to move the functions of the Charities Commission to the Department of Internal Affairs. [Emphasis added]

128. Despite the comments of the Select Committee, the second reading and committee stages of the Crown Entities Reform Bill occurred quickly over 22-29 May 2012. Part 3 of the Bill was hotly contested, passing its second reading by only one vote. Hon Trevor Mallard (Labour) put forward a supplementary order paper, seeking to defer commencement of Part 3 by 3 years “in order to give the opportunity to the Government to fulfil its commitment to have the review of the Charities Act and, in particular, the Charities Commission, before the Charities Commission is disestablished”.128

129. The Supplementary Order Paper noted that:129 The independence of the Charities Commission was fundamental to the agreement between this sector and the Government when it was established

128 Supplementary Order Paper 2012 (32) Crown Entities Reform Bill (332-2).129 Crown Entities Reform Bill, SOP No 32 released 22 May 2012, see http://www.parliament.nz/en-NZ/PB/Debates/Debates/6/f/b/50HansD_20120523_00000012-Crown-Entities-Reform-Bill-In-Committee.htm .


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http://www.parliament.nz/en-NZ/PB/Debates/Debates/6/f/b/50HansD_20120523_00000012-Crown-Entities-Reform-Bill-In-Committee.htm


in 2005. It is difficult to see how this could be retained when part 3 comes into force. [Emphasis added]

130. However, the National-led Government “had the numbers” and the motion was rejected.

131. The Committee of the Whole House divided the Bill into 3 parts. Part 3 became the Charities Amendment Bill (No 2) 332-3C, which passed its third reading on 30 May 2012, again by the narrowest of margins. Royal assent was given to the Charities Act Amendment Act (No 2) 2012 on 6 June 2012, and the Charities Commission was disestablished from 1 July 2012 (“the 2012 reforms”).

132. The controversial proposal to disestablish the Charities Commission was not wanted by the charitable sector and ultimately passed by only one vote. Submissions from the charitable sector expressed strong objection to the proposal, and the lack of proper consultation regarding the disestablishment of the Charities Commission remains a source of grievance.

133. Ironically, the result of this amendment is that the agency administering the Charities Act is now housed in a government department, an entity even closer to government than the original Crown agency classification that was so comprehensively rejected at select committee stage.

The framework for registration decisions under the new regime

134. The Charities Commission’s functions were transferred to the Department of Internal Affairs (referred to as the “chief executive” in the legislation), “with registration and deregistration of charities being carried out by an independent decision-making board of 3 persons”.130 Section 8 of the Charities Act, as amended, provided for a statutory Charities Registration Board. Its 3 members are appointed by the Minister for the Community and Voluntary Sector, and are responsible for decisions relating to the registration and deregistration of charitable entities.131

135. The process provisions in sections 18 and 19, as amended, set up an unusual decision-making regime. Section 18 requires the chief executive of the Department of Internal Affairs to first “consider whether an [applicant] entity qualifies for registration”, including providing the applicant the opportunity to comment on any adverse matters. Section 19 then requires the chief executive to “recommend to the Board that it either grant or decline the application”. The Board must then itself be either “satisfied” or “not satisfied” that the entity qualifies for registration, and then direct the chief executive to take appropriate action. Reasons are only required if the application is declined.

136. Section 19(5) also requires that, before deciding that it is not satisfied that an entity is qualified to be registered “the Board must be satisfied that the chief executive has complied with section 18(3) in that case”.

137. Section 18(3) provides:(3) In considering an application, the chief executive must—

(a) have regard to—(i) the activities of the entity at the time at which the application was made; and(ii) the proposed activities of the entity; and

130 Crown Entities Reform Bill (332-1) explanatory note.131 Charities Act 2005, section 8(3).


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(iii) any other information that it considers is relevant; and(b) observe the rules of natural justice; and(c) give the applicant—

(i) notice of any matter that might result in its application being declined; and(ii) a reasonable opportunity to make submissions to the chief executive on the matter.

138. The origins of this odd process lie in the 2012 reforms. Prior to the abolition of the Charities Commission, sections 18 and 19 applied directly and only to the Commission.132 These provisions set up a standard process for the Commission to receive and consider an application, to comply with the principles of natural justice, and to make a decision, giving reasons if the application were declined.

139. As discussed above, the 2012 reforms abolished the Charities Commission and established the Charities Registration Board to consider and determine applications for registration. At the same time, the process provisions in sections 18 and 19 were split between the chief executive and the new Board. Section 18 was amended to replace the reference to the Charities Commission with a reference to the chief executive. Section 19 was amended to replace the reference to the Charities Commission with a reference to the Board, and extra subsections were added: new section 19(1) (providing for the chief executive to make a recommendation to the Board), new section 19(3) (providing that the Board is not required to follow a formal process when granting an application) and new section 19(5) (requiring the Board to be satisfied that the chief executive had complied with the obligations in section 18 before declining an application.

140. The provision for the chief executive to consider an application and make a recommendation does not mean that the Board is not itself charged with making its own decision. On the contrary, the Act is clear that the Board must make its own assessment and act independently.133

141. Section 19 requires the Board to be itself satisfied or not satisfied that an entity qualifies for registration. Similarly, section 19(3) requires the Board to give the chief executive its own reasons for its decision if registration is to be declined.

142. Section 8(4) confirms that, in exercising these functions, the Board is not subject to direction from the Minister, and that each Board member “must act independently in exercising his or her professional judgment”.

143. Section 8(6) sets out the role of the chief executive in this context, being to “supply all secretarial and administrative services required to enable the Board to perform or exercise its functions, duties and powers”.134

144. Section 10 sets out the functions of the chief executive under the Act. In relation to applications for registration, the chief executive’s functions are:

(b) to make appropriate information available to assist persons to make applications for registration under this Act; and

(c) to receive and process applications for registration as charitable entities; and(d) to refer to the Board for its decision all applications for registration as charitable

entities …132 See ss18 and 19 of the Charities Act 2005 as at February 2012.133 Charities Act 2005, section 8(4), and section 9(2).134 Charities Act 2005, sections 8(5) and (6) and 9.


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145. In other words, the receipt and processing of applications for registration is conferred explicitly on the Department of Internal Affairs.135

146. The Board is also required to consider whether it could most efficiently and effectively perform or exercise any of its functions, duties or powers by delegating them to the Department of Internal Affairs.136

147. The independence of the Board from the chief executive, and the importance of the Board’s separate decision-making role, was also emphasised in the legislative history of the 2012 reforms.

148. The explanatory note to the Crown Entities Reform Bill explains (page 6), that:Essentially, the Board will be responsible for deciding matters involving the registration and deregistration of charitable entities…

while the chief executive:…will be responsible for functions formerly performed by the Charities Commission other than deciding whether an entity should be registered or deregistered.

149. The Crown Entities Reform Bill as introduced set out the functions of the Board at new section 8 and of the chief executive in new section 10, both in the same terms as enacted, outlined above.

150. The changes to sections 18 and 19 outlined above, setting up the process of the chief executive “considering” whether the applicant entity meets the criteria, and then “recommending” a decision to the Board, are addressed in clause 54 and schedule 8 to the Bill as “consequential amendments” to the Act.

151. The report back from select committee recommended that the Bill pass with minor amendments (not affecting the Charities Act). As discussed above, the committee noted the strong concerns that the amendments proposed in the Bill could compromise the independence and integrity that the Charities Commission had provided.

152. The first reading of the Bill confirmed that decision-making on registration applications was to lie with an independent Board, with secretarial and administrative support being provided by the Chief Executive. The Hon Craig Foss, on behalf of the Minister of State Services stated:137

Part 3 looks at the Charities Act 2005. Part 3 disestablishes the Charities Commission and reassigns the functions and duties under the Charities Act 2005 to the Chief Executive of the Department of Internal Affairs, with the exception of decisions relating to the registration and deregistration of charities, which will be carried out by an independent decision-making board of 3 persons. The decisions of the board will be subject to appeal to the High Court, as are the Charities Commission’s decisions now. The board will also retain the Commission’s ability to publish details of possible breaches of the Charities Act or possible serious wrongdoings. The bill provides that the board members are not subject to direction from Ministers in performing or exercising their functions, duties, or powers, and that each member must act independently in exercising his or her professional judgment. This will ensure independence in decision-making. The bill places a requirement on the board to actively consider delegations to the chief executive or another person, such as a board member. This will ensure the effective and efficient use of resources. Any delegations carry with them the same independent and

135 Charities Act 2005, section 10(c).136 Charities Act 2005, sections 8(5) and (6) and 9.137 Crown Entities Reform Bill – First Reading, Hansard 4 October 2011 vol 676 page 21654.


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professional judgment in decision-making. The bill provides that the chief executive must supply all secretarial and administrative services required to enable the independent board to carry out its functions, duties and powers. [Emphasis added]

153. Similarly, at the second reading it was emphasised that the registration decisions lie with the Board, unless formally delegated to the chief executive, and that a key feature of the legislation is that the Board operates independently from the Department. The Hon Kate Wilkinson on behalf of the Minister of State Services:138

Part 3 disestablishes the Charities Commission and transfers its functions, duties, and powers to the Department of Internal Affairs, except for decisions on the registration and deregistration of charities. The bill assigns these decisions to an independent board of 3 persons, which will be supported by the Department of Internal Affairs. This independent board may make registration decisions itself or delegate responsibility for them, in whole or part, to the Chief Executive of the Department of Internal Affairs. However, if the board chooses to so delegate, the chief executive will also not be responsible to the Minister for registration decisions, but must act independently……There are three different issues that I will speak about in relation to the Charities Act amendments. They are the continued independence of the commission’s functions of registration and deregistration of charities, the continuation of the commission’s education function, and the request to delay this process until after the review of the Charities Act is complete. The bill provides for an independent board of three members to make registration and deregistration decisions. The bill has been carefully drafted to ensure the continued independence of this board when exercising its professional judgment on registration and deregistration decisions. The Minister will not be able to direct the board. Likewise, if the board chooses to delegate some or all of its functions to the Chief Executive of the Department of Internal Affairs, then the chief executive will also not be responsible to the Minister for registration and deregistration decisions, but will have to act independently. The board will be statutorily independent from the Crown, but will be supported by the Department of Internal Affairs. The bill therefore strikes an appropriate balance between important independence considerations and achieving administrative efficiency. The Department of Internal Affairs has extensive experience in supporting independent boards and offices of the kind provided for in the bill. These include the Gambling Commission, the Local Government Commission, the Registrar-General of Births, Deaths and Marriages, and the Chief Archivist. To take the example of the Gambling Commission, it has been successfully supported by the Department of Internal Affairs since 2003, and has demonstrated its independence on numerous occasions by overturning Department of Internal Affairs’ decisions. I expect the board established by this bill to operate just as successfully as the Gambling Commission, and any of the other independent entities supported by the Department of Internal Affairs for that matter, in terms of exercising its statutory independence. [Emphasis added]

154. In the third reading, the Minister for the Community and Voluntary Sector confirmed that the intention of the amendments are structural only, and were not intended to dilute the independence or integrity of the registration decision-making process, or to transfer responsibility for deciding registration to DIA staff. The Minister (Hon Jo Goodhew) stated:139

The Charities Amendment Bill (No 2) disestablishes the Charities Commission and transfers its functions to the Department of Internal Affairs, except for the registration

138 Crown Entities Reform Bill – Second Reading, Hansard 22 May 2012 vol 680, page 2240.139 New Zealand Public Health and Disability Amendment Bill, Mental Health Commission Amendment Bill, Charities Amendment Bill (No 2) – Third Reading, Hansard 30 May 2012, vol 680 page 2714


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and deregistration of charities, which will be performed by an independent statutory board of 3 persons. All the functions and duties that the Charities Commission currently performs under the Charities Act 2005 will remain. Indeed, the promotion of trust and confidence function is moved into the Act’s purpose section, reflecting its importance. The bill’s changes are structural only, and reflect Government priorities of reducing State sector fragmentation, improving the resilience of functions by having them carried out by larger agencies, and promoting efficiency by integrating similar functions and back-office services. The bill preserves the independence of the charities registration and deregistration functions by providing in law that Ministers may not give any direction to the board or to the Chief Executive of the Department of Internal Affairs in respect of these functions. The Department of Internal Affairs has extensive experience supporting independent boards and offices of this kind. In all other respects, the Chief Executive of the Department of Internal Affairs will be responsible for carrying out the functions set out in the Charities Act and will be responsible to Parliament for its performance in this regard. The Government has every confidence that the charities sector will continue to receive a high level of service and support under the bill’s new arrangements. [Emphasis added]

155. The intention of the Act is clear: an application for registration is entitled to have its application considered and determined by an independent Board, with each member exercising his or her independent professional judgment. Registration decisions are not to be made by DIA unless there has been a formal delegation of decision making to the chief executive.

156. In the absence of a formal delegation, the Department of Internal Affair’s role is to “receive and process” applications,140 to refer applications to the Board for decision,141 and to “supply secretarial and administrative support” to the Board.142 As part of its support role, the DIA is tasked with providing the initial consideration of applications (including providing opportunities for comment on matters that may lead to a decline) and making recommendations under section 19.

157. These “consequential” amendments143 to sections 18 and 19 are not intended to dilute the independent decision-making function of the Board. They are also not intended to remove charities’ rights of appeal.

158. The Board is clearly not obliged to follow any formal process. Section 19(3) provides that expressly where the Board decides to grant an application. Section 19(5), which applies when the Board decides to decline an application, is in different terms. It requires the Board to be satisfied that the chief executive has complied with section 18(3), which includes an obligation on the chief executive to observe the principles of natural justice, and to give an applicant a reasonable opportunity to make submissions to the chief executive on any matter that might result in its application being declined.

Is the Board required to follow natural justice

159. Sections 36 and 49 of the Charities Act require the Board to observe the principles of natural justice when considering whether a charity should be deregistered or removed from a group registration. However, whether the Board is under any obligation of natural justice when considering applications for registration is not

140 Section 10(c). 141 Section 10(d).142 Section 8(6).143 Crown Entities Reform Bill 2011 clause 54.


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clear. 160. Section 18(3) requires that, in considering applications for registration, the chief

executive is to observe the rules of natural justice, not the Board. The usual position for an application for registration is that the Board’s obligations of natural justice will be discharged by the Board being satisfied that the chief executive has met the process requirements under section 18.

161. However, even in the absence of specific provision, the usual position would be that the principles of natural justice would apply to the Board’s independent decision-making processes. The requirements of natural justice in any particular case depend on context,144 which includes the process requirements of the Act. The decision on whether an applicant qualifies for registration as a charity is highly fact-specific and affects the interests of the applicant. In the ordinary course of events an applicant should expect to have an opportunity to be heard on any matters that might lead the Board to decline its application.145

162. As the Law Commission noted in the context of disputes procedures for incorporated societies, the principles of natural justice can require an oral hearing:146

The two basic components of natural justice are: the person complaining or complained about has a fair opportunity to be heard on the matters in issue; and the decision-maker is free from bias (including apparent bias) or pre-determination. The standard and content of these two requirements will vary considerably depending on the circumstances, and may be varied or limited by a statute. Our recommended minimum requirements for societies to be specified in the statute are set out below.

The application of the statutory minima will still vary depending on the importance of the subject matter and the potential consequences. For example, societies should be prepared to hold an oral hearing if the outcome could include the member being excluded from the society, especially if that may then have significant negative consequences on the member, such as their ability to earn a living. For a more straightforward complaint with no prospect of the member having their membership terminated, the committee may choose to deal with the matter by asking for and considering a written statement or submissions from the member complained about.

163. This is problematic because neither the Board nor Charities Services has ever held an oral hearing.

164. In other words, the current framework has been cobbled together and rushed through under urgency, based on an original framework that was designed for a different structure. The current framework is replete with unintended consequences, including the denial of natural justice to New Zealand’s charities. If this review does not take the time needed to work out what would in fact be the best structure and framework, when will this occur?

Independence

165. Another issue is that the relationship between the Board and the Department of Internal Affairs is too close. Instead of the Board acting as an independent decision maker and reaching its own view on the recommendation of the chief executive, as required by the Act, the Board appears to treat the DIA analysts as its own

144 Furnell v Whangarei High School Board [1973] 2 NZLR 705 at 718.145 See for example the discussion in Taylor Judicial Review, a New Zealand Perspective, 3rd edition (2104) at 3.17 – 3.19.146 https://www.lawcom.govt.nz/sites/default/files/projectAvailableFormats/NZLC%20R129.pdf, paragraph 8.18.


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employees/advisers, and takes a “governance” role of merely approving the decision-making process undertaken by the Department’s staff. This results in an unfair process and a process that does not achieve the “two-tiered” consideration of the applications required by the Act.

166. Another issue that arises in this context is whether the Board is sufficiently resourced to provide the independent check on Charities Services’ decision-making that was originally intended.

Decisions not being referred to the Board

167. In practice, we understand that when the Board makes a decision on registration or deregistration, a written decision is published on Charities Services’ website.147 The media appear to monitor the “legal decisions” page of Charities Services’ website and the appearance of a Board decision will normally result in media comment.

168. However, a practice appears to have developed where by charities are being encouraged to withdraw their applications, or to voluntarily deregister, by Charities Services, thereby removing decision-making from the Board, and removing the opportunity for media comment.

169. Since the charities register commenced in February 2007, approximately 9,315 charities have been deregistered.148 This figure constitutes more than 1/3 of the 27,166 charities that are currently registered in New Zealand.

170. Of these, 4,774, or approximately half, were deregistered for failure to file annual returns. In the context of an information and disclosure regime, it is important that charities comply with this key requirement.

171. However, of the remaining 4,541 charities that have been deregistered, only 6, or 0.0006%, have been deregistered for “serious wrongdoing”, understood to be the original rationale for the regime.

172. Many of the remaining 4,535 charities have deregistered voluntarily: in other words, voluntary deregistrations currently account for almost half of all deregistrations. While some charities obviously voluntarily deregister because they have ceased operating, or merged with another charity, for most charities no reason whatsoever is given for their voluntary deregistration: it is not clear why so many charities are voluntarily seeking removal from the register.

173. In that context, there is a notable lack of transparency regarding the number of charities that have been deregistered on the basis of narrow jurisprudential interpretations of the definition of charitable purpose. Charities Services’ adopts a interpretation of the definition of charitable purpose is controversially narrow. Key areas of difficulty include charities engaging in advocacy work in furtherance of their charitable purposes, economic development, social housing, sport, charities running start-up businesses to raise funds for their charitable purposes, and charities that further their charitable purposes by helping individuals, to name a few.

174. As at 2014, Inland Revenue Department calculations indicated there were at least

147 https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/ 148 This figure has been calculated from an “open data” search of the charities register as at August 2018.


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35 deregistrations in this specific category.149 Charities Services’ website150 reveals there have been at least 20 more since then. In addition, the number of charities voluntarily deregistering for this reason is unknown.

175. A comparison with other jurisdictions reveals that the number of deregistrations on the basis of narrow jurisprudential interpretations of the definition of charitable purpose is unusually large, particularly given that all New Zealand charities had to proactively seek registration in the first place in the transition to the new regime (unlike, for example, Australia, where charities simply “rolled over”).

176. The impact on these charities is also of concern: deregistration will not only result in denial of all the privileges of registered charitable status, but may also result in historical tax consequences. These may be particularly unfair as the charity will not necessarily done anything “wrong”.

177. Controversy over Board decisions to decline registration or deregister charities appears to have resulted in a new approach: Charities Services now appears to be actively encouraging charities that do not fit within its narrow conception of the definition of charitable purpose to deregister voluntarily. This avoids Charities Services having to refer the matter to the Board for decision, thereby bypassing what was intended to be an independent check on Charities Services’ decisions. This approach also results in a consequential reduction in transparency, as there will be no written decision published on Charities Services’ website.

178. Importantly, this approach does not solve the problem of over-deregistration – it simply moves it.

179. In its December 2018 newsletter, Charities Services made the following comments:About 500 charities voluntarily deregistered in the last financial year, following a fairly consistent trend over the last five years. There are a number of reasons why this is the case: The charity is no longer operating (68%) The charity decides that it does not want to be a registered charity

but will still continue to operate (13%), The charity decides that it can do greater work collaboratively and

merges with another registered charity (8%) Other reasons include merging with a non-charity, consolidating, no

longer meets requirements, and 'other' (11%).The majority of these charities were very small organisations: 82% of these charities had $10,000 or less in assets or income, and 55% had no assets at all

180. From these figures, it appears that up to ¼ of voluntary deregistrations have potentially been caused by overly-narrow jurisprudential interpretations of the

149See IRD issues paper, Clarifying the tax consequences for deregistered charities, 2013, paragraphs 4.14 to 4.15: https://taxpolicy.ird . govt.nz/sites/default/files/2013-ip-clarifying-tax-consequences-deregistered- charities_0.pdf, last accessed 25 November 2018. “Non-charitable purposes”, “did not meet registration requirements”, and “did not produce evidence of charitable purposes” all appear to be different ways of saying the charity concerned did not meet Charities Services’ narrow paradigm. 150 https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/, last accessed 25 November 2018.


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https://taxpolicy.ird.govt.nz/sites/default/files/2013-ip-clarifying-tax-consequences-deregistered-charities_0.pdf


definition of charitable purpose: it can be assumed that this is the most common reason a charity would be found to “no longer meet requirements”; it also most likely explains why a charity would no longer “want to be a registered charity”, or would “merge with a non-charity”. It also most likely explains the “other” category.

181. Charities Services says that these statistics follow a “fairly consistent trend over the last 5 years”. It is not clear how this conclusion can be reached given the lack of information about the reasons for voluntary deregistrations in the past. However, assuming a similar percentage for previous years, this means that as many as 1,135 voluntary deregistrations are likely to have occurred because of jurisprudential interpretations of the definition of charitable purpose. Adding to this number the 55 that appear to have been deregistered by the Board for this reason, means there may have been 1,200 deregistrations for this reason. This figure represents approximately 5% of the total number of registered charities.

182. The impact of a narrow jurisprudential approach to the definition of charitable purpose is not limited to deregistered charities. A similar issue arises in the context of applications for registration. Charities Services’ website reveals a large number of charities that have been formally declined registration for jurisprudential reasons.151 Charities Services now appears to have adopted a new approach of actively encouraging charities that do not fit within its narrow conception of the definition of charitable purpose to withdraw their applications. The writer understands that approximately 1/3 of all applications for charitable registration are now being withdrawn. When one considers the effort a community group will have gone to in preparing their application, including appointing a minimum of 3 officers, drafting and agreeing their constituting document, providing information about their proposed activities, etc this figure seems astounding. It would be interesting to compare what percentage of applications in other comparable jurisdictions are similarly withdrawn.

183. Again, this approach avoids Charities Services having to refer the matter to the Board for decision, thereby bypassing what was intended to be an independent check on Charities Services’ decisions. This approach also results in a consequential reduction in transparency, as there will be no written decision published on Charities Services’ website.

184. These issues are important because the support available to charities is increasingly restricted to registered charities only. The support is not limited to tax privileges, which are actually of limited relevance for many charities – charities often seek registration primarily for non-tax reasons, such as the ability to access funding, government contracts, and to attract volunteers. Registration has increasingly become the gateway to survival. It is therefore critical that registration decisions are made correctly and according to law. There is concern that preventing good charities from accessing the regime is causing an erosion of New Zealand’s social capital, and is also discouraging innovation.

Fiscal costs

185. Original estimates prior to the passing of the Charities Act put the number of charities in New Zealand at 37,000.152 At 27,166, the current number of registered

151 https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/, last accessed 25 November 2018. 152 See for example Charities Bill 1R, NZPD Vol 616 30 March 2004 p12108, per Richard Worth (National); and Hon Richard Prebble (ACT).


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charities is approximately 10,000 lower. This number of 10,000 may in fact correlate to the number of worthy charities who are being unfairly denied access to the register.

186. As discussed above, the Courts have confirmed that the Charities Act was not intended to change the definition of charitable purpose.153 However, Charities Services’ interpretation of the definition is much narrower than was considered to be the case prior to the passing of the Charities Act. Of course, charities law must develop, but normally it develops by evolution, not by revolution. Somehow, charities appear to have become conceptualised as a “fiscal cost”: something to be reduced. Canadian commentator Adam Parachin articulates the difficulty in access to charitable registration being influenced by “fiscal consequences” in the following terms:154

A fiscal consequences test frames the potential for revenue loss as something inimical to the charitableness of a given purpose. Specifically, the prospect of tax revenue loss is treated under such a test as either conclusive, or at the very least highly persuasive, evidence that a given purpose departs from an idealised definition of charity. In answering the question “what is legal charity?”, a fiscal consequences test essentially says that charity is a cost to the public treasury that courts should minimise. But a projection of revenue losses will be speculative…and will, in any event, offer absolutely nothing probative of whether the purpose under review is a charitable purpose….Revenue loss is not an inadvertent consequence of income tax concessions for charities. The very purpose of these concessions is to provide charities with an indirect state subsidy. Since revenue loss is inherent in this state subsidy, it is not a reason to withhold charitable status so much as it is (ironically) the very reason to grant it….Legal charity under a fiscal consequences test has a great potential to be distorted into nothing more than a cost to the public treasury.

187. As noted by Mackenzie J in Re Queenstown Lakes Community Housing Trust [2011] 3 NLZR 502 (HC) at [78]:

…Parliament has, in s 5 of the Act, seen fit to adopt the common law definition of charitable purpose. To the extent that Parliament has elsewhere legislated so that taxation consequences are determined by reference to charitable status, those consequences must follow the application of the common law principles which govern charitable status. The taxation consequences should not play a part in the application of those common law principles. [Emphasis added]

188. More fundamentally, it is not clear that charities are a “fiscal cost” in any event. The benefits that charities provide to New Zealand society do not appear to have been taken into account, yet they are likely to exceed many times over any tax privileges gained.

189. Nevertheless, Charities Services genuinely appears to consider that New Zealand has “too many charities”,155 and that interpreting the definition of charitable purpose in accordance with the law as it existed prior to the Charities Act would “open the floodgates” and allow thousands of not-for-profit entities to gain access to the register.

190. With respect, such an argument is specious: no one argues that all not-for-profit 153 See Re Greenpeace of New Zealand Incorporated [2015] 1 NZLR 169 (SC) at [16]. 154 Adam Parachin, “Common Misconceptions of the Common Law of Charity”, prepared for the conference on Defining, Taxing and Regulating Not-for-Profits in the 21st Century, Melbourne Law School, July 2012 at 20-21.155 For a discussion on this topic at the April 2018 Charity Law Association conference, see: http://www.charitylawassociation.org.au/events-nzconf2018, session 2.


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entities should be able to register as charities. However, all charities that wish to should be able to access the regime, otherwise the purpose of the regime would be undermined: the Charities Act regime is an information and disclosure regime; conceptually, Charities Services should want charities to be on the register, so that they are subject to the transparency and accountability requirements of the Charities Act.

191. Of course, there are opportunities for collaboration and reduction of duplication within the charitable sector, and charities may well make such decisions in the best interests of their charitable purposes. However, there is concern about an approach that permits a government department to manipulate the definition of charitable purpose in order to “cull” New Zealand’s charities.

192. An exacerbating factor in this context is the question of whether charities have an effective means of appealing decisions of Charities Services and the Board, and therefore of holding them to account for their decisions. This point is discussed further below in the Appeals section.

An Advisory Board

193. The Australian charities law framework has an internal governance structure of a single Commissioner with 2 Assistant Commissioners. It also incorporates an Advisory Board.

194. The Advisory Board in Australia is established by section 135-5 of the ACNC Act. It is separate from both the Commissioner and the ACNC, and has the purpose of advising the Commissioner. Its function is to provide advice and make recommendations in relation to the Commissioner’s functions under the ACNC Act.

195. The Advisory Board in Australia is appointed by the Minister and consists of up to 8 “general members” with expertise in the sector, law, taxation or accounting. The Advisory Board also currently consists of 4 “ex-officio members” who are appointed to the Board because they are the holder of a specified office. General members are appointed for a term of up to 3 years and ex-officio members remain on the Board as long as they hold the specified office. The Advisory Board is not a governance board. The governance of the ACNC falls solely on the Commissioner who holds responsibility for the ACNC, as well as the functions and powers conferred or imposed by the ACNC Act

196. The recent review of the Australian charities legislation recommended that the role of the Advisory Board be extended to interface with both the Minister and the sector: this will enable the Advisory Board to engage directly with the sector and provide the Minister with an independent perspective on issues.

197. In addition, Canada has recently announced the appointment of a Permanent Advisory Committee on the Charitable Sector, which will provide advice to Government on an ongoing basis relating to important challenges and issues faced by the sector. The Advisory Committee is also intended to assist with improving communication and relations with the charitable sector. 156

198. New Zealand might usefully consider whether an Advisory Board structure should be included in its overall charities law framework, both to provide advice to the agency tasked with administering the Charities Act to encourage better decision-making, and also to provide an independent perspective on advice to the Minister.

156 https://www.fin.gc.ca/n18/18-107-eng.asp.


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https://www.fin.gc.ca/n18/18-107-eng.asp


Issues

199. Questions to consider include:(i) Has the disestablishment of the Charities Commission and the transfer of

functions to the Department of Internal Affairs resulted in effectiveness and improved services and information for the sector?

(ii) Does the current framework adequately recognise the importance and independence of the charitable sector?

(iii) Are the current arrangements contributing to an increase in the costs of monitoring and enforcement?

(iv) Are charities-related functions more or less accessible to the public now compared to when they were carried out by the Charities Commission?

(v) Is charities sector work carried out more or less transparently than was the case under the Charities Commission?

(vi) Would it be helpful for the Minister to receive advice on charitable sector issues from an independent perspective (such as by means of an Advisory Board) rather than just from the Department of Internal Affairs?

200. It does seem unfair for the Board to be tasked with decision-making under the current framework: the Board is held responsible for controversial decisions that are largely made by Charities Services; it is also not resourced to provide the independent check that was originally intended, especially against a government department that appears to have very entrenched views as to how the Act should be interpreted. In this context, there is concern that the issue of “structure” has been included within the terms of reference with a view to perhaps removing the Charities Registration Board altogether. Such a development would mean that, in the absence of the reestablishment of the Charities Commission, decisions would be made by a government department (Charities Services) with no independent check whatsoever. Such a structure was specifically rejected as inferior by the Working Party prior to the Charities Act, as discussed above.

201. The charitable sector was never consulted on, and strongly objected to, the proposal to disestablish the Charities Commission. The current bipartite framework of government department and Charities Registration Board is highly problematic for a number of reasons. However, there is a possibility that the review might make it even worse.

202. It is important that the charitable sector engages on structural issues.


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TERMS OF REFERENCE BULLET POINT 2 - MATTERS RELATING TO THE LEGAL FRAMEWORK (CONTINUED)APPEALS 203. The terms of reference for the review specifically include “mechanisms to challenge

or appeal” decisions made under the Charities Act, including decisions over the interpretation of “charitable purpose” and to support the development of case law.

204. Key issues that arise in this context include the following:(i) Charities’ ability to have an oral hearing of evidence must be reinstated; (ii) Charities should be able to appeal all decisions made under the Charities Act,

not just those relating to registration;(iii) The reference to “supporting the development of case law” appears to reflect

Charities Services’ desire that the Board be able to appear adversarially in support of its decisions, and be able to appeal decisions that it does not agree with. However, addressing these symptoms without addressing the underlying cause has the potential to make the currently very difficult situation even worse.

205. We discuss these points in more detail below. Clarifying the nature of the hearing to be conducted on appeal 206. Again, those who do not remember history are condemned to repeat it. 207. Prior to the introduction of the Charities Act, charities law cases generally arose in

the context of the income tax legislation, in particular whether an entity’s income was eligible for exemption under the charitable exemptions from income tax (currently sections CW 41 and CW 42 of the Income Tax Act).157 An example of this is the Latimer litigation, in which the Privy Council ultimately found the income of the Crown Forestry Rental Trust to be exempt from income tax, on the basis that it was derived in trust for exclusively charitable purposes.158

208. As was the case in Latimer, disputes arising under the income tax legislation fall to be determined under the statutory tax disputes process:159 part 4A of the Tax Administration Act 1994 provides an elaborate process for determination of such disputes. For example, Part 4A requires issues, facts, evidence and propositions of law to be thoroughly canvassed, through notices of proposed adjustment, notices of response and statements of position, before a matter even proceeds to litigation.160 Even then, only an outline of the facts and evidence are required,161 and if the matter does proceed to Court, evidence is not prevented from being adduced simply because it was not provided earlier:162 even after a full disputes process, taxpayers are not restricted in the evidence they can produce in challenge

157 Foundation for Anti-Aging Research v Charities Registration Board [2015] NZCA 449 (21 September 2015) at [8].158Latimer v Commissioner of Inland Revenue [2002] 1 NZLR 535 (HC), Latimer v Commissioner of Inland Revenue [2002] 3 NZLR 195 (CA) and Latimer v Commissioner of Inland Revenue [2004] 3 NZLR 157 (PC). 159 Foundation for Anti-Aging Research v Charities Registration Board [2015] NZCA 449 (21 September 2015) at [44]. See also Latimer HC at [29]-[30]. 160 See the Tax Administration Act, sections 89A(1)(a), (b) and (d), 89F(2), 89G, 89M(4) and (6B), and 138G. See also Standard Practice Statement SPS11/05: Disputes resolution process commenced by the Commissioner of Inland Revenue, Tax Information Bulletin Vol 23 No 9 November 2011 pages 16-19, paras 5-7, 14-18, 237, 241, 262, and 269-281.161 Refer section 89M(4) and (6) of the Tax Administration Act.


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proceedings to evidence that had been previously provided.163 Taxpayers are also able to avail themselves of the processes of discovery and inspection in any such challenge. They are also able to cross-examine the decision-maker.

209. Accordingly, in the pre-Charities Act regime, charities were entitled to a full oral hearing of evidence, before either the Taxation Review Authority or the High Court, as part of the process of establishing that their purposes are charitable.164

210. The Charities bill as originally introduced provided for charities’ right of appeal to be to the District Court, whose decision was to be final.165

211. This formulation was changed at Select Committee stage in response to submissions. The majority considered that, given the experience of the High Court in considering matters relating to charitable entities, it would be the most appropriate forum for hearing appeals. The majority also considered it was not appropriate to make the decision of the Court final, as the initial appeal to the High Court should not be the final resort for charities.166

212. However, in making this change, the Select Committee did not clarify the nature of the hearing to be conducted on appeal.167 This point is significant because appeals to the District Court are normally conducted as a first instance de novo trial, which would include a full hearing of oral evidence if any party so insisted.168 The Court of Appeal has confirmed that, if the original Charities Bill had proceeded in the form in which it was introduced, the District Court Rules at the time would have permitted the District Court to rehear the whole or any part of the evidence, and the Court would have had “full discretionary power to hear and receive further evidence on questions of fact, either by oral evidence or by affidavit”.169

213. By contrast, appeals to the High Court are usually conducted as a rehearing.214. The absence of any wording in section 59 regarding the nature of the appeal means

that appeals under the Charities Act are interpreted as general appeals subject to Part 20 of the High Court Rules. Part 20 of the High Court Rules precludes appellants from having any automatic right to present any evidence to the Court that was not before the decision-maker (in this case, Charities Services and the

162 The “evidence exclusion rule” in section 138G of the Tax Administration Act has since been renamed the “issues and propositions of law” exclusion rule. 163 See also Latimer HC in particular paras [16], [24], [28]-[30], [52], [89], [97], and [132] for an example of this.164 Foundation for Anti-Aging Research v Charities Registration Board [2015] NZCA 449 (21 September 2015) at [44]-[45]. It should be noted that IRD’s administration of the charitable income tax exemptions is not displaced: as a general rule, Charities Act registration is a necessary but not sufficient condition for eligibility for the income tax exemptions in sections CW 41 and CW 42 of the Income Tax Act.165 Foundation for Anti-Aging Research v Charities Registration Board [2015] NZCA 449 (21 September 2015) at [45] referring to Charities Bill 2004 (108-1), clauses 67 and 69(6) (pp38-41).166 Charities Bill 108-2, pages 13-14. See also Foundation for Anti-Aging Research v Charities Registration Board [2015] NZCA 449 (21 September 2015) at [46].167 Foundation for Anti-Aging Research v Charities Registration Board [2015] NZCA 449 (21 September 2015) at [38]-[43].168 See Foundation for Anti-Aging Research v Charities Registration Board [2015] NZCA 449 (21 September 2015) at [45]. See also Shotover Gorge Jet Boats Ltd v Jamieson [1987] 1 NZLR 437 (CA), considering section 5 of the Lakes District Waterways Authority (Shotover River) Empowering Act 1985, at 440, line 15: “There can be no doubt that the District Court was intended to hear the case de novo, which would include a full hearing of oral evidence if any party so insisted. That is the normal way in which the District Court exercises its civil jurisdiction”. [Emphasis added] 169 Foundation for Anti-Aging Research v Charities Registration Board [2015] NZCA 449 (21 September 2015) at [45], footnotes omitted.


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Charities Registration Board) when it made its decision. Part 20 also requires evidence to be presented by affidavit, rather than by witnesses giving oral evidence and being available for cross-examination. These requirements are strict, but they are based on an assumption that a full oral hearing of evidence has already been undertaken at first instance in the Court or Tribunal appealed from. These requirements are also based on an assumption that the Court or Tribunal appealed from was adjudicating a dispute between two parties. However, neither is the case under the Charities Act: the Charities Registration Board does not adjudicate a dispute between two parties, and neither the Department of Internal Affairs nor the Charities Registration Board conducts an oral hearing.170

215. The nature of the hearing to be conducted on an appeal under the Charities Act is of particular significance because the question of whether an entity qualifies for registration often turns on questions of fact. For example, in order to determine whether an organisation’s purposes are charitable, it is first necessary to determine what those purposes are. This is a question of fact.171 Whether any particular purpose operates for the public benefit (a key factor in determining whether that purpose is charitable) is also a question of fact, to be determined, on a case by case basis, by forming an opinion on the evidence.172 Facts are established by evidence, including by calling witnesses, including expert witnesses, and making them available for cross-examination where appropriate. The process of testing evidence and establishing facts materially assists the Court in its decision-making by providing a sound evidential platform from which to make decisions.

216. Applying the High Court rules to appeals under the Charities Act effectively means that charities’ ability to access a trier of fact, in undertaking the often difficult task of proving that their purposes are charitable, appears to have been inadvertently removed altogether.

217. There is no indication in any of the material surrounding the Charities Bill (2004) that, in changing the words “District Court” to “High Court”, Parliament intended to remove charities’ right to access an oral hearing of evidence. The removal appears instead to have been an unintended consequence of the Select Committee’s attempt to strengthen charities’ rights of appeal by providing a right of appeal to the High Court rather than the District Court. As discussed above, the Charities Bill was almost completely rewritten at Select Committee stage, and then rushed through under urgency without proper consultation.

218. The current position also has other downstream consequences. The High Court only considers the evidence that was submitted as part of the original application to the Board. Special reasons are required before new evidence may be brought before the Court. This means that charities need to present material before Charities Services and/or the Board as if they are preparing for a High Court trial.173

219. It also means that charities have no means of adequately testing the material Charities Services finds from internet searches, whether that material, and the

170 See Foundation for Anti-Aging Research v Charities Registration Board [2015] NZCA 449 (21 September 2015) at [38]-[43], [13] and [20].171 Molloy v Commissioner of Inland Revenue [1981] 1 NZLR 688 (CA) at 693, referred to with approval in Re Greenpeace of New Zealand Inc [2015] 1 NZLR 169 (SC) at [43].172 Re Greenpeace of New Zealand Incorporated [2015] 3 NZLR 72 (SC) at [43], [73], [74] and [116]; Molloy v Commissioner of Inland Revenue [1981] 1 NZLR 688 (CA) at 695.173 Foundation for Anti-Aging Research v Charities Registration Board [2015] NZCA 449 (21 September 2015) at [48]-[53].


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conclusions drawn from it, are correct, and what weight should be placed on it. This places charities at a significant disadvantage that is arguably causing New Zealand charities law to become distorted.

220. It also means that the Board is not supposed to appear adversarially in support of its decision,174 and may not appeal a decision of the High Court. These issues are potentially problematic: as noted by the High Court, the absence of the usual tension between appellant and respondent “can sometimes lead to poor decision-making and that should be avoided”. 175 However, these are symptoms of the current framework. To address these symptoms without addressing the underlying cause (the current absence of a trier of fact) has the potential to make a fundamentally flawed framework even worse.

221. The absence of access to a trier of fact is particularly problematic because the question of whether a purpose is charitable often turns on questions of fact, as discussed above. The inability to call and test evidence at the hearing of the appeal in Charities Act cases means that Courts often simply do not have the evidence they need to make a decision as to whether a charity is eligible for registration. This has led to an unhelpful development whereby Courts are referring cases back to the Charities Registration Board for reconsideration in light of their judgment. This causes further cost, uncertainty and delay for the affected charities (see for example Re Greenpeace of New Zealand Inc [2013] 1 NZLR 339 (CA), Re Greenpeace of New Zealand Inc [2015] 1 NZLR 169 (SC) and Re Family First New Zealand [2015] NZHC 1493 (30 June 2015)). In both the Greenpeace and Family First cases, the result of the Board’s reconsideration was to reach the same conclusion. Family First appealed its second deregistration decision, but was unsuccessful in the High Court (Re Family First New Zealand [2018] NZHC 2273 (31 August 2018)). However, that decision is now under appeal to the Court of Appeal. The net result is that 6 years and 2 Court cases after originally receiving a notice of intention to deregister, Family First still does not have a final decision as to whether it is entitled to remain on the charities register. Concern about the Family First decision has also reached Australia, and has led the Australian government to announce in December 2018 that it would amend section 11 of the Charities Act 2013 (Cth) to clarity that advocacy of a “traditional” view of marriage would not, of itself, amount to a “disqualifying purpose”. The intention is to remove uncertainty in Australia following the New Zealand High Court decision.176

222. It would encourage the effective use of charitable resources (section 3(b)) of the Charities Act), and the development of the common law on the definition of charitable purpose, for charities to be able to have a full oral hearing of evidence in appeals before the High Court. This would also bring the legislation in line with Parliament’s original intent.

Issue

223. The legislation should address key structural issues by clarifying the nature of the hearing on appeal, for example by amending section 59 as follows:

Section 59 amended (Right of appeal)

174 Re The Foundation for Anti-Aging Research and The Foundation for Reversal of Solid State Hypothermia [2016] NZHC 2328 (30 September 2016) at [38]-[48].175 Travis Trust v Charities Commission (2009) 24 NZTC 23,273 (HC) at [27]. 176 See recommendation 4 on pages 9-10 of the Australian Government Response to the Religious Freedom Review: https://www.ag.gov.au/RightsAndProtections/HumanRights/Documents/Response-religious-freedom-2018.pdf).


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https://www.ag.gov.au/RightsAndProtections/HumanRights/Documents/Response-religious-freedom-2018.pdf

https://www.ag.gov.au/RightsAndProtections/HumanRights/Documents/Response-religious-freedom-2018.pdf


(3) After section 59(3), insert:“(4) For the purposes of hearing the appeal, the High Court shall have all the powers vested in its civil jurisdiction, including full discretionary power to hear and receive further evidence on questions of fact, either by oral evidence or by affidavit.(5) The parties may agree that all or part of the evidence before the Board or the chief executive be treated as evidence for the purposes of the hearing.(6) The notice of appeal shall name the Board, or the chief executive, or both, as a respondent.”

224. Such an amendment would not require an oral hearing in all cases. But it would permit an oral hearing when that was appropriate. Such an amendment would materially assist charities’ ability to access justice.

225. Other comparable jurisdictions determine the issue of whether purposes are charitable on the basis of an oral hearing of evidence.177 It is unfair to expect charities to prove important issues of fact without access to a trier of fact.

Charities should be able to appeal all decisions, not just those relating to registration 226. The difficulties surrounding the appeal right, as originally enacted, have been

exacerbated by subsequent amendments to the legislation. 227. Under section 59 of the Act, as it is currently worded, a person can appeal a

decision of the Charities Registration Board to the High Court, within 20 working days of the Board’s decision. The High Court may confirm, modify, or reverse the decision being appealed (section 61).

228. Again, those who do not remember history are condemned to repeat it.The original intention of the legislation

229. The original Charities Bill provided for a right to appeal to the District Court against decisions of the Charities Commission to deregister or decline registration to a charity.

230. This formulation was changed in response to submissions. The Select Committee considering the original bill made the following comments at pages 13-14 of its report:

The majority considers that charities should not be limited to appealing decisions relating to registration, and that it should be possible to appeal from all decisions of the Commission that adversely impact on a particular entity. [Emphasis added]

231. Accordingly, section 59 of the Charities Act 2005 as originally passed provided that “A person who is aggrieved by a decision of the Commission under this Act may appeal to the High Court.”

232. The Charities Commission made all decisions under the original Charities Act. Allowing a right of appeal against all decisions is consistent with other registration regimes, such as: (i) section 34B of the Incorporated Societies Act 1908;

(ii) clause 187 of the Exposure Draft Incorporated Societies Bill;

177 See for example Appealing the Regulator: Experience from the Charity Tribunal for England and Wales, Judge Alison McKenna, pp 1, 2, 4-11, and 14 for an example of a very facilitative approach for charities, with a specific Charity Tribunal.


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(iii) section 151 of the Friendly Societies and Credit Unions Act 1982;

(iv) section 13B of the Industrial and Provident Societies Act 1908; and

(v) section 370 of the Companies Act 1993.

The Crown Entities Reform Bill

233. However, as discussed above, in 2012, the Charities Act was controversially amended by the Charities Amendment Act (No 2) 2012 (which had formerly been Part 3 of the Crown Entities Reform Bill) (“the 2012 reforms”). The 2012 reforms disestablished the Charities Commission, and transferred its functions to the Department of Internal Affairs and the Charities Registration Board.

234. Section 8 of the Crown Entities Reform Bill provided for the statutory Charities Registration Board, responsible for decisions relating to the registration and deregistration of charitable entities.178

235. The Bill then worked its way through each reference to the “Charities Commission” in the Charities Act, and proposed to replace it with a reference to either the Board, the Department of Internal Affairs – Charities Services (referred to as the “chief executive”), or both. These amendments were described as “consequential” and were listed in schedule 8 of the Bill (which became schedule 2 of the Charities Amendment Act (No 2) 2012).

236. However, fast law does not make good law: the schedule contained a number of errors.179

237. One of these errors was in section 59(1). 238. The word “Commission” in section 59 was proposed to be replaced with the word

“Board”. Such a change would be significant because, under section 8(3) of the Charities Act, the Charities Registration Board has sole statutory responsibility for decisions relating to the registration and deregistration of charities (and publication of notices of serious wrongdoing under section 55). All other decisions under the Charities Act are made by the Department of Internal Affairs - Charities Services (referred to in the legislation as the “chief executive”).

239. On its face, such an amendment would therefore mean that only decisions of the Charities Registration Board would be able to be appealed, not Charities Services. This would effectively limit charities’ rights of appeal to decisions relating to registration and deregistration (and publication) only. To limit charities’ rights of appeal in this way would be a significant change from the original intention, as discussed above.

240. However, it was not clear that such a significant change was intended. In section 61, the word “Commission” was proposed to be replaced with the words “Board or the chief executive”. This means that, that in determining an appeal, the High Court may confirm, modify, or reverse the decision of the Board or the chief executive.

241. In other words, section 59 would provide that only decisions of the Board could be appealed, but the remedy under section 61 would be a modification of the decision

178 Charities Act 2005, section 8(3). 179 For example, the reference in section 60(3) of the Charities Act, as amended, to the exercise of a power by the chief executive under section 55, is clearly an error, as the chief executive does not exercise powers under section 55.


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of the Board or the chief executive.

242. Clearly, the 2 provisions are inconsistent. 243. However, it seemed reasonably clear that the mistake was contained in section 59,

rather than section 61: to limit charities’ rights of appeal to registration decisions only would be a significant derogation of charities’ rights of appeal that would be inconsistent with the original intention of the Charities legislation, as discussed above. There was no public indication whatsoever that charities’ substantive rights of appeal were proposed to be so dramatically reduced when the Charities Commission was disestablished in 2012.

244. Submissions on the Crown Entities Reform Bill focused on the disestablishment of the Charities Commission generally, and removing Part 3 from the Bill in total, rather than the detail of the Bill. As discussed above, the Select Committee acknowledged the strong concern expressed by submitters in relation to the disestablishment of the Charities Commission, an autonomous Crown entity, and the transfer of its functions to a board within the Department of Internal Affairs, which would compromise the Commission’s independence and autonomy.180 Part 3 of the Bill was very controversial and ultimately passed into law by only 1 vote.

245. There do not appear to have been any appeals against non-registration decisions in the intervening period, meaning that the question of whether the error was contained in section 59 or section 61 was not tested.

246. However, Charities Services sought to put the matter beyond doubt in 2015.The Statutes Amendment Bill 71-1

247. In October 2015, a Statutes Amendment Bill was introduced into Parliament, containing proposals to amend 28 Acts, including the Charities Act.

248. Items included in a statutes amendment bills are supposed to be minor, non-controversial and technical that do not affect the substance of the law or people’s rights and obligations.

249. With respect to the Charities Act, the Statutes Amendment Bill proposed 3 amendments, one of which would have resolved the inconsistency between sections 59 and 61 by deleting the words “or the chief executive” from section 61.

250. Such an amendment would put it beyond doubt that charities’ rights of appeal were indeed removed when the Charities Commission was disestablished in 2012. There was no notification to the charitable sector that such an amendment was proposed.

251. The Statutes Amendment Bill received its first reading on 9 December 2015 and was referred to the Government Administration Select Committee, with submissions due by 29 January 2016. The proposed amendment was not noticed by the charitable sector until after this period. However, the Select Committee agreed to accept a late submission, in response to which, the Select Committee resolved to move the proposed Charities Act amendments to a separate Charities Amendment Bill, to give the public a further opportunity to make submissions.

252. The proposed amendment to section 61 did not get the unanimous support of the committee, which is required for legislation under statutes amendment bills. As a result, the select committee removed the proposed amendment to section 61 from

180 See page 4 of the Committee’s report, which can be found here: https://www.parliament.nz/resource/en-NZ/50DBSCH_SCR5427_1/ac2bf65b5a5914a769fdd6bba2b367641062a50a.


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https://www.parliament.nz/resource/en-NZ/50DBSCH_SCR5427_1/ac2bf65b5a5914a769fdd6bba2b367641062a50a

https://www.parliament.nz/resource/en-NZ/50DBSCH_SCR5427_1/ac2bf65b5a5914a769fdd6bba2b367641062a50a


the Charities Amendment Bill. 253. This removal prevented the legislation putting it beyond doubt that charities’ rights

of appeal were removed when the Charities Commission was disestablished in 2012.

254. However, the removal did not resolve the inconsistency between sections 59 and 61: the uncertainty as to whether charities’ rights of appeal were indeed removed when the Charities Commission was disestablished therefore remains.

Have charities’ appeal rights been removed?

255. Despite this, Charities Services considers that section 59 only refers to appeals from decisions of the Board, and therefore only registration and deregistration decisions can be appealed. This includes registration and deregistration decisions made by Charities Services under delegation. Charities Services considers the reference in section 61 to “the Board or the chief executive” is a mistake.

256. Charities Services considers that its decisions can only be challenged by judicial review, or by a complaint to the Ombudsmen. The Ombudsmen can investigate complaints about the administrative acts and decisions of government agencies.181

257. With respect, while an appeal to the Ombudsmen is valued, it is no substitute for a statutory right of appeal.

258. Under Charities Services’ interpretation, none of the following types of decision would be able to be substantively appealed:(a) A decision to refuse access to the charities register under section 21(4) of the

Charities Act;(b) A decision to prevent or restrict public access to information under section 25;(c) A decision to amend the register under section 26 (for example, many

charities that are deregistered reapply for registration, and are given a new charities registration number as a result. This can cause confusion as members of the public searching on their old charities registration number come up with an entry recording them as deregistered. Charities Services has refused requests to amend deregistered entries to link them to the registered entry to reduce confusion about whether the charity was registered or not!); 182

(d) A decision to approve a change of balance date (with or without conditions) under section 41(6);

(e) A decision that the financial statements of a charity fail to comply with a financial reporting standard under section 42B;

(f) A decision as to whether financial statements should have been audited or reviewed under section 42E;

(g) A decision to grant an exemption under section 43;(h) A decision to treat one or more entities as a single entity under section 44;(i) Terms and conditions of single entity status under section 46;

181 Schedule 1, Ombudsmen Act 1975.182 See for example National Council of Women of New Zealand Inc v Charities Registration Board (2014) 26 NZTC 21075 (HC) and National Council of Women of New Zealand Inc v Charities Registration Board [2015] 3 NZLR 72 (HC).


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(j) A decision to open an inquiry under section 50;(k) A decision to require information under section 51;(l) A decision to issue a warning notice under section 54;(m) A decision to require payment of an administrative penalty under section 58;

and(n) A decision to treat an application as withdrawn under proposed new section

18(3A).259. In addition, there are many other decisions that would not be able to be appealed,

as illustrated by the two case studies below. 260. Case study: a registered charity that has been in existence for many decades is

deregistered by Charities Services because it made submissions on Parliamentary Bills in furtherance of its charitable purposes (work that it was contracted by government to do). The charity does not manage to challenge the decision within the 20 working days set out in section 59, but it does ultimately reapply for registration and is successfully reregistered. The process of reapplying for registration, rather than appealing the decision, means that the charity has a new registration number. The charity asks Charities Services to link its old registration number to its new registration number because members of the public searching for the charity under its old number are finding an entry stating that the charity is deregistered. A link would enable members of the public to instead be directed to its new registration. However, Charities Services refuses. It is not until the charity seeks to amend its pleadings that Charities Services finally agrees to make the change. In the absence of a right of appeal, how could the charity effectively challenge this decision?

261. Charities Services make a myriad of decisions such as these every day in administering the charities register. While such decisions may appear minor, they can have a significant impact, and impose significant costs, on charities, often for no particular gain in terms of the purposes of the Charities Act. In a modern legal framework, it is important that effective checks and balances on decisions do exist. Otherwise Charities Services may feel that it is not truly accountable for its decisions. There is a saying about absolute power.

262. Charities Services argues that allowing appeals of its decisions would increase its costs and cause delay. It argues that allowing appeals from decisions other than simply registration and deregistration decisions goes against the finality and certainty that decision-making brings.

263. However, providing for better structural accountability would most likely reduce costs, for both charities and Charities Services, as it would encourage better decision-making. Allowing appeals against all decisions under the Charities Act would also be consistent with the original intention of the Charities Act, and with other comparable regimes, as discussed above.

Issue

264. It is important that the legislation make it clear that charities are able to appeal all decisions made under the Charities Act, not just those relating to registration and deregistration.


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Other issues 265. Other issues include:

(i) Section 59(2) provides that a charity must lodge an appeal within 20 working days after the date of the decision. This timeframe is unreasonably short in most cases, particularly if the charity is required to provide information (including expert affidavit evidence, if required) to Charities Services and the Board as if it is preparing for a High Court trial, as discussed above. It is also an unreasonably short timeframe for a charity that needs to seek a mandate from its membership to find, instruct, and fund a lawyer to file High Court proceedings. Charities unable to meet the 20-working day deadline for filing High Court proceedings have the option of applying for an extension of time to do so under section 59(2)(b) of the Charities Act. However, this option is also problematic as it requires an additional application to the High Court. A charity must necessarily instruct a lawyer to make an application to the High Court The costs and time involved are a barrier to charities’ ability to access justice, which can be further exacerbated if the Charities Registration Board opposes the application, as has been its practice. Australia has a timeframe of 60 days, which is much more reasonable.

(ii) Consideration should be given to instituting a specialist Charity Tribunal, as is the case in England and Wales.

(iv) Provision should also be made for the Attorney-General to be named as a respondent in cases under the Charities Act. Cases decided under the Charities Act affect all charities, yet the burden of prosecuting them falls on individual charities, and the Charities Registration Board, both of whom in practice appear adversarially, advocating for a particular result. It is important that provision be made for the Attorney-General to be involved to ensure that case law develops correctly.183

183 Re The Foundation for Anti-Aging Research and The Foundation for Reversal of Solid State Hypothermia [2016] NZHC 2328 (30 September 2016) at [46].


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TERMS OF REFERENCE BULLET POINT 3 - MATTERS RELATING TO REGISTRATION AND DEREGISTRATION ADVOCACY 266. The terms of reference for the review specifically include “the extent to which

registered charities can advocate for their causes or points of view”. 267. Key issues arise in this context include:

(i) the terms of reference are asking the wrong question: the question should be, “how can the legal framework best support charities to advocate in furtherance of their charitable purposes”;

(ii) it is not clear that Charities Services’ current interpretation of the case law regarding advocacy by charities is legally correct: Charities Services’ interpretation appears to confuse the distinction between purposes and activities, and seeks to conflate the 2 limbs of the common law test into one;

(iii) it is also not clear that Charities Services’ current interpretation of the case law is consistent with charities’ rights to freedom of expression enshrined in section 14 of the New Zealand Bill of Rights Act 1990; and

(iv) Charities Services’ approach to the topic of advocacy by charities is complex, highly subjective, and unworkable in practice. It is having an unhelpful “chilling effect” which is destructive of New Zealand’s democracy.

268. As discussed above, it is Labour Party policy to:184 Ensure that community and voluntary organisations can engage in advocacy

without fear of losing their charitable status; Continue to support the independence of community sector advocacy; Reinstitute the four well-beings in the Local Government Act and

investigate how they can become a greater focus in the work of the sector at central government level.

269. It is Green Party policy to: Recognise the independence of the groups which make up the Tangata

Whenua, Community and Voluntary sector, and their right to play an advocacy role for those individuals, communities and issues in whose interests they work;

Require all Government departments and agencies to accept the right of NGOs to advocate for those individuals, communities and issues in whose interests they work, without prejudice in regards to funding, contracting or tax status.

270. We discuss these issues in more detail below. The importance of advocacy by charities 271. Advocacy is a key aspect of a vibrant civil society and plays an important role in the

development of social policy. It allows New Zealanders to voice their concerns and influence public policy and legislative development. The role of advocacy by charities is acknowledged as integral to community wellbeing.185

184 https://d3n8a8pro7vhmx.cloudfront.net/nzlabour/pages/8546/attachments/original/1504489890/Community___Voluntary_Sector_Manifesto.pdf?1504489890, page 5. 185 This wording is taken from page 78 of the Australian Charities review report: https://static.treasury.gov.au/uploads/sites/1/2018/08/p2018-t318031.pdf .


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272. As noted in the House of Lords Select Committee on Charities:186 “Charities are the eyes, ears and conscience of any society; advocacy is a central part of their work and a sign of a healthy democracy… advocacy is an important and legitimate part of their role”.

273. As noted recently by the National Council of Voluntary Organisations, a leading umbrella organisation in the UK:187

“any policy which mutes what the government might hear will create problems in the long term. If we want a healthy democracy and a healthy nation, we should encourage transparency and openness, along with reasoned discussion and debate informed by those at the front line of policy implementation and service delivery.”

Charities Services’ approach 274. Charities Services and the Charities Registration Board have declined registration

to or deregistered a number of charities on the basis of their advocacy work. Examples include: Kiwis Against Seabed Mining,188 Greenpeace,189 Society for the Protection of Auckland Harbours,190 and Family First.191 The key distinguishing feature amongst these charities appears to be that they were advocating against government policy. Others (in contrast to others such as Restore Christchurch Cathedral,192 and Clevedon Village Trust193 which have been permitted to access the register).

275. Charities Services argues that its approach to the issue of advocacy by charities is based on case law, including the Supreme Court decision in Greenpeace.194

276. However, the Supreme Court decision admits of more than one interpretation and Charities Services’ approach is not universally accepted (see for example the decision of the High Court in Foundation for Anti-Aging Research). Charities Services’ approach is also complex, highly subjective, controversial and, with respect, unworkable in practice.195 The current situation is causing uncertainty for charities as to what advocacy they can undertake in furtherance of their charitable purposes without putting their charitable registration at risk. This in turn has an

186 Report of Sessions 2016-17 Stronger charities for a stronger society, HL Paper 133, 26 March 2017, at paragraph 495.187 https://blogs.ncvo.org.uk/2018/12/05/a-clear-message-on-campaigning/?_cldee=c3VzYW4uYmFya2VyQGNoYXJpdGllc2xhdy5jbw%3d%3d&recipientid=contact-9e6c50eb01dfe7118116e0071b66c011-9ff93caa29ef4a439bb13506697df9e1&utm_source=ClickDimensions&utm_medium=email&utm_campaign=Adverse%20publicity%20clauses&esid=dfe5717e-2af9-e811-a95c-000d3ab6dc82 188 https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/kiwis-against-seabed-mining-incorporated 189 https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/greenpeace-of-new-zealand-incorporated-2 190 https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/society-for-the-protection-of-auckland-harbours 191 https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/family-first-new-zealand-v-charities-registration-board 192 https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/restore-christchurch-cathedral-group-incorporated 193 https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/clevedon-village-trust 194 Re Greenpeace of New Zealand Inc [2015] 1 NZLR 169 (SC).195 For an Australian perspective on this see: https://probonoaustralia.com.au/news/2018/12/charities-act-2013-pose-problem-advocacy-charities/, last accessed 19 December 2018.


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https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/clevedon-village-trust

https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/clevedon-village-trust

https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/restore-christchurch-cathedral-group-incorporated

https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/restore-christchurch-cathedral-group-incorporated

https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/family-first-new-zealand-v-charities-registration-board

https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/family-first-new-zealand-v-charities-registration-board

https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/society-for-the-protection-of-auckland-harbours

https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/society-for-the-protection-of-auckland-harbours

https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/greenpeace-of-new-zealand-incorporated-2

https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/greenpeace-of-new-zealand-incorporated-2

https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/kiwis-against-seabed-mining-incorporated

https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/kiwis-against-seabed-mining-incorporated

https://blogs.ncvo.org.uk/2018/12/05/a-clear-message-on-campaigning/?_cldee=c3VzYW4uYmFya2VyQGNoYXJpdGllc2xhdy5jbw%3D%3D&recipientid=contact-9e6c50eb01dfe7118116e0071b66c011-9ff93caa29ef4a439bb13506697df9e1&utm_source=ClickDimensions&utm_medium=email&utm_campaign=Adverse%20publicity%20clauses&esid=dfe5717e-2af9-e811-a95c-000d3ab6dc82




unhelpful chilling effect that strikes at the heart of New Zealand’s democracy. 277. The review of the Charities Act gives us an opportunity to look at what the law

should be in this area. 278. There seems to be broad consensus around that world that charities may not

engage in partisan political activity, such as promoting or opposing a political party or a candidate for political office.

279. Beyond that, the issue turns on two questions:(a) how do we determine what are the charity’s purposes; and(b) what is the test for determining whether a particular purpose is charitable.

280. We consider these issues in more detail below. Identifying the “true purpose”

281. It is well-recognised that in determining charitable status, it is necessary to identify the “true purpose” of an organisation. The High Court noted this in Re Family First New Zealand [2018] NZHC 2273 (31 August 2018) (“Family First 2”) at [45], citing Commissioner of Inland Revenue v Medical Council of New Zealand [1997] 2 NZLR 297 (CA) (“Medical Council”) at 318 and 319 and Molloy v Commissioner of Inland Revenue [1981] 1 NZLR 688 (CA) (“Molloy”) at 693.

282. The Court of Appeal stated in Molloy at 693 that where a constituting document does not indicate with clarity which, if any, are the main or dominant objects, reference may be made not only to the expressed objects but as well to the activities of the entity. Ascertaining what is the main purpose is a question of fact, again underscoring the importance of charities having access to a trier of fact. Whether that purpose is charitable is a question of law.

283. The High Court in Family First 2 acknowledges that identifying the true purpose is a question of fact, and goes on to state that this may involve going beyond the objects stated in a trust deed. With respect, while this statement is correct as far as it goes, it must be noted that going beyond the objects stated in a trust deed is an exception rather than the rule: it would only occur in exceptional circumstances such as when a trust deed is unclear as to the entity’s purpose, or when there is evidence that an entity’s activities displace or belie its stated charitable purpose (see Re The Foundation for Anti-Aging Research and The Foundation for Reversal of Solid State Hypothermia [2016] NZHC 2328 (30 September 2016) at [82]-[89], and Family First 2 at [59]).

284. The factual exercise of identifying the true purpose of an organisation requires interpreting its constituting document (Medical Council at 318-319, Foundation for Anti-Aging Research at [84]-[86]).

285. Interpretation of charities’ constituting documents is analogous to interpretation of contracts and statutes: the ultimate objective is to establish the meaning the founder(s) of the charity intended their words to bear. If the intention of the founder cannot be inferred from what the author has said, it would be imputed by a Court, applying settled principles of construction.196 Ultimately, the necessary inquiry concerns what a reasonable and properly informed third party would

196 See section 5 of the Interpretation Act 1999, and Commerce Commission v Fonterra Co-operative Group Ltd [2007] NZSC 36, [2007] 3 NZLR 767 at [22], Stiasny v Commissioner of Inland Revenue [2012] NZSC 106, [2013] 1 NZLR 453, and Terminals (NZ) Ltd v Comptroller of Customs [2013] NZSC 139, [2014] 1 NZLR 121 at [32] and [47]).


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consider the founder intended the words of the constituting document to mean.197

286. Following the Re Greenpeace decision, Charities Services will generally “infer” a purpose from a charity’s activities. This is particularly problematic in the area of advocacy because advocacy is an activity, not a purpose.

287. Charities Services will generally consider a charity’s advocacy to be a “purpose”, despite the wording in its constituting document, and will deny registration on that basis.

288. This approach appears to have arisen as an unintended consequence of section 18(3) of the Charities Act, which requires Charities Services to “have regard” to activities in considering an application for registration. Unfortunately, section 18(3) does not clarify what Charities Services is to “have regard” to activities for. When the history of the Charities Act regime is examined, it becomes clear that the reason for considering activities is to ensure that charities are continuing to act in furtherance of their stated charitable purposes over time. It is not to ascertain whether those activities are charitable.

289. Activities only make sense in the context of the purpose in furtherance of which they are carried out; there is in fact no such thing as a “charitable activity”, as discussed in The myth of charitable activities, NZLJ, September 2014 at 304. In limited exceptional circumstances, activities may assist in determining what a charity’s purposes are, and whether those purposes are charitable. But section 18(3) was not intended to overturn centuries of case law. The Charities Act was not intended to change the definition of charitable purpose.

290. The potential uncertainty created by comments of the Supreme Court at [14] (that purposes may be inferred from activities, seemingly without regard to the charity’s constituting document) was clarified by the High Court in Foundation for Anti-Aging Research at [83]-[89]. This important clarification is set out below in full for reference:

[83] As noted earlier, s 18(3) of the [Charities] Act expressly requires the chief executive to consider an applicant’s activities when arriving at a view on whether or not it should be registered. [84] Prior to the enactment of the [Charities] Act, the relevance of an entity’s activities when determining charitable status was summarised in this way in [IPENZ at 572]:

It is clearly established that when one is considering the purpose or purposes for which an institution is established one must look first to its founding documents. In [Accountants], Richardson J said:

The ascertainment of the purposes for which a statutory body is established is essentially a matter of construction of the relevant constituting legislation.

The same applies to bodies established by non-legislative means. In Royal College of Surgeons v National Provincial Bank Ltd…Lord Normand said that the decision in that case depended primarily on the construction of the constituent documents of the Royal College and particularly the charter granted by King George III in 1800.To the same effect is the decision of the Court of Appeal in Molloy v Commissioner of Inland Revenue…, but with the important additional proposition that where the

197 See Burnett Mount Cook Station Charitable Trust [2016] NZHC 2669 (8 November 2016) at [102]-[103]; Inglis v Dunedin Diocesan Trust [2011] NZAR 1 (HC) beginning at [29], and McCaw Lewis Trustees (No 4) Limited [2014] NZHC 2627 (28 October 2014) at [19]-[20]).


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constituting documents do not indicate with clarity the main or dominant objects of the body, reference may be made not only to the objects expressed therein but also to the activities of the body in question…In this respect reference can also be made to the speech of Lord Reid in the Royal College of Surgeons case…where His Lordship said:

“If there were anything to show that the affairs of the college had been so conducted that the advancement of the interests of its members had become one of its main purposes, it may be that this would disentitle the college from pleading that it is a charity, but I do not find anything of that kind.”

His Lordship was therefore very clearly of the view that the actual operations of the body concerned were material and the focus of the Court is not inevitably confined to the founding documents.

[85] Thus an entity’s activities were regarded as relevant only to the extent that the entity’s constituent documents were unclear as to its purpose or where there was evidence of activities by an entity that displaced or belied its stated charitable purpose. [86] It seems unlikely that the enactment of s 18(3) was intended materially to change this position. In Re Greenpeace the Supreme Court said (at [14]) no more than that s 18(3) “makes clear” that the purposes of an entity “may be inferred from the activities it undertakes”. That seems wholly consistent with the dicta I have set out above. It is certainly not an indication that the Act was intended to wreak some fundamental change in approach or a move away from the fundamental “purposes” nature of the charities inquiry. [87] As I think Re Greenpeace itself makes clear the critical question is whether an applicant’s activities are sufficiently connected with the relevant charitable purpose, not whether the activity itself is charitable [referring to Greenpeace SC at [74] and also Family First 1 at [24]]. That was the whole basis for the Court’s finding in that case that political activities may or may not be charitable, depending on their purpose. Apart from anything else, whether or not a particular activity is, itself, charitable can, in many cases, only be determined by reference to its purpose. [88] In the present case, therefore, my own view is that the proper analysis would have been to begin by asking whether FAAR’s stated purposes are charitable or not. If they are clearly not, then that is the end of the inquiry. If they are (or if the stated purposes are unclear), then the chief executive or the Board needed to consider what information it has about FAAR’s present and proposed activities (and to consider requesting such information). Then the question is whether those activities are consistent with or supportive of the identified charitable purpose. If they are, then there is no difficulty. If they are not, then it would need to be determined whether the activities can be said to be merely ancillary to the identified charitable purpose. [89] That analysis does not, of course, fit with what happened here. The Board found that the identified activity was FAAR’s principal purpose and that that activity/purpose was not charitable. In my view both the approach, and these conclusions, were wrong. [Emphasis added]

291. In other words, the question with respect to activities is whether they are consistent with or supportive of the Trust’s stated charitable purposes. If they are then there is no difficulty. With respect, Charities Services routinely confuses the distinction between purposes and activities, and asks itself the wrong question when it “has regard” to activities (section 18(3)).

What is the test that should be applied?292. Having determined the purpose of an organisation, the next question is whether


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that purpose is charitable. 293. As discussed above, the Charities Act 2005 was not intended to change the law on

the definition of charitable purpose. 294. Prior to the Charities Act, the common law test for whether a purpose is charitable

was set out by the Court of Appeal in Latimer v Commissioner of Inland Revenue [2002] 3 NZLR 195 (CA) (“Latimer CA”) (this point not in issue on appeal to the Privy Council) at [32] as follows:(i) is the purpose for the public benefit; and if so (ii) is the purpose charitable in the sense of coming within the spirit and

intendment of the preamble to the Statute of Charitable Uses Act 1601 (43 Eliz c4) (“the preamble”).

295. The Supreme Court in Greenpeace SC specifically cites Latimer CA with approval, for example at [70].

296. To be charitable at law, a purpose must meet both steps of this two-step test.198 The public benefit test

297. The first step, the “public benefit test”, is not directly referred to in the statutory definitions of charitable purpose, but is imported as a key element of the charitable purposes test through the medium of common law (see for example Re Family First New Zealand [2015] NZHC 1493 (“Family First 1”) at [21]).

298. The “public benefit test” comprises two parts: a “benefit” limb, and a “public” limb. It asks firstly whether the purpose is beneficial to the community, and secondly whether the class of persons eligible to benefit constitutes the public, or a sufficient section of the public (see New Zealand Society of Accountants v Commissioner of Inland Revenue [1986] 1 NZLR 147 (CA) (“Accountants”) at 152 and 157).

299. The test for whether a purpose is charitable can therefore be thought of as having three limbs: the benefit limb, the public limb, and the “spirit and intendment” limb.

The benefit limb

300. With respect to the first limb, whether a purpose is beneficial to the community is a question of fact, to be determined, on a case by case basis, by forming an opinion on the evidence. This factor underscores the importance of New Zealand charities having access to a trier of fact, as discussed in the Appeals section. As the Supreme Court notes, whether a purpose is political is “simply one facet of the public benefit test”.199

301. In many classes of case, the existence of public benefit will be readily assumed, and there is no need for any proof of public benefit if “the facts speak for themselves” (Greenpeace SC at [43]; Molloy at 695; Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation [1968] AC 138 (HL) at 156, cited with approval in Greenpeace SC at [21] and [23]). Public benefits can be direct or indirect.200

198 See Greenpeace SC at [29].199 Molloy v Commissioner of Inland Revenue [1981] 1 NZLR 688 (CA) at 695; In re Greenpeace [2014] NZSC 3200 (12 December 2014) at [73], [74] and [116].200 See Accountants at 157. See also the discussion in Indirect public benefit, S Barker and R Ng, NZLJ April 2017 at 97.


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The public limb

302. With respect to the second limb, the question is whether the class of persons eligible to benefit constitutes the public, or a sufficient section thereof (Accountants at 152). A particular class of private individuals will not satisfy the public limb of the public benefit test no matter how large the class may be (although see section 5(2)(a) for an exception to this rule).201

The spirit and intendment test

303. With respect to the third limb, the first three “heads” of charity (the relief of poverty, the advancement of education, and the advancement of religion) are acknowledged to fall within the spirit and intendment of the preamble and therefore to be charitable (see for example, section 5(1) of the Charities Act and Greenpeace SC at [27]). For purposes under the fourth “head” (any other matter beneficial to the community), the “spirit and intendment” part of the test may be established by analogy with the purposes enumerated in the preamble, or by analogy with previous cases found to be within the spirit and intendment of the preamble.202

304. Even in the absence of an analogy, New Zealand law prior to the Charities Act held that objects beneficial to the public prima facie fell within the spirit and intendment of the preamble, in the absence of any ground for holding otherwise (see for example Morgan v Wellington City Corporation [1975] 1 NZLR 416 (CA) at 419-420, an authority not mentioned in the Supreme Court decision in Greenpeace, and Tax and Charities - a government discussion document, Inland Revenue Department, June 2001, paragraph 3.17). The Supreme Court cast doubt on the “presumption of charitability” in Greenpeace SC at [27]-[30], on the basis that it would result in a single test of public benefit that would “[lose] the concept of charity”, and that its recognition would constitute a “radical change” that might increase the entities entitled to charitable status, leading to “fiscal consequences”.

305. However, with respect, the Supreme Court appears to have misdirected itself in this regard: the presumption of charitability is not a single test of public benefit. It does not dispense with the concept of charity but rather seeks to find it (see the discussion in The presumption of charitability post-Greenpeace, NZLJ, April 2015 at 116). Further, contrary to the position in Canada, the presumption of charitability was firmly part of the law in New Zealand prior to the Charities Act, as discussed above: its recognition in New Zealand would therefore not constitute a “radical change”; to the contrary, not recognising the presumption would constitute a radical change. Finally, fiscal consequences are not relevant to the assessment of whether a purpose is charitable, as also discussed above.203

306. The review would helpfully clarify exactly what the presumption of charitability is, how it may be rebutted, and its status under New Zealand law.

201 See the discussion in Latimer v Commissioner of Inland Revenue [2002] 1 NZLR 535 (HC) at [111] to [130], referring to the decisions of the House of Lords in Oppenheim v Tobacco Securities Trust Co Ltd [1952] AC 297 (HL) and Dingle v Turner [1972] AC 601 (HL), among others, this point upheld by the Court of Appeal in Latimer CA at [36]-[40], and not in issue on appeal to the Privy Council.202 Greenpeace SC at [18]. 203 As noted by Mackenzie J in Re Queenstown Lakes Community Housing Trust [2011] 3 NLZR 502 (HC) at [78], in enacting section 5 of the Charities Act, Parliament has seen fit to adopt the common law definition of charitable purpose. To the extent that Parliament has elsewhere legislated so that taxation consequences are determined by reference to charitable status, those consequences must follow the application of the common law principles which govern charitable status. The taxation consequences should not play a part in the application of those common law principles.


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Has the two-step test been conflated into a one-step test?

307. While the Supreme Court may have sought to dispense with the presumption of charitability, it did not dispense with the two-step common law test. To the contrary, the Supreme Court emphasises that both limbs of the test must be satisfied in making the following comments at [27], [29] and [113]:

The Pemsel classification, now contained in the Charities Act, does not…treat “public benefit” and “charitable purpose” as coinciding entirely. The cases have generally insisted that the purposes of relief of poverty, advancement of education and advancement of religion (all treated as being within the “spirit and intendment” of the preamble) must also be for the benefit of the public [noting that public benefit may be assumed until the contrary is shown with respect to the first 3 heads of charity]. Conversely, in the case of the 4 th head, the common law required objects of benefit to the public still to be charitable within the spirit of the cases based on the [preamble]. …The preponderance of authority since 1805 has required both public benefit and charitable object “in the same sense” as the cases developed from the preamble. A single test may have the attraction of simplicity but loses the concept of charity which has always been essential……“Charitable purpose” is not established where objects are of benefit to the community unless the benefit is also shown to be charitable within the sense used by the common law. A single test of public benefit alone loses the concept of charity which authority establishes as essential. [Emphasis added]

308. In other words, in assessing whether a purpose is charitable, the purpose must satisfy both the public benefit test and the “spirit and intendment” test, as discussed above.

309. The Supreme Court summarises the two-step test with shorthand expressions [in bold] such as:(i) “Objects have been accepted to be charitable if they advance the public

benefit in a way that is analogous to the cases which have built on the preamble” (at [18]);

(ii) “Even without a political purpose exclusion, the conclusion in Molloy (that the purpose of the Society for the Protection of the Unborn Child was not charitable) seems correct. The particular viewpoint there being promoted could not be shown to be in the public benefit in the sense treated as charitable” (at [73]);

(iii) “In Molloy, the existence of public controversy over abortion helped explain why maintaining the legal status quo on abortion could not be assumed to serve the public benefit in the way the law regards as charitable” (at [75]);

(iv) “The Court was “in no position to determine” that unilateral disarmament, such as the society there advocated, was a sound way to secure peace and was in the public benefit in the sense the law regards as charitable” (at [97]).

310. The preceding summary is arguably consistent with the expression used in Latimer CA at [40] that the public benefit in that case was “of a charitable character”. However, there is nothing to indicate that the Supreme Court, in using such shorthand expressions, was intending to dispense with the two-step common law


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test altogether, or to conflate its two steps into one. If the Supreme Court was intending to make such a radical change, and to turn centuries of case law on its head, it would be expected to have said so. To the contrary, the Supreme Court seems to have been at pains to emphasise that both limbs of the test must be satisfied, and that it was not making any “radical change”.204

311. This point is important, because Charities Services appear to have extrapolated the Supreme Court’s dicta into a new test: that “a purpose is charitable if it advances a public benefit in a way that is analogous to cases that have previously been held to be charitable” (see for example the decision of the Board in Sea Shepherd New Zealand Trust, Decision no 2018-3 at paragraph 2).

Do charities have to show public benefit in their activities?

312. In an advocacy context, Charities Services requires charities to demonstrate the “public benefit of their point of view”.

313. Charities Services requires the organisation to prove that its advocacy activities provide a public benefit which is very similar to what has been accepted as charitable by the Courts.

314. However, such requirements would constitute a radical change from the common law test for charitable purpose, as discussed above.

315. This would be surprising given that the Supreme Court specifically said it was not seeking to make any radical change.

316. The Supreme Court in Greenpeace was considering the issue of whether a purpose to promote peace, nuclear disarmament and the elimination of weapons of mass destruction was charitable. The discussion about ends, means and manner at paragraph [76] of the decision only makes sense by reference to the facts of the specific case, that is, it is limited to “abstract” purposes, such the promotion of peace, and the promotion of nuclear disarmament and the elimination of weapons of mass destruction which are themselves a “means” of promoting peace. Unfortunately, the Supreme Court decision does not refer to comments of the Privy Council in Latimer v Commissioner of Inland Revenue [2004] 3 NZLR 157 (PC) (“Latimer PC”) that the distinction is between “ends, means and consequences.205 The ends must be exclusively charitable. But if the non-charitable benefits are merely the means or the incidental consequences of carrying out the charitable purposes and are not ends in themselves, charitable status is not lost”.206

317. However, Charities Services extrapolate the Supreme Court’s wording, and now appear to be applying a new “ends, means and manner” test to every purpose – including the advancement of religion and the advancement of education. In the most recent Board decision relating to Greenpeace, Greenpeace’s purposes of protecting the environment and advancing education were found not to be charitable, despite having been found to be charitable throughout the litigation. The position appears arbitrary, and with respect, seems very close to the suggestion put forward by the Inland Revenue Department in its 2001 discussion document that a government department should be permitted to simply “deem”

204 Greenpeace SC at [29]. 205 Issues such as these perhaps underscore the importance of the Attorney-General also being involved in the appeal. 206 Latimer v Commissioner of Inland Revenue [2004] 3 NZLR 157 (PC) at [35]-[36].


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entities to be charitable.207 This suggestion was rejected by Parliament. Commentators are concerned that New Zealand charities law is becoming distorted.

The Foundation for Anti-Aging Research decision

318. As discussed above, the potential uncertainty created by comments of the Supreme Court was clarified by the High Court in Foundation for Anti-Aging Research at [83]-[89].

319. The High Court described Charities Services’ approach as wrong (at [89]): the test for charitable purpose applies to purposes, not activities. As the High Court has noted, the Supreme Court did not intend to wreak some fundamental overhaul of the common law test for whether a purpose is charitable (see Foundation for Anti-Aging Research at [83]-[88]).

320. The correct analysis, as discussed above, is to establish what the organisation’s true purpose is, and then to ask whether that purpose operates for the public benefit. This is a question of fact to be determined on the evidence.

321. If as a matter of fact the true purpose is shown to be beneficial to the community, the next question is whether that purpose is charitable, in the sense of falling within the spirit and intendment of the preamble. This may be determined by analogy with the preamble or previous cases that have themselves determined a purpose to be analogous to the preamble, as discussed further below. However, it is the purpose that must be analogous, not the public benefit.

322. The test for charitable purpose incorporates the public benefit test, as discussed above. To meet that test, charities need to demonstrate that their purposes operate for the public benefit. This is a question of fact, again underscoring the critical importance for charities to have access to a trier of fact.

323. It would be unworkable in practice for charities to be required to demonstrate public benefit in all of their activities. The question with respect to activities is whether they are consistent with or supportive of the charity’s stated charitable purposes. If they are then there is no difficulty.

324. The statements of the High Court in Foundation for Anti-Aging Research represent the law of New Zealand. However, in decisions subsequent to the High Court decision, Charities Services and the Board state that they are applying the Foundation for Anti-Aging Research test, but unfortunately they apply a different test: they ask whether the stated purposes are “capable” of being charitable. They then ask whether the activities are consistent with or supportive of “a” charitable purpose.208 This is a different test that yields different results.

325. This in turn raises concerning questions regarding the rule of law. 326. With respect, Charities Services routinely confuses the distinction between

purposes and activities, and asks itself the wrong question when it “has regard” to activities (section 18(3)).

327. If the Foundation for Anti-Aging Research test was applied in its terms, most of the charities that have been declined registration or deregistered on the basis of their advocacy work would not have been denied access to the regime. The question

207 https://taxpolicy.ird.govt.nz/sites/default/files/2001-dd-charities.pdf at paragraph 5.7.208 See for example Registration Decision No 2018-4 dated 9 July 2018 regarding the TLF Charitable Trust, paragraph 4.


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https://taxpolicy.ird.govt.nz/sites/default/files/2001-dd-charities.pdf


would have been whether the charity’s stated purposes were charitable. Generally, the Board accepts that they are. The question then would have been whether all activities were carried out in furtherance of those charitable purposes. Generally, there is no question that of course they are. As a result, there should have been “no difficulty”. On that basis, the law is not particularly complex or confusing once the correct questions are asked.

328. Improvements to the appeal mechanisms, in particular by allowing access to a trier of fact, should assist, by providing a mechanism for charities to prove both what their purposes are and that they do indeed operate for the public benefit. Improvements to the appeal mechanisms should also assist by facilitating development of the law, and clarification of the test for whether a purpose is charitable.

329. To the extent that Charities Services seeks to conflate the two limbs of the test into one, and seeks to treat purposes and activities as essentially interchangeable, it is submitted that their approach is not legally correct.

Comparison with other jurisdictions

330. The approach currently being taken by Charities Services and the Board in New Zealand can be contrasted with the approach taken in Australia.

331. The Australian Charities Act 2013 defines charitable to include promoting or opposing a change to any matter established by law, policy or practice if it is furtherance or in aid of its charitable purposes.

332. In other words, the Australian legislation specifically recognises that seeking peaceful orderly change is itself in the public interest in a participative democracy. Australia has also specifically legislated to make it clear that charities are not prevented from advocating against government policy (see the Not-for-profit sector Freedom to Advocate Act 2013: https://www.legislation.gov.au/Details/C2013A00056).

333. Australia has also legislated to make it clear that promoting or opposing a political party or a candidate for political office is a disqualifying purpose.

334. A recent Canadian decision has held that deregistering charities for advocating for their charitable purposes constitutes an unjustifiable infringement of the rights afforded to charities under their equivalent of section 14 of the New Zealand Bill of Rights Act 1990 (see the Canada Without Poverty decision, which can be found here: https://www.globalphilanthropy.ca/images/uploads/Canada_Without_Poverty_v._Attorney_General_of_Canada.pdf.

A suggested solution

335. Given that legislation is a blunt instrument, a package of measures would be needed in order to solve the problem that has arisen in New Zealand at its source.

336. A suggestion for consultation is included below:(a) Section 5(3), and the words “for example, advocacy”, were inserted into the

original Charities Bill with the intention of helping charities advocate for their charitable purposes. However, instead these provisions appear to have been used as a weapon against charities. Section 5(3) and (4) were inserted at Select Committee stage and were passed into law under urgency without proper consultation. They are replete with unintended consequences.


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https://www.globalphilanthropy.ca/images/uploads/Canada_Without_Poverty_v._Attorney_General_of_Canada.pdf

https://www.globalphilanthropy.ca/images/uploads/Canada_Without_Poverty_v._Attorney_General_of_Canada.pdf



Section 5(3) and (4) would be usefully repealed, and the common law on ancillary purposes permitted to develop unencumbered by the blunt instrument of legislation. The removal of the words “for example advocacy” in particular would make it clear that the Charities Act was not intended to change the law on the question of charities’ advocacy for their charitable purposes.

(b) In addition, as discussed above, an additional purpose could be inserted into the Charities Act to make it clear that the Act is to be interpreted with respect for charities’ right, and duty, to advocate for their charitable purposes. Section 3 might be amended to include a purpose along the following lines:

“to respect the autonomy of charities, and charities’ rights to freedom of expression, in particular their right and duty to advocate in furtherance of their charitable purposes”.

(c) In addition, it might be made clear that partisan political activity is proscribed, for example by amending section 5 to include a provision along the following lines:

“For the avoidance of doubt, charities may not engage in partisan political activity, such as promoting or opposing a political party or a candidate for political office”.

By making it clear that this, and only this, type of advocacy activity is proscribed, the legislation would send a clear message that charities are otherwise entitled to advocate in furtherance of their charitable purposes as they see fit. This would also avoid the problem that has arisen in Australia by limiting this exclusion to disqualifying purposes. Partisan political activity that does not reach the level of a purpose is therefore arguably not proscribed in Australia.

(d) In addition, section 18(3) would be usefully amended to make it clear that the reason Charities Services is required to have regard to charities’ activities is to ensure that charities continue to act in furtherance of their charitable purposes over time. This would also make it clear that it is purposes that are required to be charitable, not activities.

(e) The suggested amendments to the appeal right, discussed above, are also critical in this context. To allow charities access to a trier of fact would materially assist with proving both what their purposes are, and that they do indeed operate for the public benefit.

337. Such a package of measures together might restore the original intention and allow charities to advocate for their charitable purposes without fear of losing their registered charitable status, consistently with both Labour and Green Party policy.


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TERMS OF REFERENCE BULLET POINT 3 - MATTERS RELATING TO REGISTRATION AND DEREGISTRATION (CONTINUED)BUSINESSES 338. The terms of reference for the review specifically include “the extent to which

businesses that solely raise funds for registered charities can registered under the Act”.

339. Key issues arise in this context include:(i) the terms of reference are asking the wrong question: the question should be,

“how can charities be supported in their efforts to raise funds for their charitable purposes, including by running businesses”;

(ii) the current law already contains mechanisms to address rogue behaviour, including the comprehensive information and disclosure requirements of the financial reporting rules for registered charities. Any attempt to introduce further regulation should be carefully scrutinised for duplication and necessity.

Current law and Charities Services’ approach340. Under New Zealand law, charities are able to run businesses to raise funds for their

charitable purposes: the question is not how the funds are raised, but rather that all funds raised must always be destined for charitable purposes.209

341. Despite this, Charities Services applies the following rule:210

Charities that seek to raise funds through business activities need to clearly distinguish their business activities from their charitable purposes. They must also:

(a) Show that the business is capable of making a profit to go to charitable purposes; and (b) Show that the charity does not provide any resources to the trading body at less than market rates.

342. There is no legal authority for this rule. It is simply a rule that Charities Services has decided to apply.

343. The above approach by Charities Services results in many good charities being deregistered or declined registration, particularly those looking to run start-up social enterprises. This in turn severely hampers charities in their efforts to raise funds for their charitable purposes, and ultimately to become self-sustaining. In an environment of increasing costs, increasing demand for services, and diminishing revenue streams, Charities Services’ approach is unnecessary and counterproductive.

344. It is also not lawful. New Zealand is governed by the rule of law. Laws are promulgated by Parliament following a democratic process. They are not made by Charities Services writing a blog. Charities that meet the requirements for registration should be able to register.

209 Note that in contrast to the general law, the FBT exemption for charities does apply an “unrelated business” exception – see BR Pub 17/06 Charitable and other donee organisations and FBT (described as either “within or outside the charitable purposes”).210 See Charities Services’ decision in the International Centre for Entrepreneurship (ICE) Foundation case: https://www.charities.govt.nz/charities-in-new-zealand/legal-decisions/view-the-decisions/view/international-centre-for-entrepreneurship-foundation-ice-foundation, last accessed 9 February 2019.


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Competitive advantage? 345. The issue of whether charities running businesses have a “competitive advantage”

over businesses structured as for-profit entities has been considered many times over the years.

346. In 1998, the Committee of Experts on Tax Compliance raised the issue of competitive advantage, given the ability of charities to earn business income free of tax.

347. However, in its 2001 discussion document, Tax and Charities, the Inland Revenue Department noted that trading charities’ competitive advantage arises “only from the ability to grow a business faster by accumulating pre-tax funds”. As noted recently by the Tax Working Group, a trading operation owned by a charity has a profit maximising objective in order to grow the funds used to support the charitable purpose. This means the trading operation faces the same incentives as a commercial entity when it comes to setting its prices and its tax-exempt status will not lead to it undercutting its rivals. As a charity can earn tax-free income from an alternative passive investment (for example, a bank deposit), the tax concession for trading income would not distort the charity’s behaviour compared with a taxpaying entity. The principle of competitive neutrality provides a rationale for taxing each taxpayer’s active and passive income at the same rate. This, in turn, suggests a case to provide a charitable exemption for business income if the passive income of a charity is exempt. On the other hand, a charitable business that does not distribute its income will be able to accumulate capital faster than an equivalent taxpaying business.

348. The 2001 discussion document proposed that trading operations owned by charities be subject to tax in the same way as other businesses, but with an unlimited deduction for distributions made to the relevant charitable purposes. The discussion document went on to suggest that “the accumulation of funds could lead to questions from the monitoring authority as to why this is happening”.

Accumulations349. In the almost two decades that have followed, trading operations owned by

charities have not been made subject to income tax, although an amendment has been made to section DB 41 of the Income Tax Act in 2007 allowing companies an unlimited deduction for donations made to charitable entities (capped at the level of their taxable income). In addition, the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill proposes to limit the charitable business income tax exemption in section CW 42 of the Income Tax Act 2007 to registered charities only.211

350. In terms of accumulations of funds, there is no evidence that “questions from the monitoring authority” have had any chilling effect on anti-competitive use of accumulated funds by charitable trading organisations. The appropriate “monitoring authority” in this regard is likely to be Charities Services, although the Commerce Commission also has an interest, given its role in promoting competition in markets for the long-term benefit of consumers within New Zealand. The Inland Revenue Department also has an interest through its responsibility for administering the charitable income tax exemptions.

351. Instead, Charities Services has adopted the above approach which does not

211 At the time of writing (9 February 2019), the Bill is currently awaiting its second reading.


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address this issue, and simply prevents good charities from raising funds for their charitable purposes.

352. The Tax Working Group received many submissions regarding the treatment of business income for charities, and whether the tax exemption for charitable business income confers an unfair advantage on the trading operations of charities. In September 2018, the Tax Working Group released its interim report, noting that charities may use businesses for a variety of reasons; to maximise returns to further charitable purposes or, provide goods and services at less than commercial margins to meet identified community needs. The Tax Working Group expressed its view that the underlying issue is more about the extent to which charities are distributing or applying the surpluses from their business activities for the benefit of their charitable purpose. If a charitable business regularly distributes its funds to its head charity, or provides services connected with its charitable purposes, it will not accumulate capital faster than a taxpaying business. The Tax Working Group considers that the question, then, is whether the broader policy settings for charities are encouraging appropriate levels of distribution.

353. The Tax Working Group noted that charities may have good reasons to accumulate funds (for example, to save for the acquisition or construction of capital assets, to prepare for large crises in the future, or to take an intergenerational view towards the management of assets), so changes to the current exemption should only be made if these charities could be adequately protected. The Group stated that the review of the Charities Act could shed further light on the issues of accumulation and distribution. The Group stated that it would be comfortable, as a matter of process, for the Government to consider the tax aspects of the treatment of charities after this legislative review has concluded.

Disclosure 354. New Zealand has one of the best and most comprehensive disclosure regimes for

registered charities in the world. The information that charities are required to disclose answers many of the questions for New Zealand that other countries are grappling with.

355. It is important to resist further regulation for regulation’s sake. The question must be how can charities be best assisted to raise funds for their charitable purposes. There are already many tools in place to address rogue behaviour, including by charities running businesses. Any attempt to introduce further regulation should be carefully scrutinised for duplication and necessity.


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TERMS OF REFERENCE BULLET POINT 4 - MATTERS RELATING TO THE OBLIGATIONS OF REGISTERED CHARITIES GOVERNANCE STANDARDS356. The terms of reference for the review specifically include “the obligations of

individuals on governance boards and in senior management roles in registered charities, including looking into governance standards for registered charities”.

357. In Australia, the Australian Charities and Not-for-profits Commission Regulation 2013 sets out a number of “governance standards”.212 Section 25-5(2)(a) and (3)(b) of the Australian Charities and Not-for-profits Commission Act 2012 provides that, in order to be entitled to registration as a charity, an entity must be in compliance with the governance standards set by regulation.

358. We understand that consideration is being given to adopting similar “governance standards” for registered charities here.

359. Most charities in New Zealand are structured as charitable trusts, incorporated societies, or companies: (i) The Trusts Bill, currently before Parliament, proposes to codify the common

law duties of trustees.213 This will clarify the duties imposed on the trustees of all charities structured as charitable trusts.

(ii) The Exposure Draft Incorporated Societies Bill, released for public consultation in November 2015 and at the time of writing expected to be introduced into Parliament shortly, similarly proposes to codify the common law duties of officers of incorporated societies.214 This will clarify the duties imposed on the officers of all charities structured as incorporated societies.

(iii) The Companies Act 1993 sets out the duties of directors of companies at sections 131-149. This clarifies the duties imposed on the directors of all charities structured as companies.

360. It is not clear that it is necessary to overlay a set of governance standards above the existing duties that already exist in the common law and statute.

361. The recent review of the Australian charities legislation noted that the overlay of governance standards in Australia is complex and confusing, and that it is unreasonable to expect that volunteer directors in the sector understand and comply with the multiple and sometimes inconsistent sets of governance requirements.215

362. Careful consideration should be given before adopting a similar set of governance standards here.

212 https://www.legislation.gov.au/Details/F2013C00451, last accessed 9 February 2019. 213 Trusts Bill 290-2, Part 3: http://www.legislation.govt.nz/bill/government/2017/0290/17.0/DLM7382815.html. 214 See clauses 48-65 of the Exposure Draft Bill which can be found here: https://www.mbie.govt.nz/business-and-employment/business/regulating-entities/incorporated-societies-act-review/, last accessed 9 February 2019. 215 https://static.treasury.gov.au/uploads/sites/1/2018/08/p2018-t318031.pdf, page 113.


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https://www.mbie.govt.nz/business-and-employment/business/regulating-entities/incorporated-societies-act-review/

https://www.mbie.govt.nz/business-and-employment/business/regulating-entities/incorporated-societies-act-review/

http://www.legislation.govt.nz/bill/government/2017/0290/17.0/DLM7382815.html

https://www.legislation.gov.au/Details/F2013C00451


OTHER ISSUES Ongoing 5-yearly reviews

363. The requirement to review the Australian Charities and Not-for-profits Commission Act 2012 after 5 years was enshrined in legislation. That review was recently undertaken and recommended that the legislation be subject to ongoing 5-yearly reviews.216

364. The corresponding New Zealand legislation was passed in 2005, 7 years before the Australian legislation in 2012. Yet, the New Zealand Charities Act is only now being reviewed, after much effort by many within the charitable sector. In addition, the review being undertaken is a significantly attenuated version of the review that was originally promised and is much needed.

365. The legal framework for charities is important, not only for charities but for every part of New Zealand society that they touch. Exercising good stewardship of this legislation should not be left to the whim of officials or the government of the day. We should ensure that a requirement for ongoing 5-yearly reviews is similarly enshrined in our Charities Act.

Qualifications of officers of registered charities

366. Section 16(2) of the Charities Act provides a list of persons who are disqualified from being officers of registered charities.

367. At the 2018 Annual Meeting, the Department of Internal Affairs stated that it would like to see a wider perspective on who can be disqualified from being an officer of a registered charity.

368. The original Charities Bill disqualified a number of classes of people from serving as an officer of a charity. In particular, it excluded people convicted of an offence punishable by a term of imprisonment of 2 years or more, or 2 years or less where the person has been sentenced to imprisonment. Submitters expressed strong opposition to this provision, noting that the specific criminal convictions of an individual may have little bearing on their ability or appropriateness to serve as an officer of a charity. In addition, some charities are specifically established to offer services to assist current and former prisoners, and in such cases the appointment of officers with past experience of prison would be a positive benefit to that entity.

369. The Select Committee considering the original Charities Bill considered217 that it was important to prevent charities from appointing officers that have a history of dishonesty and may pose a risk to the organisation’s assets and income, but saw no reason why people with other criminal convictions should be barred from serving on a charity. Accordingly, a balance was struck, whereby section 16(2)(c) only disqualifies people who have been convicted of a dishonesty offence, such as theft or fraud. For consistency with the provisions of the Criminal Records (Clean Slate) Act 2004, there is a 7-year limitation period on this disqualification. In 2017, tax evasion was added as a disqualifying offence.

370. In addition, under section 16(2)(d), a body corporate is disqualified from acting as an officer of a charity if the company is in liquidation, receivership or statutory management, or where it has been convicted of a dishonesty offence.

371. Charities should be aware that the Department of Internal Affairs will be pushing for 216 https://static.treasury.gov.au/uploads/sites/1/2018/08/p2018-t318031.pdf, page 11. 217 Charities Bill 108-2, page 10.


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this balance to be revisited. Section 35 – public interest test

372. Under section 35(1) of the Charities Act, the Charities Registration Board must not proceed with a proposed removal of a charity from the register unless the Board is satisfied that one or more of the grounds of removal have been satisfied, and that it is in the public interest to proceed with the removal.

373. There is a question regarding the interpretation of the “public interest” test in section 35 of the Charities Act: a determination by Charities Services or the Board that an entity does not meet the requirements for registration in section 13 of the Charities Act appears always to lead to a determination that it is in the “public interest” for the entity to be deregistered.

374. This means that, effectively, the “public interest” requirement in section 35 adds nothing to section 13, and is being interpreted in a manner which renders it otiose. This interpretation should be challenged. As a matter of administrative law and statutory interpretation, the “public interest” test in section 35(1), in the context of section 35(1)(a), must require more than an analysis of the requirements of section 13. The public interest test in section 35 must apply to entities that are found not to meet the requirements of section 13: the very presence of section 35(1) means that there must be a possibility that an entity that is proposed to be deregistered may remain registered if it is not in the “public interest” to proceed with the removal.

375. This point should be clarified. Section 11A of the Incorporated Societies Act – an equivalent needed in the Charitable Trusts Act

376.Antiquated trust deeds

377.Hi Dave & Sue: what we really want is a more streamlined regime to allow charities to merge with other charities or wind up without going to the High Court. There are a lot of antiquated trust deeds out there, with aging trustees who don’t want to run things anymore or have the responsibility of managing investments, but have difficult deeds. Also, having to register deeds with both Charities Services and the Companies Office really needs to be addressed; pointless bureaucracy.

378.


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