In June 2018 the Government announced a review of the Charities Act 2005 (the Act) to be led by the Policy Group of the Department of Internal Affairs (the Department). The scope of the review was reasonably narrow. This disappointed many who were calling for a comprehensive and principle based review, such as asking for clarification on what is the fundamental definition of a ‘charity’ and of a ‘charitable purpose’.
As a result of this review, the Minister for the Community and Voluntary Sector, Hon Priyanca Radhakrishnan has recently announced a range of changes to the modernise the Act. These changes will come into effect via the Charities Act Amendment Bill (the Bill).
The proposed changes to the Act are intended to increase transparency for the public, improve access to justice systems and reduce the burden on smaller charities. The amendments are also intended to align the Act with other legislation charities might also be governed by such as the Companies Act 1993, Trusts Act 2019, Incorporated Societies Act 2022 and the Charitable Trusts Act 1957.
While New Zealand has battled COVID-19 and the societal and economic effects it has had on the community over the past two years, the role of charities in supporting Kiwis has become even more important and apparent.
Expected Changes
Reporting requirements for very small charities
One of the expected changes is a change in reporting requirements for very small charities. Currently, all charities must file annual returns according to the standards set by the External Reporting Board (XRB) within six months of their year-end balance date.
Under the proposed changes, the Department’s Chief Executive will have the power to exempt very small charities from the financial reporting standards set by XRB to reduce the compliance burden while also balancing the need for transparent reporting. If a charity is deemed exempt from reporting standards, it will still be required to file annual returns with basic financial information.
The Department have so far said a threshold of annual payments under $10,000 and total assets under $30,000 should be exempt. This would benefit approximately 12 percent of all charities in New Zealand and free up valuable resources and time for these charities.
Increased transparency regarding the accumulated funds of larger charities
Larger charities, described by the Department as charities with annual operating expenses exceeding $140,000, will be required to declare and explain their accumulated major funds (including cash, assets or other resources). This is an important change in ensuring charities who are holding onto a large quantity of funds, including donations, provide clear reasons for why, particularly given charities operate tax-free. With increased transparency, comes deeper trust and support from the public which is fundamental to ensuring charities can continue to operate to achieve their purposes.
This will be implemented via a change to the annual return form all registered charities are required to file. Charities Services Ngā Rātonga Kaupapa Atawhai (Charities Services) will work in conjunction with iwi to design changes to the annual return form to reflect te ao Māori views of accumulation.
Improved access to justice systems
To improve access to justice systems, one of the changes proposed is expanding the Taxation Review Authority to hear first appeals under the Act, as opposed to the High Court. Importantly this will decrease the costs associated with the process and in doing so, increase access to justice. The High Court is also facing significant delays arising from the long-lasting impacts of COVID-19, so this will hopefully avoid further delays for charities hoping to appeal. The Government has pledged to invest $1.7 million to enable charities to appeal a broader range of decisions as part of the 2022 Budget.
Charities will be able to represent themselves at the Taxation Review Authority and the rules of evidence for doing so have been relaxed. The timeframe for lodging an appeal will be extended from 20 days to two months. The High Court will still function as an appeal court for decisions made by the Taxation Review Authority. As noted by Minister Radhakrishnan ‘It is important that our system doesn’t just work for those who have the resources to navigate it. The same service and the same access must be available to everyone.’
The Department has developed a helpful graphic to show an overview of the proposed changes within the context of the current charities registration process, which can be accessed here.
Regulatory decision making
A number of changes will be made to the regulator’s decision-making processes including Te Rātā Atawhai the Charities Registration Board (the Board), who will be required to publish all declined and deregistration decisions and provide a clear process for charities to object and appeal significant decisions (via the Taxation Review Authority). The timeframe for submitting information to Charities Services on administrative matters (for example, providing more information on an application), will be extended to two months. This change acknowledges that many who work within the charity sector are volunteers and therefore may need more time to engage with the decision-making process for it to be fair. In addition, Charities Services will be required to consult with the charity sector whenever developing significant guidance material. The Board will also increase from 3 members to 5 members to improve the Board’s diversity and address potential conflict of interest issues that may arise.
Compliance and enforcement powers
Practical changes can also be expected to the legislation to improve the compliance and enforcement functions for charities. The Bill will make the current obligations for charities to remain qualified for registration clear. These obligations are maintaining charitable purpose, having a rules document, and having qualified offers.
In addition, the Bill will clarify what is meant by ‘serious wrongdoing’ in the Act and allow the Board to disqualify an officer for serious wrongdoing or a significant or persistent breach of obligations, without deregistering the charity in its entirety. This will improve enforcement of the Act and prevent the misuse of charities and their funds.
Officers of charities
The definition of ‘officer’ will be amended to capture ‘all persons with significant influence over the management or administration of the entity, regardless of the type of entity.’ This definition in the Bill will also align with the definition of an officer in the Incorporated Societies Act 2022. The disqualifying factors and Act’s requirements to become an officer will also be updated including preventing those who have been convicted of an offence related to financing of terrorism from holding an officer role in a charity and requiring at least one officer of the charity to be 18 years old.
The Bill will also specify the role of an officer, as being to support the charity to meet its obligations and will require charities to review their rules documents every year to ensure governance arrangements are up to date and appropriate. These changes are intended to improve the accountability and governance of charities, in addition to aligning the Act with other legislation which governs charities.
What this means for charities
There are approximately 28,000 registered charities in New Zealand, which contribute greatly to the social landscape and provide support to Kiwis on a daily basis. The introduction of this Bill is very important. If the legislation is not fit for purpose, charities will be hampered in continuing their important mahi supporting families.
The Bill is expected to be introduced later this year and the public will then have an opportunity to make submissions on it and provide feedback through the Select Committee process.
After taking actions on the immediate changes recommended by the review, the Minister will then consider a process to address more fundamental issues raised in the review.
