The Minister for the Community and Voluntary Sector, Priyanca Radhakrishnan, has announced the introduction of the Charities Amendment Bill. While the content of the Bill was published in June 2022, it was only introduced to the House on 21 September 2022. There are definitely some good changes proposed. But sometimes one has to look at what is not there, rather than what is.
Decision-making and accountability
- The charities registration Board will be required to publish decisions on declining an application for registration, and for deregistering a charity. Yet the Board only make a few of the decisions when Charities Services make the rest.
- There will be a clear process for objecting to decisions, and appeals will be heard at the Taxation Review Authority (TRA) rather than directly to the High Court. Meaning that the charity cannot go directly to the High Council, meaning their rights to appeal directly to the Supreme Court as of right are removed. Why not allow a choice of either the TRA or the High Court? Filing for Judicial Review will also mean they will have to file in two separate courts. While the Government have said the scope of decisions which can be appealed will be expanded this appears not to be the case. Others have argued that every adverse decision of the Charities Service should be able to be challenged.
- The appeal period will move from 20 working days to two months. Other submissions to the Charities Registration Board and Charities Services will also move to two months.
- Charities Services will be required to consult when developing significant guidance material, but the question is whether they will consult with the public and consult widely. It is easy to consult with organisations that already agree with your position. Another proposal not in the Bill: the Board and Services will publish information on policies and procedures.
- The Board will increase from three members to five although this will not resolve the fundamental issue that the Board is arguably not sufficiently independent of Charities Services.
Compliance and enforcement
- The requirements to remain registered “will be made more explicit” but what does this mean in practice? If it is merely codifying their existing practices and interpretations, the ability to deregister Charities without proper cause may continue.
- The definition of ‘serious wrongdoing’ will be expressed to address consistent wrongdoing of a serious nature, referencing an offence that is punishable by imprisonment for a term of two years or more.
- The Board will be given a new power to disqualify an officer for ‘serious wrongdoing’ or significant or persistent breaches of obligations, but without deregistering the charity itself. We trust the officers will have the ability to prevent this by a court review or appeal process, and charities can protect and appeal any pending deregistration before such a decision is implemented.
Reporting and accumulating funds
- Services will have the power to exempt very small charities from the financial reporting standards, replacing this with filing specific financial information in their annual return. It is unusual for a Government agency to overrule another agencies legislation, which leaves one wondering in what circumstances can this occur and who can challenge it.
- Not in the Bill, but intended to be policy, the annual return form will require larger charities to report the reasons for their accumulated funds. This type of reporting suggests Charities Services are fishing for information before proposing that charities with business income should lose, or have restricted, their tax exemption status. There are many reasons for not spending all one’s income, which can range from special purpose funds, trust funds where a percentage of income must be accumulated, to financial statements reporting unrealised or deemed income which does not match realised cash income. And of course, any prudent trustee would accumulate income for reinvesting, for future capital expenditure and for inflationary protection.
Officers and governance
- The definition of ‘officer’ of a Charity will be spread wider to include persons with significant influence over the management or administration of the entity. However, management, administration and governance are different roles that should not be confused by wide reaching definitions of ‘officers’.
- The role of the ‘officer’ will be clarified, although it is unclear what this means and why the legal duty of the role cannot be applied.
- Those convicted of an offence relating to financing of terrorism will be a disqualifying factor.
- Officers can be 16 years or older (as is currently the case) but with at least one 18 years or older This is a surprising move and possibly anticipating a flood of new charities with teenagers at the helm. Until recently, 20 was the age of majority, and reduced to 18 under the Trustees Act. Why charities are not afforded adult governance is confusing.
- Charities will be required to review their governance procedures annually. How in practice this will occur and be monitored is unknown. Presumably, it will be a tick the box exercise in the annual return. Not the most robust method of confirming good governance of a charity is achieved.
Well, that all sounds perfectly reasonable. Publishing decisions and the reasons for them would be very helpful, as well as regulatory decision-making and procedures. Bringing in the TRA is an interesting move. We won’t say a backwards step, but … back in the day decisions on charitable status were heard by the TRA. The Authority will have lost its experience in this field, and interesting because the TRA is essentially about tax, yet charitable registration is more than tax exempt status. Although we note that the Inland Revenue Binding Ruling status still trumps the Charities Act, section 13(2) of the Charities Act.
Changes we would like to have seen include lengthening the time required to advise of changes to rules and officers – the current 3 months is too short and easily overlooked. We believe notification should be via the annual return, which is generally the practice for companies. Although we are aware that others in the sector consider 3 months too long a period, which may be the case where a charity is at risk, and who would lobby for notification to be as changes occur.
Another element we would like to see tightened up would be where there is a complaint about a charity, its operations or governance. There are stories of smaller charities being overwhelmed by new members who proceed to disrupt and strip the charity of funds. Often nothing is left by the time Charities Services look into it. The question of course is whether Charities Services or the Board are prepared to get involved, which raises the question of whether they are merely a registration body, or whether they are an overseeing regulatory body with an obligation to protect the charity and the public. Or situations where the charity is crossing different Government agencies, where each assumes the other is investigating. There may even be situations of such severity where the Board should have the power to place a charity into Administration or appoint a Commissioner to oversee a charity while a broader investigation is being made. Used with restraint and under advisement (perhaps as agent for the Courts) may be a better way to protect the charity, its officers and the public than a more nuanced but delayed process. Of course, such a role would need them to become less intertwined with Charities Services and more independent of Services and the Government of the day.
Leading Charities lawyer, Sue Barker, was reported in Business Desk in May 2022 as saying the issues for review of the Charities Act were complex and far reaching. It was a mistake to plough ahead with regulatory changes when the terms of reference for the review were too narrow to address many areas of concern. Expressly excluding the definition of charitable purposes in a changing world, tax exemptions, the broader not-for-profit sector, and issues of advocacy did not bode well for a comprehensive review or amendment. Barker raised the independence of who approved charities noting that Charities Services (a Government agency) made most of the decisions, not the independent Board. In practice, the Board is not sufficiently distanced from Charities Services to exercise the independent check on decision-making that was originally intended. As a result we have most decisions being made by a business unit of a government department and limited ability to challenge those decisions. Sue also questioned the focus of viewing charities through a tax exempt lens (as a cost to the Crown revenues) rather than the benefits provided by charities (socially and financially to the Crown and the community).
Talk of review and a rewrite of the Charities Act has been on the horizon almost 20 years. It sounds like there are critical elements missing in this amendment, and an increase in Charities Services powers without corresponding accountability. Sue Barker’s opinion is that these changes fail to reflect a full comprehensive review, failed to undertake proper consultation and will result in entrenched legislation that will cause problems for the sector in the future. She calls for the proposed amendment to be withdrawn. Certainly, this Government have set a precedent in withdrawing unpopular legislation, it may happen again. We shall wait and see. You can find the Bill here. Charities Amendment Bill 169-1 (2022), Government Bill – New Zealand Legislation
(Photo reference: Boxes being prepared for a food bank distribution.)