Key issues

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Name – Te Ture Tautoko i te Aroha - Charities Bill

• Problem: what should be the name for the legislation? Many have commented that the term “charities” evokes Victorian, paternalistic, colonialist concepts of handouts to the poor. In our view, the concept of charity, correctly interpreted, is much wider, but even so, would another name, such as the “Social Capital Bill”, be more appropriate?

• We have been consulting with a team of tikanga experts, brought together by Justice Sir Joe Williams KNZM, on appropriate terminology in te reo. His Honour considered that the concept of “aroha”, correctly interpreted, is much wider than the English concept of “love” and would best reflect the importance of the sector. However, his Honour considers the appropriate Māori name for the legislation, and the bodies that sit under it, is a “great debate to be had”.

• Suggested solution for consultation: we have suggested the name “Charities Bill”, as the focus of the legislation is the registration of charities, and provisions within the legislation are aimed at clarifying how the definition is to be interpreted. We have also suggested the name “Te Ture Tautoko i te Aroha” in an effort to be clear that the bill is intended to support charities, and facilitate rather than frustrate their work.

• However, we welcome guidance and discussion on appropriate name(s) for the legislation, and agency bodies.

• Problem: the current legislation is not clear on its purpose, as evidenced, for example, by a fundamental underlying tension between “regulation” and rationing the tax privileges of charity, on the one hand, and accountability, and providing charities with a means of demonstrating to their stakeholders that they are worthy of support, on the other. Our starting point is that charities are already subject to a high degree of regulation, through tax, criminal, health and safety, financial, anti-money laundering, and many other pieces of legislation, and it is not clear that charities need to be further “regulated” by means of the Charities Act (other than in relation to “serious wrongdoing”). However, we welcome discussion on this point.

• Suggestion solution for consultation: on the basis of a starting premise that communities know best what communities need, and that it would be more cost-effective, when all costs are taken into account, we suggest that the legislation take a strengths-based, rather than a deficit-based, approach, emulating the higher trust model that was employed in response to COVID-19 with considerable success. On that basis, we propose two core purposes to underpin the Act:
  (i) to value and support a culturally diverse, robust, thriving, independent, innovative and sustainable charities sector; and
  (ii) to provide a forum for accountability, by providing for a charities register on which registered charitable entities are required to disclose certain information.
  In other words, the purpose of the legislation should be accountability, rather than “regulation”

  (see section 3 in the draft bill))

• In other words, the purpose of the legislation should be accountability, rather than “regulation”. The legislation should also be principles-based, reflecting its equitable origins (the definition of charitable purpose derives from trust law), and should set clear, simple boundaries that allow charities to further their charitable purposes with confidence. To that end, and following the model of the Trusts Act 2019, we propose a number of principles, the most fundamental of which is recognition that charities have a duty to act in the best interests of their stated charitable purposes.

  (see sections 4 and 57 in the draft bill)

• The charities law of Aotearoa New Zealand must also recognise and respect the principles of Te Tiriti o Waitangi.

  (see section 4(e) in the draft bill)

• Consultation: the purposes and principles of the legislation are key issues and we welcome discussion on any of the above points

• Problem: New Zealand currently has a number of strategies, including a Child and Youth Wellbeing Strategy, a Health Strategy, and a Disability Strategy (in legislation) and a Tourism Strategy, an Employment Strategy, and a Biodiversity Strategy (in policy). However, there is no apparent overarching vision for the charitable sector, or the wider for-purpose sector in which it sits.

• Suggested solution for consultation: The Public Service Act 2020 will hopefully encourage a de-siloised approach. However, a bespoke 3 civil society strategy, along the lines of that which exists in the United Kingdom, and proposed in Australia, would build on this to encourage a whole-of-government approach to maximising the potential of the for-purpose sector, and to ensure the sector is not overlooked in policy and law-making.

  (see section 5 in the draft bill)

• Consultation: Should the legislation enshrine a requirement for the Minister to issue a “civil society strategy”? If so, should this be for charities only, or for wider civil society?

• Problem: there has been much controversy over the way the definition of charitable purpose is being interpreted. Interpreting the definition too narrowly gives rise to difficult downstream consequences. For example, following the controversial decision in Re Queenstown Lakes Community Housing Trust [2011] 3 NLZR 502 (HC)) (“Queenstown Lakes”), community housing providers were provided with their own specific income tax exemption (section CW 42B of the Income Tax Act 2007). However, the amendment is little used, as without registered charitable status, housing providers have difficulty accessing funding. Consequently, many community housing providers simply don’t provide affordable housing for fear of losing their charitable registration, even though such housing is desperately needed. This is one of many examples that illustrates the importance of tackling such issues at the level of source (the interpretation of the definition of charitable purpose), rather than symptom.

• Suggested solutions for consultation: we suggest clarifying in legislation the tests to be applied in determining both what a charity’s purposes are, and whether those purposes are charitable. Our underlying assumption is that to get to the right answers it is important to ask the right questions!

  (see sections 11 - 14 of the draft bill)

• Some jurisdictions (for example, Australia, England and Wales, Ireland, Scotland, and Northern Ireland) have expanded the “heads” of charity by statute. Some argue such an approach would “ossify” the definition, and that retaining the current 4 statutory heads (the relief of poverty, the advancement of education, the advancement of religion and other purposes beneficial to the community) would better allow the definition to “breathe” by means of the common law. We have suggested a statutory expansion in the draft bill as a starter for discussion but it may be that clarifying the tests to be applied would resolve many of the current difficulties - we welcome discussion on this point. The definition put forward specifically aims to counter controversial decisions such as Canterbury Development Corporation & Ors v Charities Commission [2010] 2 NZLR 707 (HC) and Queenstown Lakes.

  (see section 15 of the draft bill)

• The draft bill also seeks to decouple potential fiscal consequences of registration from the separate question of whether a purpose is charitable (as discussed for example in Queenstown Lakes at [78] and “Fiscal consequences” NZLJ April 2016 at 102)

  (see section 16 of the draft bill)

• Consultation: we welcome discussion on any of the above points.

• Problem: the independence of the Charities Commission was fundamental to the original agreement with the charitable sector when the Charities Act was introduced in 2005. When the Charities Commission was controversially disestablished in 2012, all of the accountability mechanisms provided by the Crown Entities Act 2004, such as a requirement to report annually against a statement of intent, were correspondingly removed. The agency currently tasked with administering the Charities Act (the Department of Internal Affairs - Charities Services – Ngā Ratonga Kaupapa Atawhai “Charities Services”) resides within a government department, and is subject to almost no accountability mechanisms beyond passing reference in a 193-page annual report of the Department of Internal Affairs. Charities Services unilaterally prepares an “annual review”, but this contains only the information Charities Services chooses to include. The Charities Registration Board was established to provide an independent check on Charities Services’ decision-making, but lack of resourcing, and a framework whereby Charities Services provides secretarial and administrative support, and legal advice, to the Board have raised questions about its ability to carry out this role. Many submitters to the government review have called for a return to an independent agency administering the Charities Act. See further the materials relating to Workshop 1 which addressed this issue in particular.

• Suggested solution: we recommend establishing a new independent Crown entity (Te Kairēhita Aroha – the Charities Registrar or “TKA”) with a main function of informing public choice by administering the charities register. Other suggested functions include to:

  • encourage charitable giving and public support of and engagement in the sector;

  • provide education and support to the charitable sector in relation to its obligations under the Charities Act;

  • increase public awareness of the existence of the charities register and its benefits;

  • inquire into cases of serious wrongdoing; and

  • issue binding rulings to provide charities with certainty in advance of a particular course of action.

• As a Crown entity, TKA/the Charities Registrar will also be required to prepare a statement of intent and annual report. It will also have a duty to promote public awareness of its functions.

  (see draft bill, Part 7 and sections 23, 27-29)

• Consultation: we welcome discussion on what would be the best structure for the agency(s) that administer charities’ legislation in Aotearoa New Zealand.

• Problem: the charitable sector, and in fact the broader for-purpose sector, does not currently have a coherent mechanism by which it can advocate directly to government and Ministers on matters relevant to the sector. It is clear that the charitable sector needs a stronger collective voice and that its mana needs to be better recognised.

• Suggested solution: we propose establishing an "Advisory Board | Te Māngai Aroha" to represent and speak for the for-purpose sector. Based on the experience of the Permanent Advisory Committee of the Charitable Sector in Canada, the draft bill suggested a large body of up to 21 people, which would allow for subcommittees to be formed to address particular issues. The intention is for a broad cross-section of Ministers to be required to turn their minds to the broader for-purpose sector in the interests of New Zealand’s for-purpose sector, social capital and the wellbeing of New Zealanders. TKA would be required to consult with the Advisory Board on various issues. The Advisory’s Board’s roles would also include:

  • advocating for the collective interests of charities;

  • improving communications and relations between the charitable sector and government;

  • advising the Minister on the Civil Society Strategy and on charities law and policy;

  • educating and assisting charities in relation to good governance (as opposed to compliance with the Charities Act itself which would the responsibility of TKA);

  • liaising and assisting TKA on issues relating to its administration of the Charities Act; and

  • stimulating and promoting research into matters relating to charities.

  (see draft bill, Part 4 and section 36)

• Consultation: Agency structure(s) are one of the main areas we have been receiving feedback on. How can the legislation assist the charitable sector to have a better collective voice, one that speaks directly to power? If an Advisory Board, what should be its composition and how should its members be appointed?

• Suggested solution: following consultation with a team of tikanga experts, we propose that Te Māngai Aroha – the Advisory Board establish, from amongst its number or otherwise, a Māori Advisory Committee, comprised of 3 people of mana with expertise in tikanga. TKA must refer to the Māori Advisory Committee any registration or administration decision that raises or may raise a matter of tikanga. The Māori Advisory Committee can make policy statements on matters relating to tikanga which statements are binding on TKA and on any hearing authority hearing an appeal of a decision of TKA. The binding nature of the policy statements was a key outcome of or consultation with tikanga experts. The Māori Advisory Committee can also provide advice to TKA to assist it to give effect to its obligation to recognise and respect the principles of Te Tiriti o Waitangi and tikanga principles. TKA must have regard to that advice. Another role for the Māori Advisory Committee might be in determining whether a charity could be recognised on the charities register as a kaupapa Māori organisation and/or a Treaty-based organisation.

• Consultation: we welcome discussion on how best to infuse tikanga principles into New Zealand charities law.

• Problem: the issue of advocacy by charities was one of the key issues commented on by submitters to the government’s review of the Charities Act. Many submitters referred to the complex and subjective approach adopted by Charities Services, and pointed out that charities were consciously limiting their advocacy for fear of losing their charitable registration. Charities Services’ approach puts New Zealand out of step with comparable jurisdictions (which is particularly problematic as charities are operating increasingly internationally). It is also not clear how Charities Services’ approach is consistent with New Zealand’s international treaty obligations requiring respect for the principle of freedom of expression, with any restrictions needing to comply with strict tests of necessity, proportionality, clarity, accessibility, lack of arbitrariness, and not impairing the democratic functioning in society. For more discussion, see “Advocacy by charities: what is the question” and ACPNS commentary on the recent Family First and Greenpeace decisions.

• Suggested solution for consultation: we propose that the legislation make it clear that charities have not only a right, but a duty, to advocate in furtherance of their charitable purposes, subject only to specific limits prescribed by law: we recommend that the legislation make it clear that charities may not be partisan, and may not engage in hate speech (set at a very high threshold broadly of incitement to violence). Beyond that, and subject to the general law (such as electoral law, copyright, the law of defamation, etc), the question with respect to activities, including advocacy, is whether the activity is being carried out in the best interests of the charity’s charitable purposes. If so, there is no difficulty. As noted by Hammond J in Re Collier (Deceased) [1998] 1 NZLR 81 (HC) at 90, the function of the decision-maker is not to take sides, but to sieve out debates which are for improper purposes, and then leave the public debate to lie where it falls, in the public arena. To deregister charities simply because there is no universal acceptance of their advocacy is fundamentally to undermine New Zealand’s system of participatory democracy.

  (see draft bill sections 4(c), 11-17, 18(3)(d))

• We also propose that questions of potential harm caused by speech be dealt with by means of the public benefit test. A charity whose purposes operate for a net public detriment, rather than benefit, would fail to meet the public benefit test and would therefore not qualify for registration as a charity. A key aspect of this suggestion is that charities’ ability to access an oral hearing of evidence must be reinstated, as discussed further below. Without this, charities are materially impeded in demonstrating how their purposes operate for the public benefit.

  (see draft bill, section 13)

• Consultation: we welcome discussion on the underlying principle that seeking peaceful, orderly change is itself in the public interest and that, in the interests of participatory democracy, we must have tolerance of specific viewpoints that some may disagree with. In other words, conceptually, the tax privileges for charities support the system, rather than any particular charity’s viewpoint per se: if any charity is to have freedom of speech, they must all have it (subject to very clear statutory interventions, such as hate speech and partisan political activity).

• Problem: access to justice is a key issue causing difficulty for charities. An appeal to the High Court simply sets the bar too high for most charities, and the inability to access a full hearing of evidence is causing New Zealand charities law to become distorted. A number of submitters to the government review argued for an improved appeal process because “the current sole option of appealing to the High Court is not sufficient”.

  Suggested solution: we recommend establishing a specialist appeal authority - a Charities Review Authority – and providing charities with the choice of taking their case to this more informal appeal forum, or the High Court. Crucially, the legislation must clarify the nature of the hearing to be undertaken on appeal, specifically that the hearing authority is able to convene an oral hearing of evidence if either party so requests. Ability to access an oral hearing in appropriate circumstances is fundamental to natural justice, and would enable decision-makers to have a robust evidential platform from which to make decisions. In our view, this is the most important change that the review of the Charities Act needs to make.

• All decisions of TKA should be able to be appealed.

• We also recommend facilitating test cases to relieve the burden on individual charities of developing New Zealand’s law of charities.

  (see draft bill, Part 10, and sections 32-33)

• Consultation: we welcome discussion on any of the above points, and also on whether the Charities Review Authority might usefully hear appeals under other legislation, such as the proposed new Incorporated Societies legislation, the Trusts Act 2019, and perhaps also approval of “schemes” and other issues under the Charitable Trusts Act 1957.

• Problem: fundamental to a regime focused on accountability are the reporting obligations for registered charities. However, one of the key issues raised by submitters is that the reporting requirements for Tier 4 charities in particular are overly burdensome.

• Suggested solution: the content of the financial reporting standards are set by the External Reporting Board (“XRB”). In September 2020, the XRB announced that it was undertaking a post-implementation review of the Tier 3 and 4 standards. We agree that the Tier 4 standard in particular could be simplified and look forward to the outcome of the XRB’s review. We otherwise propose that the legislation continue to link in to the XRB standards, but recommend that the legislation clarify that charities also have a duty to keep accounting records.

  (see draft bill, sections 58 and 60-63)

• Consultation: we welcome discussion on any of the above points.

• Problem: one of the major challenges for the charities sector is financial sustainability. Operating a business arm or undertaking a social enterprise venture can often address this challenge, but appears to have perception issues. Similar perception issues appear to be arising in the context of charities accumulating funds.

• Suggested solution: a key goal of the draft bill is to clarify the relevance of activities: that it is purposes that must be charitable, not activities, and charities are accountable for demonstrating that they are continuing to act in furtherance of their stated charitable purposes over time. Within these parameters, the legislation should facilitate and support social enterprises structured as charities, and charities who operate businesses: charities can and should be able to run businesses to raise funds for their charitable purposes, support social enterprise and make social investments. Any restrictions on charities’ activities, over and above those already provided by the general law, should be clear and provided by legislation following a proper Parliamentary process. Beyond such parameters, it should be for charities to determine how best to further their charitable purposes.

  (draft bill, sections 18(3)(a) and (b), 11-12)

• Importantly, New Zealand has the most comprehensive set of financial reporting rules for charities in the world. Rather than setting specific limits, with all the associated compliance costs, issues in this regard would be better addressed by requiring charities to demonstrate how any accumulation is in the best interests of their charitable purposes, using the monitoring and accountability mechanisms that are already in place.

• Consultation: How else might the legislation support social enterprise? Could we address perception issues in this context by way of an education campaign, rather than by introducing more “rules”? Charities running businesses arguably do not in fact have a competitive advantage over profit-making enterprises, and removing the business income tax exemption would only reduce the amount of funds available for charitable purposes (and may therefore reduce rather than increase government revenue). The income tax exemption offsets the disadvantages that charities face in accessing capital (due to their inability to provide private returns to investors like a for-profit entity can). Should we not be supporting charities’ efforts to be financial sustainable, rather than making it more difficult?

• Problem: in the 15 years since the Charites Act was passed in 2005, it has not been subject to a proper post-implementation review. Instead, it has been subject to a series of piecemeal reforms that have generally been rushed through under urgency without proper consultation, often against the strong opposition of the charitable sector. The net result is legislation that is replete with unintended consequences.

• Suggested solution: following the model of the Privacy Act 1993 (section 26), the Veterans’ Support Act 2014 (section 282) as well as the approach adopted by other jurisdictions, we recommend the New Zealand charities legislation require 5-yearly reviews. Such a requirement would reflect the importance of the charitable sector and its contribution to New Zealand society, and would hopefully elevate the legislation above the electoral cycle. It is recommended that the first review be undertaken by an independent body such as the Law Commission.

• Consultation: we welcome discussion on any of the above points.

Our report is due by September 2021.

Consultation

Stage 1 - research, preparation of draft bill, and consultation with key New Zealand stakeholders: as discussed above, as part of the research, we have prepared a draft bill that would amend and restate the Charities Act; the thinking was to have a starting place for discussion, and then to subject that thinking to challenge over the course of the research. We have been consulting with key stakeholders on the draft bill, drawing on their collective expertise to make the draft as robust as possible.

Stage 2 - overseas research and consultation: as part of the research, we are also looking at comparable legal frameworks in Australia, Canada, England and Wales, the United States and Ireland and engaging with people working in the charitable sector in those jurisdictions.

Stage 3 – wider New Zealand consultation: we will update the draft bill drawing together feedback received, and research and insights gained, from stages 1 and 2.

Our aim is to consult as widely as possible. We are committed to developing a proposal for reform that genuinely meets the standard of being “by the sector, for the sector”, as far as we can with the resources available.

Ideas for consultation include: convening co-design workshops or “sprints” on key issues, including the definition of charitable purpose, “what is the best structure for the agency(s) that administer charities’ legislation in Aotearoa New Zealand”, and “how can we ensure a stronger collective voice for the charitable sector that speaks directly to power”; developing this website; continuing to consult on the draft bill and seeking feedback on the draft bill once updated.

We welcome any suggestions for consultation/collaboration on how we might collectively co-design a proposal for reform.

Final report

We will draw together all the feedback received into one final report, with final recommendations and an updated draft bill.