An Uncharitable Embrace: It's not too late to have your say on the Charities Act 2005

Garth Nowland-Foreman

NOTE: LEADs final Submission to the Review on Charities Act 2005 is available here.

NOTE: Submission date has been extended to 30 May 2019

The blog below proposes that the Charities Act Review should be referred to the Law Commission for a more considered, wide-ranging and independent review.

Failing this
we make six specific recommendations for immediate remedy in the current legislation, regarding; purpose; activities; ‘trier of facts’ and appeal; advocacy; businesses of charities; and accountability.

It is crucial that the Review hears a loud and clear message from the sector, and receives as many submissions from the sector as possible.


Submissions are due by 30 April 2019, and can be sent to: Charities Act Team, Policy Team, Department of Internal Affairs, PO Box 805, Wellington 6140, or charitiesact@dia.govt.nz. Further information about the Review is available at https://www.dia.govt.nz/charitiesact.


You do not have to follow the format nor answer the questions in the Department’s Submission Guide and Discussion Paper. In fact this could have the effect of distracting us from some of the most important issues for the sector.

Please feel free to use as much of this blog as you want in your own submission to the Review. In turn I have drawn heavily on the excellent legal and policy analysis by Sue Barker and Dave Henderson, “The Review of the Charities Act 2005: Issues Paper“ (February 2019).


Uncharitable Embrace: A Community Response to the Review of the Charities Act 2005

Unlike in the real world, there are a number of people in the NZ Treasury who see charities as just a ‘tax expenditure’ [1] - a drag on society. That term refers to the tax forgone as a result of a tax concession or ‘perk’ that some taxpayers (in this case charities and their supporters) get. To some extent this is also reflected in some of the discussion from the Cullen Tax Working Group, which was worried about possible unfair advantages that charities get compared with commercial organisations operating in the same field. And now we are slap bang in the middle of a Review of the Charities Act (2005). A dangerous time, even under a government promising a kinder public policy.

This Review itself is actually the best part of a decade over-due. (Imagine for a moment the outcry if any other industry or sector was promised a review of one of their key pieces of regulation, and it ended up almost 10 years over-due!) And this current Review is already at least 6 months behind its original timeline, since announced last year, with public submissions now due by 30 April.

When rushed changes were put through to the original Charities Bill in 2004, as a part of the select committee’s (and ultimately the sector’s) dissatisfaction with the draft bill they were given, a back to “first principles” review was promised within 5 years - to appease widespread concerns that ‘fast law does not make good law’. It was soon apparent there were several unintended consequences and poor pieces of drafting-on-the-run – some of which have had to be corrected. There have also been a series of knee-jerk and ad hoc changes along the way, for example how ‘the promotion of amateur sport’ was crudely added in Sec 5(2A), the surprise disestablishment of an independent Charities Commission in 2012, and ‘clarification’ that took away what had been seen as rights to review decisions, etc.

Imagine for a moment the outcry if any other industry or sector was promised a review of one of their key pieces of regulation, and it ended up almost 10 years over-due!


The current Review is, also, not a ‘first principles’ review, as promised, to assuage the rushed nature and lack of wide consultation when the Act was first pushed through. Specifically ruled out of the current Review’s terms of reference is: the definition of ‘charitable purpose’; the tax exemptions that result from registration under the Act: as well as the relationship to ‘regulation of the broader not-for-profit sector’.

In fact, some people are so concerned about the inadequacy of this Review that a group of four members of the Sector User Group to the Review, including Sue Barker (possibly the country’s leading expert on non-profit law) met with the Minister for the Community and Voluntary Sector, Peeni Henare, on Friday 22 February. They asked if the review of the Charities Act could please be carried out instead by the Law Commission, as was the case with incorporated societies and trusts. They pointed out that (1) the terms of reference for this current Review is too narrow, and thus will not allow all key concerns to be properly addressed, (2) the proposed timeframe, of having all policy work completed by August this year (so that legislation can be passed before the 2020 election), is now far too tight, and (3) it is essentially an ‘internal’ review with limited independence as it is being carried out by a different section of the same government department (now that the quasi-independent Charities Commission has been abolished and many of its responsibilities transferred to a unit within the Department of Internal Affairs).

The big risk in this current Review is not making anything any better, and, in the rush and narrow focus, actually making things significantly worse for charities and the communities they serve. The issues in this area of law are complex, and their impact far-reaching - it is likely to be more cost-effective (and prudent) in the long run to take the time needed to complete this review properly.

This is an important sector – crucial to this country’s economy and society. It deserves proper attention – not a once-over-lightly, a decade after a first principles review was promised.


The Law Commission did a good job in its review of incorporated societies, and a genuinely independent and thorough review under the auspices of a body like the Law Commission would also help with rebuilding trust.

If you agree, now is the time to write to the Minister for the Community and Voluntary Sector, Peeni Henare, and ask for the Charities Act Review to be referred to the Law Commission for a more considered, comprehensive and independent review.

While there are some indications that the Minister may be sympathetic, if this plea does not succeed, we also need to actively put in in our submissions to the current Review by 30 April.


Purpose

When the Bill was first going before Parliament, I argued at the time that this was ‘a solution in search of a problem'. As noted above, in response to hundreds of submissions, the original proposed Bill was almost completely rewritten at Select Committee stage – almost unheard of these days, and generally a recipe for poor drafting, especially when it was rushed through under urgency without proper consultation on the major revisions.

The final amendments to the Charities Bill (including further minor, but extensive, changes made by Supplementary Order Paper) were passed through under urgency, with all final stages occurring on one day. The comment was made in Parliament that “we do not really know what we are passing tonight, or what the implications are” (Charities Bill 3rd Reading (12 April 2005) 625 New Zealand Parliamentary Debates 19981). The Bill was also criticised for containing no regulatory impact statement, nor compliance costs statement, in breach of the Cabinet guidelines.

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 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.

New objectives appear to have been taken by Charities Services as a driver to impose greater controls on the sector.


The key problems with the previous arrangements administered by Inland Revenue (prior to the Charities Act), were the lack of a comprehensive register, the lack of reporting obligations, and the lack of certain and simple processes for dealing with an organisation established for charitable purposes that may no longer be pursuing charitable purposes. Most in the sector were willing to accept an information and disclosure regime to address these limitations. Instead we have had ‘Purpose creep’, with new more far-reaching objectives added to the Act’s purposes, since it was passed. For example, when the Charities Commission was summarily abolished, and effectively replaced by a unit in the Department of Internal Affairs, two objectives of the now defunct Commission were just elevated tacked on as additional purposes of the overall legislation. These included potentially interfering and controlling functions of the more subjective ‘promoting public trust and confidence in the charitable sector’ and ‘promoting the effective use of charitable resources’. These new objectives appear to have been taken by Charities Services as a driver to impose greater controls on the sector. This represents regulatory over-reach, and a purpose that has been rejected in most comparable jurisdictions (see, for example, the recent review of the Australian Charities legislation, Strengthening the Purpose: Australian Charities and Not for profits Commission Legislation Review 2018, pages 25-26, which also concluded that  an equivalent object in England and Wales was also found not to have had any positive impact on the charities sector in the UK.) It is a basic principle of good governance that an organisation’s own board should be responsible for determining effectiveness, not an outside body - whether an independent regulator, let alone a government agency.

The sector 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 essentially not happened. Lifting these objectives to the overall purposes of the legislation has been used to effectively change their meaning and impose greater controls on the sector.

We do not need more top-down, centralised control by a government agency determining which charities are and are not worthy of public support.


The original intention was that the purpose of an oversight regime was to ‘weed out’ ‘bad’ charities (those that engage in fraud, tax avoidance, money laundering etc.) in order to maintain confidence in the vast majority of legitimate charities, who should be allowed to go about fulfilling their charitable duties as they set think fit. Beyond ‘serious wrong doing’ (as defined in Section 4 of the Act), we should be relying on the power of sunshine (‘accountability of a thousand eyes’), disclosure of information by the registered charities to public scrutiny, so that all stakeholders may determine which charities they wish to support, and which are legitimate charities. We do not need more top-down, centralised control by a government agency determining which charities are and are not worthy of public support.

In considering additional possible objectives, it is quite legitimate for a regulatory body to have a function of supporting and sustaining a robust, vibrant, independent and innovative sector - as provided for in the second objective of the Australian Charities and Not-for-profits Commission Act 2012.

Without this wider purpose behind the information and disclosure regime there is a risk that the sector is essentially regulated and controlled, as a ‘loophole’ that needs to be contained and constrained, rather than a positive part of the social fabric in its own right that should be respected and supported to flourish.


RECOMMENDATION 1: The purpose of the Charities Act needs to be clearly articulated. It should be specifically limited to an information and disclosure regime for certain independent community organisations, not a means for government to “colonise and control” the charitable sector.

Two appropriate additional purposes for the Act, which respects rather than undermines the independence and creativity of the sector, include:

•    To support and sustain a robust, vibrant, independent and innovative charitable sector, and

•    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 objectives.

 

Activities

Section 18(3)(a) of the Charities Act is a specific example of how poorly drafted legislation-on-the-run is giving rise to unintended consequences. The legitimate reason for a regulator to ‘have regard’ to registered charities’ activities under this section should be limited to determining whether the charity is continuing to act in furtherance of its stated charitable purposes over time. It was not intended to be a means for a government agency to vet what are legitimate activities for a charity, nor to ration the privileges of charity based on changes in government policy.

 Charities are independent community entitles, usually intended to exist into perpetuity.

It for charities to determine how to best further their stated charitable purposes from time to time, and they should be protected from undue government interference when doing so.

 

RECOMMENDATION 2: 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. This limitation should be clearly expressed in the legislation.

 

Trier of Fact & Appeal

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.

The current decision-making framework, since the abolition of the Charities Commission and its role being split across the Charities Registration Board and Charities Services, was 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 the denial of natural justice to charities.

As the Law Commission noted in the context of disputes procedures for incorporated societies, the principles of natural justice can require an oral hearing. This is problematic, as neither the Board nor Charities Services has ever held an oral hearing. Charities, like everybody else, need to be able to access an oral hearing of evidence (a “trier of fact”).

Under the regime that applied before the Charities Commission, cases would arise primarily under the income tax legislation (and as a result disputes would fall under the well-developed, statutory tax disputes process. 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. Even then, only an outline of the facts and evidence are required, and if the matter does proceed to Court, evidence is not prevented from being adduced simply because it was not provided earlier: even after a full disputes process, taxpayers are not restricted in the evidence they can produce in challenge proceedings to evidence that had been previously provided. 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.

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”.

By contrast, appeals to the High Court are usually conducted as a rehearing. 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 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.

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.

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. 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. 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. 

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.

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.

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.

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

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

It also means that the Board is not supposed to appear adversarially in support of its decision, 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”. 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.

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. However, that decision is now under appeal to the Court of Appeal. The net result is that 6 years and two 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.

It would encourage the effective use of charitable resources, 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.

In summary, Charities need to be able to appeal all decisions made under the Charities Act (as is the case with the Incorporated Societies Act exposure draft and all other comparable legislation), 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 (as provided by the Australian Tax Office), as well as judicial specialisation, preferably through a specialist Charity Tribunal.

 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).

 RECOMMENDATION 3: 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.

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

 

Advocacy

Charities Services’ approach to advocacy by charities has become a leash around the neck of the sector, retaining its effective implementation of individual organisation’s charitable purposes, and having a chilling effect way beyond the individual cases it has pursued.

The terms of reference for the current Review specifically include “the extent to which registered charities can advocate for their causes or points of view”. 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”.

Kevin Kearns, one of the world’s leading experts on nonprofit and public sector accountability, identifies, in Preserving the Public Trust in Public and Nonprofit Organisations (San Francisco: Jossey-Bass. 1996) four dimensions of accountability. The first two are well known and widely appreciated - regulatory & contractual compliance, and stakeholder responsiveness. The third dimension refers to calculated risks and entrepreneurial activities to make the most of available resources (financial,  human, physical, and intangible), and has some implications for the discussion about ‘businesses’ operated by charities. It is the fourth dimension, however, which is of most interest to the current discussion. Kearns argues that it is not just an optional extra (let alone something to be limited or constrained) but actually an obligation of public benefit organisations, like charities (in part as a reciprocal responsibility for the privilege such organisations often have in being part of people’s and communities’ live when they may be most vulnerable), that whenever these organisations come across laws, policies, or activities that are not working for the beneficiaries they serve, they cannot ignore such systemic failures but need to take them as forcefully as they are able to who-ever has the power and/or resources to address the concern.

From Kearns’ point of view such advocacy in pursuit of charitable purposes would not be just a ‘permitted’ activity of charities - but a required one in terms of fulfilling their accountability obligations. If we follow this agreement to its logical conclusion, failure of a charity to take active steps to raise a systemic failure should be more properly a ground for reregistration, than doing so! Neither Kearns nor we would suggest that failure to advocate should be regulated, but certainly part of ensuring the accountability of charities is expecting and supporting them to advocate in furtherance of their charitable purposes.

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 widely acknowledged as integral to community wellbeing… Unfortunately the current regime not only fails to encourage accountability to advocate for change when system failure is identified, it is not even neutral.

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 widely acknowledged as integral to community wellbeing (for example, by the 2018 Australian Charities Review). Or as the UK House of Lords Select Committee on Charities observed: “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”.

Unfortunately the current regime not only fails to encourage accountability to advocate for change when system failure is identified, it is not even neutral. Charities Services’ interpretation of the Supreme Court decision in Greenpeace is complex, highly subjective and unworkable in practice. It would be disastrous for charities’ ability to advocate for their charitable purposes and our democracy if there was any move to codify Charities Services’ wrong-headed interpretation of the Supreme Court decision. 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.

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: seeking peaceful orderly change is itself in the public interest in a participative democracy like New Zealand.

Advocacy is an activity, not a purpose. 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 should be no difficulty. That is the law of New Zealand, and it should be applied by Charities Services. (Note that the terms of reference are framed incorrectly, representing a fundamental misunderstanding of the officers responsible for its drafting: charities advocate for their charitable purposes, not their “causes or points of view”.)

RECOMMENDAITON 4: Charities’ independence, and their right and duty to advocate in furtherance of their charitable purposes, without fear of loss of registration must be protected.

 

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:

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.

 Despite Charities Services imposition of this test, there is no legal authority for this rule. It is simply a rule that Charities Services has unilaterally decided to apply. As a result, Charities Services’ approach sees many good charities deregistered or declined registration, even though they meet all the legal criteria for registration.

This… 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.

RECOMMENDATION 5: Charities’ ability to raise funds for their charitable purposes, including by way of running businesses, must also be protected and supported. Arbitary tests or requirements should not be applied to considering the registration of Charities if they have no basis in New Zealand law.

 

Accountability

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. 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, for example, in making specific funding decisions.

A large number of submitters on the original Charities Bill expressed concern with the proposal for the Charities Commission to be a Crown agent, that this might allow the Government to interfere with, direct, or control the Commission, and would not reflect the independence of the charitable sector from the Government. 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.

In light of these concerns, the classification of the Charities Commission was changed at select committee stage to that of an autonomous Crown entity. 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 perform their statutory functions.

The controversial proposal in 2011 to disestablish the Charities Commission and transfer its functions to Charity Services (a business unit of the Department of Internal Affairs) was not wanted by the charitable sector and ultimately passed by only one vote. Submissions from the 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.

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

The independence of the Charities Commission was fundamental to the agreement between the sector and the Government when it was established in 2005. Its unilateral disestablishment and tighter control within a government department just six years later represented an arrogant slap in the face for the sector, has fertilised mistrust and destroyed any fig leaf of pretence about working collaboratively with the sector.

This has also resulted in a convoluted decision-making process between the Chief Executive of the Department and a 3-person Registration Board.

The relationship, in practice, between the Registration Board and DIA staff 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 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.

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

In particular, there appears to be a practice developing of DIA staff commonly encouraging some applicants (whom they, the DIA staff, believe might not be successful in applying for registration) to withdraw their application (or voluntarily deregister) - thereby removing decision-making from the Board, and also as a result removing from public and media scrutiny (ironically undermining the very transparency that the legislation was designed  to promote).

Since February 2007, approximately 9,315 charities have been de-registered… only six charities (0.0006%) have actually been deregistered for ‘serious wrong-doing’ - the main rationale for having such a regulatory regime in the first place.

For example, since February 2007, approximately 9,315 charities have been de-registered (more than a third of those currently registered - so this represents quite a major ‘purging’ of the register). About half (4,774 charities) were deregistered for failure to file annual returns. While the paper work is an important part of an information and disclosure regime, only six charities (0.0006%) have actually been deregistered for ‘serious wrong-doing’ - the main rationale for having such a regulatory regime in the first place. Most of the remaining 4,535 charities have deregistered ‘voluntarily’ so it is unclear how many of these deregistrations are the result of  the narrow jurisprudence of concern to many observers of the the way the Charities Act is being implemented. Similarly with registrations being informally dissuaded from being pursued this effectively hides potential areas of conflict, individualises failure to comply, throwing a cloak of invisibility over many systemic biases or jurisdictional peculiarities.

The Courts have confirmed that the Charities Act was not intended to change the definition of charitable purpose. 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.

Charities Services genuinely appears to consider that New Zealand has “too many charities”, 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.

Such an argument is specious: no one argues that all not-for-profit 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 (and the public) should want charities to be on the register, so that they are subject to the transparency and accountability requirements of the Charities Act. An increasingly narrow interpretation of ‘charity’ serves no-one, and undermines the avowed purpose of the Act.

In addition, 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.

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.

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

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

Australia has an advisory board (in addition to, and as advisors to the Commissioners), and most recent review 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.

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.

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.

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

RECOMMENDAITON 6: An independent Charities Commission should be reinstated at least as an autonomous Crown Entity, and preferably as an independent Crown Entity. Whatever agency administers the Charities Act must be accountable to the charitable sector in a meaningful way, and an Advisory Board should be established to advise Government on policy, and advance the interests of the charitable sector.

 

March 2019

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Footnotes:

[1] In fact, there is a reasonable argument in tax theory that exempting Charities from paying income tax is not a ‘tax expenditure’ at all, but rather a means of ‘levelling the playing field’ - given that Charities are not the ultimate beneficiaries of their income, which is in fact ultimately spent on the charitable purpose, often meaning being directed to people who themselves would not be required to pay tax. In this sense the primary tax ‘concession’ is merely the equivalent of imputation credits for poor people. Even before we consider the positive benefits provided to society by charities and the citizen generosity they harness.