Proposed Changes to the Charities Act - What Does This Mean for My Organisation?

21 October 2022
gibson

Proposed changes to the Charities Act: what does this mean for my organisation?

The Charities Act 2005 (Act) provides a registration, reporting and monitoring system for approximately 28,000 registered entities that carry out charitable purposes.[1] A charity must be “wholly and exclusively” charitable and meet all the requirements under the Act to qualify for registration and the charitable tax exemption.[2]

Changes in the Charities Amendment Bill are intended “to support charities to continue their vital contribution to community well-being, while ensuring that contribution is sufficiently transparent to interested parties and the public.”[3]

What key changes is the Bill proposing?

Definition of Officers – This will capture all persons with significant influence over the management or administration of the charitable entity. This aligns with the new definition of officers in the Incorporated Societies Act 2022.

Qualification of Officers – At least one officer must be 18 years or older and the remaining officers must be at least 16 years old. The disqualifying factors to becoming an officer are updated to include persons who have been convicted of an offence relating to the financing of terrorism.

Governance procedures – Charitable entities will be under a duty to review their governance procedures (whether those are set out in its rules or elsewhere) annually. You must consider whether your governance procedures are current, whether they support you to achieve your entity’s charitable purpose and whether they support your entity to comply with the requirements of the Act.

Financial reporting requirements for small charities - Very small charities may be exempted by the Regulator from the External Reporting Board’s reporting standards. A charitable entity that is exempt will still have to provide an annual return with basic financial information. What information will be required will be set out in the Regulations (which are still to come).

Regulatory decision making – The two regulators under the Act are Te Rātā Atawhai (the independent Charities Registration Board) (the Board) and the Chief Executive of Te Tari Taiwhenua Department of Internal Affairs. Charitable entities will have more ability to object to decisions. Regulators must also follow new processes when they exercise powers under the Act, including:

  • The Board must publish all declined/deregistration decisions and provide a clear process for charitable entities to object to decisions; and

  • Timeframe for lodging objections and submitting information on certain matters are extended from 20 working days to two months.

Appeals framework – The Taxation Review Authority (Authority) will be the first to hear appeals under the Act, instead of the High Court as it is currently. It is hoped that this change will promote accessibility for charitable entities, as it allows them to self-represent and reduces costs. Decisions may still be appealed to the High Court, or referred to the High Court on questions of law, or where the Authority decides that the High Court should hear the appeal.

Compliance and enforcement powers - Obligations on charities to remain qualified for registration (by maintaining their rules, charitable purposes and having officers that are qualified under the Act), are now expressly stated.

[1] Charities Amendment Bill, Explanatory note

[2] Charities Services | The Charities Act 2005

[3] Charities Amendment Bill, Explanatory note, General policy statement.

The Board can disqualify an officer for serious wrongdoing (defined as an offence punishable by two or more years of imprisonment) or a significant or persistent breach of obligations, without deregistering the charity.

Accumulation of funds - Charities that report under the External Reporting Board’s financial reporting standards Tiers 1 to 3 will be required to report the reasons for their accumulated funds (including cash, assets or other resources). This change will be reflected in a change of the annual return form on the Charities Services.

What is the process? There are a variety of stages that a Bill must go through before receiving royal asset and passing into law. The Bill is currently at the Select Committee stage, where the committee will consider submissions from the public. The Bill will subsequently go through its Second Reading, the Committee of the whole House and Third Reading before then receiving Royal Assent.

Do I need to do anything?  Consider whether the changes will affect your organisation. If so, the changes will come into force at either 3 months after the Bill has received royal assent or 12 months after.

You can stay up to date with progress of the Bill via the Parliament website. Public submissions to the Select Committee are now open until 10 November 2022. If you would like any help with your submissions, please contact Gibson Sheat.