The Charities Amendment Bill (Bill)—that amends the Charities Act 2005 to modernise the legislation for the purpose of increasing transparency for the public, improving access to justice services, and reducing the burden on smaller charities—was introduced on 21 September 2022 and had its first reading on 28 September 2022.
It has been referred to the Social Services and Community Committee which has called for submissions by 10 November 2022.
The Bill follows a review of the Charities Act which commenced in 2018 and involved consultation with stakeholders. The fundamentals of the Charities Act (including the registration, reporting and monitoring of charities) were considered sound and were therefore out-of-scope for the review, which focussed on practical improvements to the Charities Act 2005.
The key changes introduced by the Bill include:
‘Very small charities’ will benefit from simpler financial reporting to reduce the compliance burden
Charities Services will have the power to exempt ‘very small charities’ from the financial reporting standards set by the External Report Board. Those charities will instead have to file an annual return with basic financial information.
The financial thresholds for ‘very small charities’ will be prescribed by regulation which is yet to be drafted. Analysis undertaken by the Department of Internal Affairs suggested a threshold of annual payments under $10,000 and total assets under $30,000 that would benefit 12 percent of all registered charities.
Requirements for officers and governance of charities clarified
The Bill clarifies that the role of an officer is to support the charity to deliver its charitable purpose and comply with obligations under the Charities Act.
The definition of ‘officer’ will be amended to include people with significant influence over the management or administration of the entity. This is intended to ensure that people with influence over the decision-making and direction of a charity are defined as officers.
People with a conviction relating to the financing of terrorism will be disqualified from holding officer roles in charities.
At least 1 officer of a charity must be 18 years or over (while remaining officers can be 16 years or older).
Charities will be required to review their rules document or governance procedures annually. This will include checking whether policies and processes relating to financial management, conflicts of interest, and officer appointments are still appropriate.
Appeals framework reformed to improve access to justice
Appeals will be made to an expanded Taxation Review Authority instead of to the High Court in the first instance. This is intended to make the appeals process less expensive and time-consuming. The Taxation Review Authority will become known as the Taxation and Charities Review Authority.
Further appeals to the High Court and Court of Appeal will be allowed on points of law.
Decisions that can be appealed will be expanded to include significant decisions of Charities Services.
The time for lodging an appeal will be increased from 20 working days to 2 months.
Regulatory decision-making enhanced to promote transparency and fairness
The Charities Registration Board will be required to publish decisions on declining an application for registration and deregistering a charity.
The Bill expands the ability for entities to object to decisions made under the Charities Act (including expanding objection rights from deregistration or other significant decisions).
The time for lodging objections and submitting information to the chief executive on administrative matters will be extended from 20 working days to 2 months.
The chief executive will be required to consult the charitable sector when developing significant guidance material.
Regulatory compliance and enforcement tools improved
The implicit requirements for charities to remain qualified for registration – maintaining charitable purpose, having a rules document, and having qualified officers – is made explicit. This change does not impose any new obligations on charities but simply states these requirements explicitly in the legislation.
The Charities Registration Board will have new power to disqualify an officer for ‘serious wrongdoing’ or a significant or persistent breach of obligations, without having to deregister the charity (currently, the Board can only make an order disqualifying an officer when deregistering the charity).
The definition of ‘serious wrongdoing’ is also clarified.
Non-legislative change – increased transparency requirements for charities accumulating funds
Larger charities in tiers 1 to 3 (over $140,000 annual operating payments) will be required to report the reasons for their accumulated funds (including cash, assets or other resources). The reporting is intended to provide greater clarity on why funds are held and improve public trust and confidence in the charitable sector.
This is not a legislative change and will be implemented through a change to the annual return form. Charities Services will work with iwi to design changes to the annual return form to reflect te ao Māori views of accumulation.
Once passed, the key changes in the Bill will come into effect on dates 3-12 months from the date of Royal assent.
The Bill has been referred to the Social Services and Community Committee. The public now has an opportunity to make submissions on the Bill by 10 November 2022. The Select Committee is due to report back with its recommendations by 28 March 2023.
Special thank you to Scott Moran, Louisa Joblin and Rebecca Hilson for preparing this article. For more information about how this may affect you please contact a member of our Not-For-Profit & Incorporated Societies Team.
Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.