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Charitable purpose: Sport and recreation
Updated February 2012
To be eligible for registration as a charitable entity under the Charities Act 2005 a sport or recreation organisation must have purposes that are charitable in accordance with New Zealand law and must not be established for private profit.
Introduction
The purpose of this paper is to set out the current legal position on the charitable status of sport and recreation organisations.
Organisations (including societies, institutions and trustees of trusts) can qualify for registration as charitable entities under the Charities Act 2005 if their purposes are charitable in accordance with New Zealand law.
Charities Services looks at the purposes and activities of all organisations that apply to it for registration. It then decides whether the organisation has exclusively charitable purposes.
Registration under the Charities Act offers a number of benefits (see our information sheet The Charities Register: Benefits for charitiesfor more details). Among those benefits is eligibility for tax exemptions under income tax legislation on charitable purpose grounds.
Bodies promoting amateur games and sports that are currently eligible for a tax exemption under CW 46 of the Income Tax Act 2007 do not need to register under the Charities Act 2005 to qualify for, or keep, that tax exemption.
CW 46 provides a tax exemption for the income of clubs, societies, or associations if:
- the club, society or association is established mainly to promote an amateur game or sport and
- the game or sport is conducted for the recreation or entertainment of the general public and
- no part of the funds of the club, society or association are, or can be, used for the private pecuniary profit of a member, proprietor, shareholder or their associates.
For information about tax exemptions under CW 40 (and CW 41 and CW 42 relating to charities) visit the IRD website or call Inland Revenue on 0800 377 774.
Background
The Charities Act 2005 establishes three essential requirements for registration as a charitable entity.
An organisation’s name and its officers must meet the requirements set out in the Charities Act, and it must have exclusively “charitable purposes”.
The legal interpretation of the term “charitable purpose” has been developed through the courts and in some legislation. Our information sheet Charitable purpose summarises the overall position with regard to charitable purpose.
In brief, to be charitable, a purpose must fall into one of the four established legal categories of charitable purpose – that is, it must be to:
- advance education
- advance religion
- relieve poverty
- otherwise benefit the community
It must also provide a public benefit. This means that the organisation’s purposes must be aimed at benefiting the public or a sufficient section of the public and the purposes cannot be for private profit.
Are all sport and recreation organisations charitable?
Section 5 (2A) of the Charities Act 2005 says that the promotion of amateur sport may be a charitable purpose if it is the means by which a charitable purpose is pursued.
In all cases, whether an organisation has a legally recognised charitable purpose will depend on the purposes set out in its rules and the specific activities it undertakes.
Sport and recreation organisations are most likely to be considered in terms of the following categories of charitable purpose:
- relief of poverty (for example, if they provide activities for the aged or for people who have a disability) or
- advancement of education (for example, if they provide training or skills development for the public), or
- other purposes beneficial to the community (for example, if they provide public amenities or recreational facilities or promote public health).
Legal position on sport and recreation and charitable purpose
Relief of poverty
In order to be charitable under this category, a purpose must:
- be directed at people who are poor, in need, aged, or suffering genuine hardship and
- provide relief.
Generally this will include anyone who does not have access to the normal things in life which most people take for granted.
To provide relief, the people who will benefit should have difficulty in alleviating that need from their own resources.
Advancement of education
In order to be charitable under this category, a purpose must:
- provide some form of education and
- ensure that learning is advanced.
The modern concept of “education” covers formal education, training and research in specific areas of study and expertise. It also includes less formal education in the development of individual capabilities, competencies, skills and understanding.
Education does not, however, include the study of subjects which have no educational value.[1]
Courts have held that encouraging sport either in connection with a particular school[2] or among young people at schools and universities generally[3] is an essential part of their education.
Sport and recreation purposes for young people that have not been attached to educational institutions, have also been held to be charitable if they have an educational nature.[4]
Other purposes beneficial to the community
To be charitable under this category, a purpose must be:
- beneficial to the community and
- within the spirit of the matters listed as charitable in thePreamble to the Statute of Elizabeth Act 1601 (otherwise known as the Charitable Uses Act 1601):
- relief of aged, impotent, and poor people
- maintenance of sick and maimed soldiers and mariners
- schools of learning
- free schools and scholars in universities
- repair of bridges, ports, havens, causeways, churches, sea banks, and highways
- education and preferment of orphans
- relief, stock or maintenance of houses of correction
- marriage of poor maids
- supportation, aid and help of young tradesmen, handicraftsmen, and persons decayed
- relief or redemption of prisoners or captives and
- aid or ease of any poor inhabitants concerning payment of fifteens, setting out of soldiers and other taxes.
In making an assessment under this category Charities Services will consider the spirit and intention of the purposes listed in the Preamble to the Statute of Elizabeth, relevant decisions made by the courts, and the current social and economic circumstances.
In the past courts have held yacht-racing;[5] angling;[6] teaching and coaching young cricketers;[7] recreational flying;[8] breeding and showing foxhounds;[9] rowing, swimming, and amateur athletics;[10] athletic sports and general pastimes;[11] breeding and racing homing pigeons;[12] and horse-racing;[13] to be non-charitable purposes.
More recently, however, courts have held sport and recreation purposes may be charitable if they:
- provide public amenities and recreational facilities (such as a national park,[14] a rugby grandstand,[15] a sports centre,[16] and a stadium[17])
- promote amateur sport which involves the pursuit of physical fitness.[18]
To be charitable under this category, it is necessary to show that real, tangible, benefits will result for the community.
Requirement to be exclusively charitable
To be registered under the Charities Act, an entity must be exclusively charitable. In the case of a trust, this is because the law requires that charitable trusts are for purposes that are only charitable.
In the case of societies and institutions, the Act is clear that these must be established and maintained exclusively for charitable purposes.
This requirement will apply equally to sport and recreation organisations, wishing to be registered as charitable.
This means that the rules of the organisation need to clearly limit the purposes to charitable purposes. The rules must also make it clear that on winding up, any remaining assets will go to a charitable purpose.
In addition to looking at an organisation’s purposes as set out in its rules, Charities Services must also look at the organisation’s current and proposed activities to decide whether it has charitable purposes.
Each application for registration is assessed on a case-by-case basis.
Public benefit
In order for a purpose to be charitable, it must provide benefits for the public. This means that the benefits must be available to the public or a sufficient section of the public.
Factors that may count against this include where:
- There are unreasonable or unjustifiable restrictions placed on who may benefit from the activity.
- Prohibitive costs associated with the activity (including fees and equipment) will exclude the less well-off.
- There is an unreasonable risk of injury or harm associated with the activity which will outweigh any benefit to the public.
- Providing amusement, entertainment, or social activities for members is a primary purpose.
Private pecuniary profit and profit making activities
To meet the requirements for registration under the Charities Act, a society or institution must not be carried on for the private pecuniary (financial) profit of any individual. As with all charitable entities, this means that the charity cannot have private profit making as one of its purposes.
A charity can still charge fees that cover more than the cost of the services it provides and can pay people for the purchase of goods and services, as long as all of its activities are to further its charitable purposes and not to further the private financial interests of individuals. Payments must therefore be reasonable and based on “arms-length commercial rates”.
References
- ⇑ In re Shaw (dec’d) [1957] 1 WLR 729; [1957] 1 All ER 745 as interpreted in Re Hopkins’ Will Trusts [1964] 3 All ER 46.
- ⇑ Re Mariette [1915] 2 Ch 284 applied in Nelson College v Attorney-General (High Court, Nelson, M 40/86, 1 December 1986, Heron J).
- ⇑ Inland Revenue Commissioners v McMullen [1981] AC 1; [1980] 1 All ER 884
- ⇑ Re Dupree’s Deed Trusts [1945] 1 Ch 16.
- ⇑ Re Nottage [1895] 2 Ch 649.
- ⇑ Re Clifford [1912] 1 Ch 29.
- ⇑ Re Patten [1929] 2 Ch 276.
- ⇑ Scottish Flying Club Ltd v Inland Revenue Commissioners 1935 SC817.
- ⇑ Re Peterborough Royal Foxhound Society v Commissioner for Inland Revenue [1936] 2 KB 497.
- ⇑ Laing v Commissioner of Stamp Duties [1948] NZLR 154.
- ⇑ Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] AC 380.
- ⇑ Royal National Agricultural and Industrial Association v Chester (1974) 48 ALJR 304.
- ⇑ Re Hoey [1994] 2 Qd R 510 applied in Travis Trust v Charities Commission High Court Wellington, CIV-2008-485- 1689, 3 December 2008.
- ⇑ Re Bruce [1918] NZLR 16.
- ⇑ Re Chapman (High Court, Napier, CP 89/87, 17 October 1989, Greig J).
- ⇑ Guild v Inland Revenue Commissioners [1992] 2 AC 310.
- ⇑ 17 Commissioner of Inland Revenue v Wellington Regional Stadium Trust [2006] 1 NZLR 617.
- ⇑ 18 Re Laidlaw Foundation (1984) 13 DLR (4th) 491.
