A Guide to the Charities Act
This edition of A Guide to the Charities Act was updated in September 2007.
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You can see a copy of the Charities Act 2005 at www.legislation.govt.nz or buy a copy from any Bennetts bookshop.
Introduction to the Charities Act
The Charities Act 2005 (“the Act”) was passed in April 2005. The Act established the Charities Commission (“the Commission”) which came into being on 1 July 2005.
The Commission’s main functions are:
- to establish and maintain a registration and monitoring system for charitable organisations
- to provide support and education to the charitable sector on good governance and management.
Registration under the Act began on 1 February 2007 when the Charities Register (“the Register”) opened. The Commission helps organisations that want to register by providing plain language information about the Act and how to apply to register under the Act.
You can see a copy of the Charities Act 2005 at www.legislation.govt.nz or buy a copy from any Bennetts bookshop.
Governance
A board appointed by the Minister for the Community and Voluntary Sector governs the Commission. A Chief Executive and other staff members are responsible for the day-to-day work of the Commission.
Autonomous Crown Entity
The Commission is an Autonomous Crown Entity (ACE). An ACE is an organisation that is independent of Government but it must “have regard” for government policy when directed by the responsible Minister.
The functions of the Commission
The Act says the key functions of the Commission include:
- deciding on whether to accept an application for registration
- monitoring annual returns submitted by registered charities
- reporting and making recommendations to Government about charitable sector matters
- promoting public trust and confidence in the charitable sector
- encouraging the effective use of charitable resources
- educating charities about matters of good governance and management
- stimulating and promoting research about the charitable sector.
Promotion of public trust and confidence
One function of the Commission is to promote public trust and confidence in the charitable sector. The Commission will do this by encouraging good governance and management practices, by providing educational material and other help. This will enable organisations to be more effective.
Registering and monitoring charities is another way to let the public know that the charities
are doing what they say they are doing.
Education and support
The Commission’s advice and help is available to all charities, registered or not. The Commission is also able to offer advice to Government about the charitable sector and may promote sector research.
Registration
The Charities Register opened on 1 February 2007.
Registration as a charity is voluntary and free. Applications can be made online or on paper forms.
Why register?
Registered charities gain several benefits:
1. Getting or keeping tax exemptions
Changes to the Income Tax Act 2004 and Estate and Gift Duties Act 1968 mean that only charities registered with the Commission will be eligible for tax exemptions. Tax exempt status means registered charities don’t have to pay income tax (including resident withholding tax), and donors of gifts to registered charities don’t have to pay gift duty. The changes take effect from 1 July 2008. These changes do not affect donee status.
2. Being listed on the Charities Register
The public can search the Register online at www.charities.govt.nz to find out about a registered charity.
3. Getting a registration number
The Commission gives registered charities a unique registration number, which they can display on promotional material. It lets the public know that the charity has met the requirements for registration under the Act.
4. Information on the charitable sector
By registering, charities provide the Commission with information about the charitable sector in New Zealand. This will help the Commission fulfil its education and support function to the sector and the public.
5. Attending the Commission’s annual meetings
The Commission holds annual meetings for its registered charities. The meetings give charities an opportunity to have a say in the work of the Commission.
Charitable trusts and incorporated societies need to register
Even if an organisation is already a charitable trust or an incorporated society, it still needs to register with the Commission if it wishes to:
- be eligible for tax exemptions
- become a registered charitable entity.
Who can register?
An organisation can register if:
- it is established and maintained for charitable purposes
- it is not for the private profit of any individual or group
- it has a name that complies with the Act
- all the officers of the organisation are qualified to be officers under the Act.
Provision for group registration
The Act allows the Commission to treat a group of charities as if they were a single entity. The Commission must be satisfied that:
- each of the organisations within the group qualifies for registration as a charity
- the organisations are sufficiently closely related
- it is fit and proper to treat the organisations as forming part of a group.
The Commission must also look at the extent to which the organisations have similar charitable purposes.
Definition of charitable purpose
The Commission uses the well-established common law test for charitable purposes. According to the test, the rules of an organisation must clearly state that its purposes are for one or more of the following:
- the relief of poverty
- the advancement of education
- the advancement of religion
- any other matters that are beneficial to the community.
The charity’s object must also be of benefit to the public (public benefit test).
An organisation may qualify for registration if it has a secondary or supplementary non-charitable function (such as advocacy) as part of its charitable purpose.
Registration requirements
To register, organisations have to:
- complete the prescribed application form, which includes information about their current and proposed charitable activities
- submit a copy of their rules, constitution, trust document or similar
- certify the officers of the organisation by completing a prescribed officer form.
Once registered, organisations need to:
- file an Annual Return within six months of their balance date
- notify the Commission within three months if certain information about their organisation changes.
The Commission helps charities to register by:
- providing guidelines on how to apply
- providing up-to-date information about registration
- ensuring that the information on the Register meets the requirements of the Act.
Enforcement of registration requirements
If a registered charity does not comply with the Act, the Commission has the authority to:
- impose administrative penalties
- issue warning notices
- publicise any non-compliance
- undertake further investigations
- deregister charities that have seriously or repeatedly failed to comply with the Act
The Commission also has the authority to check that registered charities are fulfilling their
described purpose and complying with the Act.
How and when to register
Charities have until 1 July 2008 to register before their tax exemptions are affected.
Applications can be made online or by using paper versions of the forms.
The Commission is running an ongoing education and information programme to assist
organisations wishing to register.
Cost of registration
Applying for registration is free.
Fee for filing Annual Returns
There is a fee for filing Annual Returns for charities with a gross annual income of over $10,000.
The fee is:
• $50 for filing a form online
• $75 for filing a paper form.
Charitable organisations with an annual income of $10,000 or less are not charged to file their Annual Return.
Inland Revenue responsibilities
Inland Revenue remains responsible for administering the revenue acts and retains the right
to audit charities to ensure they continue to be eligible for tax exemptions. Inland Revenue also remains responsible for assessing donee status (donations to a charity that are eligible for rebates and deductions).
Charities registered under the Charities Act are generally eligible for exemptions from income tax on some, or all, of their income. They do not need to apply to Inland Revenue for those exemptions. Once registered, they receive information from Inland Revenue outlining the exemptions they are entitled to and what they have to do to comply with the requirements for the exemptions.
Inland Revenue has published Operational Statement OS 06/02 Interaction of tax and charities rules, covering tax exemption and donee status, which provides more information about the requirements for income tax exemption and donee status. You can get a copy of this statement from www.ird.govt.nz.
For more information about charitable tax exemptions, please contact Inland Revenue on 0800 377 774.