Big charities will need to be more transparent over their funding, after a government review recommended changes to the law.
Photo: RNZ / Samuel Rillstone
The changes will require charities, which are not required to pay tax, to explain any major accumulated cash, assets and other resources if they have operating expenses above $140,000.
Administrative burdens on small charities will also be reduced, and it will be easier for charities to seek an appeal over decisions.
Charities Services, which administrates the sector, and the Charities Registration Board which makes decisions about registration, will also have increased powers.
Community and Voluntary Sector Minister Priyanca Radhakrishnan announced the changes this morning, saying the roughly 28,000 registered charities in New Zealand made a great contribution to New Zealand, but the legislation needed to be fit for purpose.
It follows a review by Internal Affairs (DIA), ordered by the government in 2018 in the wake of Destiny Church's deregistration as a charity.
The church had failed to file financial returns for two years and ignoring multiple warnings from the Charities Registration Board, which went so far as to say the deregistration was in the public interest.
The board's inability to punish uncooperative charities prompted the newly minted Labour-led government to order the review of the Charities Act, but the scrapping of tax exemption for charities was not considered, despite demands from the public.
Radhakrishnan said the past two years of the Covid-19 pandemic had shone a light on the important role charities played. The changes would improve transparency and build trust, she said.
"Many of New Zealand's largest charities have significant unexplained accumulated funds. It is important they are transparent about the reasons for holding on to a large quantity of funds, including donations."
Very small charities would also be able to get an exemption to financial reporting.
"This will free up resources to allow volunteers to spend more time focused on communities and doing the mahi they are passionate about."
Charities would also find it easier to make appeals against decisions about them, with responsibility transferred from the High Court to an expanded Taxation Review Authority. Some $1.7 million was set aside in this year's Budget to enable this.
Charities would be able to represent themselves at the Authority, reducing the costs of lodging those appeals, which would also have longer submission timeframes.
"It is important that our system doesn't just work for those who have the resources to navigate it. The same service and the same access must be available to everyone."
Proposed changes to the Act:
- Charity requirements - maintaining a charitable purpose, having a rules document, and having qualified officers - will be made explicit.
- Larger charities (with operating expenses over $140,000) will be required to report reasons for accumulated funds. This requirement will be included on an updated annual returns form designed in consultation with the sector and iwi.
- Very small charities can get exemptions from financial reporting, through Charities Services. The threshold for this is yet to be developed.
- Charities Registration Board membership will increase from three to five.
- The Board will now have power to disqualify an officer for 'serious wrongdoing' or a significant or persistent breach of obligations, without having to deregister the charity. Part of the definition of 'serious wrongdoing' will be clarified, replacing a reference to an offence with 'an offence that is punishable by imprisonment for a term of two years or more'.
- The Board will be required to publish decisions on declining an application for registration and deregistering a charity. The Board and Charities Services will also publish information on decision-making policies and procedures, and significant decisions of the Board and Charities Services will have clear process for charities to raise objections.
- Charities Services' significant decisions, and existing decisions of the Board, will be able to be appealed. Appeals under the Act will now go to the Taxation Review Authority, before going to the High Court.
- Charities Services will be required to consult with the sector when developing significant guidance material.
- Timeframes for submitting objections, administrative information, and appeals will be extended from 20 working days to two months
- DIA will review Charities Services' performance measures, operational practices
Radhakrishnan said an amendment bill was expected to be introduced this year, with consultation via the select committee process, and this would be followed up with a process to consider more fundamental concerns raised by the review.
The Destiny Church deregistration was tied up in the courts for years, during which it continued to not pay tax, and it regained its tax-exempt status in 2019.
Several of its arms were again deregistered however after failing to meet requirements. A petition last year also called for the church to be deregistered after leader Brian Tamaki organised several protests against Covid-19 lockdowns, which the petitioners said was promoting "uncharitable views".