Charities will soon have to justify sitting on large amounts of wealth

Thursday, 2 June 2022

Minister for the Community and Voluntary Sector Priyanca Radhakrishnan says

Charities with operating expenses over $140,000 a year will have to explain why they are sitting on so much cash in future, following the completion of a review of the Charities Act.

As well as increasing transparency for larger churches, the review also proposes measures to improve access to justice services, and reduce the paperwork burden for smaller charities.

Minister for the Community andVoluntary Sector Priyanca Radhakrishnan unveiled the proposed new rules on Thursday morning and said many of the country’s largest charities had “significant unexplained accumulated funds”.

“It is important they are transparent about the reasons for holding on to a large quantity of funds, including donations.

* Tax-exempt charities may have to justify sitting on millions of dollars in funds

* Charities are dealing with national financial reporting changes

She said transparency built trust and the public needed to be able to trust charities were acting responsibly with their donations and other income, on which they do not pay tax.

The new rules will cover cash holdings, assets like shares, and other resources.

Radhakrishnan said the review did consider new rules requiring distribution plans for funds, and requirements that a percentage of funds charities held be distribute towards their charitable purpose.

But she said such rules would be “putting the cart before the horse”, and it was decided disclosure requirements should be introduced first, so authorities knew how much wealth charities were sitting on.

She said there was no clear picture at present.

There were calls for mega churches that compromised lockdowns with protests to lose their charity status.

New powers to remove bad actors

The Charities Registration Board will also be given a new power to disqualify a charity officer for serious wrongdoing, or a significant or persistent breach of obligations, without having to deregister the charity entirely.

Radhakrishnan said the authority did not have this ability currently, and acknowledged it had led to the perception that some charity and church leaders could not be removed.

“We have had examples in the past where a particular individual has been involved in something that would be considered serious wrongdoing, but there were no avenues through the current legislation for that person to be removed from the entity instead of the whole charity being deregistered.”

The definition of serious wrongdoing will be also clarified to reference to an offence that is punishable by imprisonment for a term of two years or more.

The Department of Internal affairs will also be reviewing performance measures for charities, and the requirements for charities to remain registered will be made explicit.

These requirements include maintaining a charitable purpose, having a rules document, and having qualified officers.

Radhakrishnan said reviewing what qualified as “charitable purpose” was outside the scope of the review, but she did not rule out investigating this topic in future.

The review began in 2018, but faced repeated delays due to Covid-19.

Less reporting for small charities

For smaller charities, which have operating expenses below $140,000, the proposed new rules will relax financial reporting requirements to the regulator, with the intention being to free up resources and allow volunteers to spend less time on paperwork.

There will also be changes to the appeals process for charities. Currently, charities that want to appeal a decision against them, such as being deregistered, have to go to High Court, which is expensive and time consuming.

Destiny Church leader Brian Tamaki addressed thousands of anti-lockdown protesters at a protest at the Auckland Domain on October 2. He attended a second event on October 16, but maintains he did not organise either (first published October 30).

In future they will go through an expanded Taxation Review Authority, cash for which was announced in the recent Government Budget, where $1.7 million was invested to enable charities to appeal a wider range of decisions.

The timeframe for lodging an appeal will also be extended from 20 days to two months.

“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,” Radhakrishnan said.

“There are about 28,000 registered charities that contribute greatly to New Zealand society, we want to ensure that our legislative settings are fit for them to continue supporting our communities into the future.”

A bill is expected to be introduced this year to make these amendments to the Charities Act and the public will have an opportunity to provide feedback through a Select Committee process.

The bill did not address the treatment of megachurches.

Discussions of whether mega churches like Destiny and Impact Church should benefit from charity status have risen in volume in recent times after a number drew public anger for protesting lockdowns and health advice.

A petition to strip the churches of their tax-exempt status attracted more than 50,000 signatures.

The review will be the biggest overall of charity rules since the act was first introduced in 2005.

The review of the Charities Act commissioned by the Government was led by the Department of Internal Affairs.