The following information deals with the Charities Act 2005, which set up the Charities Commission.
- Qualifying for charitable status under the Charities Act
- The process of registration
- The consequences of registration
- Parent and affiliated organisations can be single entities
The role of the Charities Commission
The Charities Commission was established on 1 July 2005 by the Charities Act 2005. The Commission and the Act are monitored by the Department of Internal Affairs.
The Commission has two main functions:
- to register and monitor charities
- to provide education and support to the charitable sector
The Commission is also intended to:
promote public trust and confidence in the charitable sector
- encourage best practice in governance and the use of charitable resources
- advise the government on matters relating to charities.
Registration and tax-exempt status
Registration with the Commission is voluntary, but charitable organisations must register if they want to keep or obtain income-tax exemptions on the grounds of charitable purpose. Tax-exempt status remains a decision for Inland Revenue, but charities must register with the Commission to be eligible for tax-exempt status.
Charitable organisations that have been approved by Inland Revenue as having charitable status in the past must register with the Charities Commission to retain their tax-exempt status. The Commission will then decide whether the organisation has a charitable purpose.
The new Charities Register opened for applications on 1 February 2007. All organisations seeking to retain charitable tax status will need to register by 1 July 2008 to retain this status. Organisations that don’t already have charitable tax status can register with the Charities Commission, and any change to their tax status will take effect when they have registered and (as part of the registration process) have also obtained Inland Revenue approval.
Inland Revenue will presume that registered charities with non-business income qualify for income-tax exemption (unless proven otherwise). For more information see other topics on this site: Taxation
Qualifying for charitable status under the Charities Act
What types of organisations can apply to be registered?
The Charities Commission will accept applications for charitable status from any organisation that is a society, an institution or trustees of a trust. The organisation does not have to be an incorporated body.
Key criteria for charitable status
Charitable status requires evidence that:
- income derived by the organisation is for charitable purposes
- the organisation is established and maintained exclusively for charitable purposes and not for the private pecuniary profit of any individual
- the name of the organisation is the same under which it is incorporated under the Incorporated Societies Act 1908, the Charitable Trusts Act 1957 or the Companies Act 1993, if applicable. In other cases, the Commission decides if the name is not offensive or liable to mislead the public.
What are “charitable purposes”?
These are defined as being for:
- the relief of poverty
- the advancement of education or religion
- any other matter that benefits the community.
An organisation can have charitable purposes even if the beneficiaries are related by blood, provided the organisation’s purpose satisfies the public benefit requirement.
A marae has a charitable purpose if the physical structure of the marae is on Māori reservation land that is referred to in Te Ture Whenua Māori Act 1993/Māori Land Act 1993, and the funds of the marae are used only for administering the land and the marae’s physical structure and for charitable purposes.
Trusts or societies that promote sport are not generally considered to be charitable.
Secondary (“ancillary”) non-charitable purposes
Although an organisation’s main purpose or purposes must be exclusively charitable, it is permitted to have non-charitable secondary purposes, provided those secondary purposes are legitimate ways to achieve the main purpose. For example, a charitable organisation cannot have political advocacy as its main purpose, but it can have another charitable purpose as its main purpose and then engage in appropriate advocacy as a secondary purpose to support its main charitable purpose.
Restrictions on who can be officers of registered organisations
For an organisation to qualify to be registered with the Charities Commission, each of its officers must:
- be aged 16 or older
- not be an undischarged bankrupt
- not have been convicted and sentenced for a crime involving dishonesty (within the meaning of section 2(1) of the Crimes Act 1961) within the last seven years
- not be prohibited under the Companies Act (by sections 382, 383 or 385) from being a director or promoter of a company or from being involved in the management of a company
- not be subject to a property order under the Protection of Personal and Property Rights Act 1988 or be a person whose property is managed by a trustee corporation
- not be a body corporate that is being wound up, in liquidation or receivership or subject to statutory management
- not be an officer of a charitable organisation who has been disqualified by the Charities Commission for a period not exceeding five years
- meet the qualifications for officers specified in the organisation’s rules.
The Charities Commission has the discretion, if it receives a written application from an organisation, to waive any of these disqualifying factors. In certain situations, officers can also be appointed under an Act by the Governor-General or by a government Minister, and in those cases no disqualifying factors apply.
The process of registration
How to apply
To apply for registration under the Charities Act you will need a Charities Commission application form and one Officer Certification Form for each officer of your organisation. These forms are available from www.charities.govt.nz You must also provide a copy of the rules of the organisation.
The Charities Commission will consider the activities of the organisation and provide it with the opportunity to have a say on matters of concern to the Commission if these concerns may prejudice registration.
Being entered on the register
Once approved, the organisation will be registered on the Charities Register and allocated a unique registration number.
The Charities Register holds certain information, and members of the public will have access to it. The Commission can omit or remove information and documents from the Register or, in certain cases, restrict access to them, if the Commission considers this to be in the public interest.
The consequences of registration
It’s a criminal offence for any person or organisation to use a style or title including the words “registered charitable entity”, or to hold out (imply) that they are a registered charitable organisation or that they act on behalf of one, if they are not in fact a registered charitable organisation or if the organisation they’re acting for is not in fact a registered charitable organisation.
It’s also an offence for a person to imply that they are acting on behalf of a registered charitable organisation if they are not in fact authorised to act on the registered organisation’s behalf.
The penalty for these offences is a maximum fine of $30,000.
Disclosing registration number on request
If an organisation is raising funds by telephone or through the internet, it must disclose its Charities Commission registration number if asked to do so by a member of the public.
Notification of changes
A registered charitable organisation must notify the Charities Commission if it changes:
- its name
- its address for the service of documents
- its officers
- its rules and purposes
- its balance date for annual returns.
The organisation must notify the Commission of the change within three months after:
- the effective date of the change or
- when the organisation first become aware of the change, whichever is later.
An registered charity must file an Annual Return with the Charities Commission within six months after each balance date. The Annual Return Form asks for a copy of the charity’s financial accounts and includes a statement of the financial performance and position. Currently there is no requirement in the Charities Act for an Annual Return to include audited accounts or to comply with any standards set by external groups.
The organisation may change its balance date either with the Commission’s approval, or without its approval if the period between any two balance dates is not more than 15 months and the organisation continues to have a balance date in each calendar year.
Existing liabilities continue
Being registered with the Charities Commission does not change the existing liability that the organisation or its members may have for any debts and obligations. The main impact of registration is on tax status.
Parent and affiliated organisations can be single entities
If requested to do so by a parent organisation, the Charities Commission may treat the parent organisation and one or more affiliated organisations as a “single entity” for the purposes of the Charities Act. The Commission must be satisfied that:
- the other organisations are affiliated or closely related to the parent organisation
- the parent and other organisations would each qualify individually for registration as a charitable entity
- it is appropriate to treat the different organisations as forming part of a single entity.
Once the Commission treats a parent organisation and its affiliates as a single entity, the Commission can make terms and conditions as it thinks necessary, for:
- the application process for registering the single entity as a charitable entity
- the name of the single entity
- who will be considered to be the officers of the single entity
- the information and documents held on the register in relation to the single entity and the organisations that form part of it
- the rules that must be treated as being the rules of the single entity
- the manner in which the single entity may exercise the rights and powers conferred on charitable entities under the Charities Act
- meeting the notification obligations and annual return obligations and other obligations under the Charities Act (see above).
An organisation can ask to be removed from the Charities Register. The Charities Commission can also remove an organisation if:
- it no longer qualifies
- there is a significant or persistent failure by the organisation or one of its officers (or collectors) to meet its obligations under the Act, or
- the organisation engages in serious wrongdoing, or any person engages in serious wrongdoing in connection with the organisation.
A consequence of deregistration may be that the organisation’s charitable nature has changed and must be reassessed.
Other topics on this website
The Charities Commission is responsible for registering charities. This website provides more detailed fact sheets on the registration process.
Inland Revenue’s website has information on not¬-for-profit groups. Download a copy of the brochure Smart business – An introductory guide for businesses and non-profit organisations (IR320).