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Changes to the Charities Act 2005: What You Need to Know

Changes to the Charities Act 2005: What You Need to Know

Changes to the Charities Act 2005: What You Need to Know

Monday 24 June, 2024

Charities, and the law that governs them, shape the way we can make a positive impact in our communities. If you are involved with a charity, you should be aware of some recent law changes. The rulebook has been tweaked!

The Charities Act 2005 (the Act) is the key piece of legislation that controls how charities operate in New Zealand. To avoid losing charitable status, officers of a charity must ensure the charity not only complies with the Act upon registration but stays compliant, including with any changes in charities law.

The Act has been amended by the Charities Amendment Act 2023 (Amendment), which came into force in July last year, and further changes come into effect in July this year. We summarise some of the key changes below.

Widened definition of officer

Officers of a charity have the role of ensuring that the charity’s charitable purpose is delivered and its obligations are complied with (and can be liable for offences under the Act).   The definition setting out who counts as an officer of a charity has been widened, and now captures:

Anyone (including a body corporate) who occupies a position in the charity and who can exercise significant influence over substantial decisions made by the charity.

  • This broadened definition applies regardless of the type of entity involved (e.g. a trust, a company or a society) and regardless of what roles or titles individuals have.  The definition focuses on a person’s influence over the organisation, not their title.
  • An officer will include trustees of a trust and members of the entity’s ‘governing body’; it can also capture other roles, like a CEO, a CFO, and a general manager where they exercise sufficient influence over the charity.
  • In addition to other disqualification criteria, now, someone who has been convicted of an offence relating to the financing of terrorism will not be allowed to be an officer in a charity.
  • Where previously, an officer had to be aged 18 or over, now officers can be 16 years old or over, so long as at least one officer of the charity is at least 18 years old.

Duty to undertake governance review

A charity must now review its governance procedures at least every 3 years. A review will usually involve consideration of whether the deed, constitution or rules are fit for purpose, and help the charity to achieve its charitable purposes and to comply with the requirements of the Act. Questions to ask include:

  • Is the charitable purpose clear and still relevant?
  • Is the purpose reflected in the charity’s current activities?
  • Do the rules need to be updated to meet changing needs?
  • Are conflicts of interests being appropriately managed? Conflicts of interest arise when members of the charity might be able to gain a personal financial benefit from the charity’s activities.

The process of review is self-driven rather than specified in the Act and it could look different for each charity. However, it must be completed in some form and compliance should be recorded.

Consequences of ‘serious wrongdoing’

Previously, if a charity or officer carried out ‘serious wrongdoing’, the charity was deregistered.  Now, the Charities Registration Board has the additional option of only disqualifying the relevant officer for serious wrongdoing, without having to deregister the charity.

The definition of ‘serious wrongdoing’ has also been narrowed slightly in relation to offences committed; now only capturing those punishable by imprisonment for a term of two years or more (not lesser offences). This definition however still includes a broad range of other bad behaviour, including unlawful or corrupt use of funds or resources, and oppressive, improperly discriminatory or grossly negligent actions.

Changes in reporting and tiered accounting standards

Reporting requirements for very small charities have been streamlined, and larger charities will be subject to more rigorous reporting obligations.

All charities have a duty to complete an annual return and file it with Charities Services, accompanied by a copy of their financial statements. These financial statements must be prepared in accordance with generally accepted accounting practice.  The External Reporting Board (XRB) has the function (pursuant to the Financial Reporting Act) to set financial reporting standards for charities.

Last year the XRB introduced updates to the Tier 3 and Tier 4 reporting standards:

    • Charities with annual operating expenses of less than $140,000 (in the last two financial years) will qualify as Tier 4 charities. Tier 4 charities are able to file an annual return with basic financial information, using cash-based accounting.
    • Charities with annual operating expenses of more than $140,000 but less than $2,000,000 (in the last two financial years) will qualify as Tier 3 charities. Tier 3 charities are able to file an annual return with financial statements, using accrual-based accounting.

Reporting standards for larger charities (with operating expenses over $2 million) under Tiers 1 and 2 have not yet been updated, existing reporting standards continue to apply; but watch this space.

Changes coming into effect on 5 July 2024

Further amendments come into effect later this year and should have fewer compliance implications as they relate to changes to the appeals procedures within the charities’ regime. The process will be streamlined to make it more accessible and less expensive for charities to challenge the Charities Registration Board’s decisions:

  • Charities will be able to appeal decisions to the Taxation Review Authority, before appealing to the High Court. Charities can also self-represent at the Taxation Review Authority to save on legal costs.
  • The decisions that can be appealed will widen to include significant decisions by Charities Services, as the regulatory body that maintains the Charities Register.
  • Charities will have more time to lodge an appeal (no later than 2 months after the date of the decision).
  • People representing a charity will be able to appear in person to speak to the Board on appeals.

Looking for Advice?

If you need assistance to review your governance procedures, clarify what the obligations of officers are or if you would like to discuss these changes in more detail, please contact one of the authors below.

Our thanks to Kyla McNaughten for preparing this article, as part of her internship.

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