Flush New Zealand Charities Failing To Pay Out To… | Stuff.co.nz.

Last updated 05:00 18/05/2013

New Zealand charities not required to give money back to the community are exaggerating the gap between the “haves and the have-nots”, critics say.

Under current law, private schools, fee-charging hospitals and food giants reap the rewards of tax relief with no obligation to donate some of their profits.

The Government is $600 million out of pocket each year as the charities sector swallows $400m through income tax exemption and $200m in tax credit refunds, yet Cabinet decided against reviewing charity law last year through “fiscal cost” fears.

Recent calls to urgently review the sector were once again quashed by Community and Voluntary Sector Minister Jo Goodhew yesterday.

Labour’s charity spokeswoman, Louisa Wall, and Christchurch charity expert Dr Michael Gousmett have slammed the lack of accountability in the multimillion-dollar, publicly subsidised sector.

Today’s regulations give tax relief to private schools, fee-charging hospitals, Ngai Tahu’s 38 limited liability companies (including Shotover Jet and Whale Watch Kaikoura) and food giant Sanitarium with no public benefit test holding them to account.

Under current law, charities are not obligated to give even $1 a year from their surplus to charitable causes.

Merely operating as a hospital or school meets the criteria of charitability as it relieves pressure on the public system, even if the charity is charging fees largely unaffordable to most people.

Wall said charitable trusts that benefit only the wealthy were “creating divisions between the haves and the have-nots”.

“Those who least need charity are benefiting the most. It is helping those who can afford to pay to go to private hospitals and private schools, not those who actually need the help.

“We as a country are giving these organisations up to $600m worth of tax relief under the assumption that $600m should be reinvested back into the community, and if that is not happening we desperately need to change the law.”

Wall fought against the disestablishment of the Charities Commission into the Department of Internal Affairs (DIA) in 2012 and was outraged when the Government decided to quash a review of the Charities Act.

“They are going against all the other international moves in this area which are holding charities accountable to being charitable.”

Gousmett, a member of the Australian Charity Law Association (ACLA), agreed the law was creating “inequality in our tax system”.

Legislation let charitable trusts benefit from tax exemption while public organisations were obliged to pay 8 per cent of their net worth to the Government as a capital charge, a cost that bled the Canterbury District Health Board of $15m last year.

Kiwi charities must make their financial accounts publicly available under the charities register but do not have to explain what they do to justify their charitable status, Gousmett said.

“In New Zealand there is a presumption that if you are a charity, therefore you are charitable, but if charities cannot demonstrate that they are doing something that contributes to the community they should not have charitable status.”

The United Kingdom and the US both introduced a public benefit test for their charity sectors recently and the ACLA will be discussing current taxation implications for charities in July, he said.

Goodhew admitted the New Zealand public “may not understand” the definition of charity under current legislation and that they might be “surprised” to find some charities listed on the charities register.

“The important thing for the public to have confidence in is that we have a robust system that ensures that within the Charities Act 2005 charities can’t actually be registered unless their purpose is charitable.”

Charitable purpose relates to the relief of poverty, the advancement of education or religion or any other matter beneficial to the community, she said.

The Charities Registration Board determines whether or not an organisation fits within the Charities Act 2005 and the DIA Charities Services monitors charities to ensure they operate for exclusively charitable purposes.

“Irrespective of what a charity looks like, as long as they are operating within the law, that is what we should be assuring ourselves on,” she said.

The Government decided against reviewing the law relating to charities last year through fears more organisations may have expected to be eligible for charitable status which could have “increased fiscal costs”, an Inland Revenue spokeswoman said.

Inland Revenue was aware of “the public concerns relating to charities” and would be monitoring them to ensure they were operating exclusively for charitable purposes, she said.

Editorial: Late but welcome Cup Trust inquiry.

The Charity Commission’s decision last week to open a full statutory inquiry into the Cup Trust inevitably prompted much hollow laughter and a remark from Margaret Hodge MP, chair of the Public Accounts Committee, about closing the stable door after the horse had bolted. To the critics, the inquiry looks very much like a posterior-covering exercise.

But better late than never, and there is now an opportunity for a detailed and, one hopes, instructive dissection of a charity that seems to have been set up primarily as a tax-avoidance vehicle. The interim manager appointed by the commission to run it in place of the sole corporate trustee should have full access to records that could tell the whole story.

The commission says the inquiry is prompted by the receipt from HM Revenue & Customs, under a specific information-sharing power, of new details. These presumably relate to the decision by HMRC, mentioned by an official to the Charity Tax Group meeting last week, not to agree payments under a circular Gift Aid tax-avoidance scheme referred to as Project 2010 – a scheme that looks very much like the Cup Trust. The terms of the commission’s inquiry are focused strongly on the charity’s Gift Aid claims.

The commission has said all along that it could not find any legal holes in the structure of the Cup Trust, and there is no reason to doubt that. But there is more to life than the letter of the law, and a commission that was more pragmatic and hungry to chase down abuse would surely have seen through this charity’s apparent game early on and found a way of challenging it before it became a scandal.

The commission’s hesitancy over the Cup Trust, combined – paradoxically – with its relatively tough stance on charitable status for the Plymouth Brethren and the parliamentary brouhaha that has caused, has brought it to a low point. It now has a good chance, under a new chair with new board members, to regroup and rebuild for the future; but some habits will no doubt prove hard to change.