Aimed at improving public trust and confidence in the sector, proposed changes to the Charities Act in New Zealand could see charities having to justify accumulating large reserves, in some cases millions of dollars.
The review of the legislation is raising concerns due to its narrow scope, as the review will not consider whether it is still appropriate for businesses registered as charities to be exempt from tax, nor is it going back to basics and looking at charitable purpose. An amendment to modernise the Charities Act is likely to be drafted next year, and it may include changes to the appeal process for Charities Registration Board decisions that “will better enable case law to develop around charitable purpose”. Transparency about the finances of businesses registered as charities is considered important, with a fine balance between supporting charities to do vital work in the community, while ensuring the public retains trust and confidence in the sector.
Charities could be required to have a distribution plan outlining when and how money will go to charitable activities, and they may be obliged to provide more detail about accumulated funds and reasons for retaining them.
Making charities distribute a certain amount annually (at least 5 per cent of net assets has been mooted) was opposed by two thirds of the 184 organisations and individuals who made submissions during initial consultations.
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