CHARITABLE REGISTRATION FOR SPORT AND RECREATION ORGANISATIONS
UPDATE DECEMBER 2014
Executive summary
Recent decisions by the Charities Registration Board [the Board] have raised questions about the standing of sport and the desirability of sport and recreation organisations seeking and maintaining charitable status.
A detailed legal analysis and expansion of the points below follows this summary and begins on page 4.
What is charitable status?
Registration as a charitable entity may be granted by the Board to those organisations who purposes are predominantly charitable in nature (i.e. they clearly align with charitable purposes in the Charities Act).
What are the benefits of charitable registration?
- Donee status is the principle direct benefit of charitable status. Donors may claim tax credit for all donations over $5.
- Tax status Most sports organisation can obtain tax exempt status under the Income Tax Act whether they are a charity or not as long as they exist mainly to promote amateur sport.
- Funders Some sport funders have historically declined applications other than from registered charities. However, recent inquiry has identified only one funder who maintains this practice.
- Perception There is some evidence of a positive perceptual bias towards registered charities although this is not quantified in any way.
- Commercial benefit Some suppliers offer favourable terms for registered charities.
What are charitable purposes?
The Charities Act 2005 was amended in 2012 to include;
“the promotion of amateur sport may be a charitable purpose if it is a means by which a charitable purpose listed in subsection (1) is pursued”.
This means that sport is not of itself charitable. A sports organisation may be charitable if it exists primarily to achieve one or more charitable purposes which are;
- Relief of poverty
- Advancement of religion
- Advancement of education
- Any other matter beneficial to the community
Public benefit
In addition to demonstrating one or more of the above purposes the organisation must meet the test of ‘public benefit’. This means engaging with a ‘sufficient section’ of the public and ensuring the benefits are direct to the public and not downstream (via other entities).
The primary purpose is charitable
The charitable purposes must be the main purpose. Just having the purposes stated in the constitution is not enough. The Board will look for evidence of actual activity, application of resource and evidence through public reporting.
If there are other non-charitable purposes that the organisation undertakes (like the promotion of a sport or social activities) they must be secondary or ancillary to the main charitable purpose.
What is not charitable?
Recent decisions have ruled that;
- Single sport facilities are not likely to be charitable. Multipurpose facilities more probably meet the public benefit test.
This is likely to be consequential in the development of single code facilities, high performance or otherwise. - Managing and operating a team in a professional competition is too narrow to meet the public benefit test.
- A foundation developing and supporting elite players is not accessible to the wider public and therefore of limited benefit
- A World Championship event is not an ‘open’ event and therefore not benefiting a sufficient section of the public
- Being a regional body claiming to focus on ‘grassroots’ is not in itself adequate.
- Health benefits arising from sport can be charitable but some sports may have to prove with evidence how the sport provides that benefit.
The Swimming New Zealand decision
The recent decision by the Board to deregister Swimming New Zealand includes some general comments;
“..as a general proposition, bodies established to administer and manage a sporting code or discipline in a region or for a nation are likely to be established for the purpose of promoting sport as an ends in itself”
and
“ the promotion of sports for elite athletes does not provide sufficient public benefit to qualify as charitable in law and the promotion of sporting success is not itself a charitable aim”
Those seeking charitable status
Organisations will need to demonstrate the following;
- The dominant, primary or main purpose/s is charitable,
- The benefit is provided to a sufficient section of the public.
- The activities are directly beneficial to the public and not a downstream effect.
- Any non-charitable purposes do not account for more than 30% of the organisation’s activities
Other options
If the organisation has some purposes that are charitable in nature but when viewed holistically with its other purposes the organisation is not likely to be predominately charitable overall, a separate linked trust is probably the best option. There are issues related to cost, administrative and governance time and ongoing control of the entity that need to be considered. Detailed legal advice would be required in this case. The possible benefit needs to be carefully weighed.
Donee Organisation Status
Registered charities that have indicated they wish to hold donee status will automatically be granted it. This is an Inland Revenue Department process
The current practice of the Department is that deregistration by the Charities Registration Board or the decline of an application for charitable status will automatically mean the loss of donee status or an inability to secure it.
Some organisations can gain donee status without being a registered charity but this is likely to be difficult for sports organisations. The grounds are “charitable, benevolent, philanthropic or cultural” purposes.
See the detailed advice for further explanation
Other entities
The summary above is largely relevant to national Sport Organisations (NSOs) and Regional Sporting Organisations (RSOs). The more detailed advice below considers other entities; facilities, clubs, events, partnerships and Regional Sports Trusts (RSTs).
UPDATE ON CHARITIES IN SPORT
- INTRODUCTION
1.1A recent decision by the Charities Registration Board to deregister national sports organisation, Swimming New Zealand, as a charity under the Charities Act has raised questions for sports organisations seeking to obtain, or retain, charitable status.
1.2To assist sports organisations to assess their own situation, Sport NZ has obtained legal advice which is summarised in this paper.
1.3This paper analyses the Swimming New Zealand decision and other decisions in sport and discusses the impact on sports organisations and their charitable status. In particular, this paper:
a.summarises the lawapplying to sports organisations seeking to become, or remain, registeredas charitable entitiesunder the Charities Act 2005;
b.discusses the advantages and disadvantages of being registered as a charitable entity;
c.advises whether national sports organisations, regional sports organisations, sports partnerships, trusts/ foundations and clubs can be charitable entities; and,
d.sets out the practical steps which can be taken in order to obtain, retain or withdraw from being a registered charitable entity.
- SWIMMING NEW ZEALAND DECISION
- On 30 September 2014, the Charities Registration Board (“Board”) determined that Swimming New Zealand could no longer be registered as a charity with effect from 30 October 2014[1].
- Swimming New Zealand had been originally registered as a charitable entity in 2008 along with many other sports organisations. In 2012, Swimming New Zealand submitted changes to its constitution (as it was required to do) following the 2012 Review of Swimming New Zealand[2].
- After reviewing the constitution changes and enquiring into the activities of Swimming New Zealand, the Board concluded that Swimming New Zealand did have some charitable purposes, namely:
- promoting public participation in swimming as a means by which public health is promoted; and,
- advancing education in swim safe programmes.
- However it found that the purpose of promoting competitive swimming was an end in itself, and did not advance any charitable purpose under section 5(2A) of the Act.
- The Board concluded that:
“viewed holistically we consider that Swimming New Zealand’s operation involves a significant investment in elite swimmers, coaches and events that constitutes an independent (free standing) purpose to promote sporting success.”
2.6To be a registered charitable entity, the entity must have exclusively charitable purposes. If the entity has non-charitable purposes they must be ancillary or secondary purposes.
2.7The Board found that Swimming New Zealand did not have exclusive charitable purposes, and had non-charitable purposes (such as promoting the sport) that were independent purposes and not ancillary or secondary. Accordingly the Board determined it was in the public interest for Swimming New Zealand to be removed from the charities register.
2.8The next section of this paper looks at the law applicable to sports organisations wishing to be or retain charitable status including the impact of the Swimming New Zealand decision on sports organisations.
- THE LAW
Charities Act 2005 and Cases
3.1The Charities Act 2005 applies to all entities wishing to be registered charitable entities in New Zealand.[3]
3.2In addition the decisions of the courtsfromcases brought under Act and previous charity laws are also applicable in interpreting the law. The decisions of the courts in other countries with similar laws such as from Canada and Australia are also taken in account.
3.3Decisions on the registration and deregistration of charities are made by the Charities Registration Board (which is part of the Department of Internal Affairs)[4].The decisions of the Board to decline registration or to deregister a charity are published on its website[5].
3.4The Board is not a courtbut has statutory decision making powers. Its decisions can be appealed to the High Court and then further appealed to the Court of Appeal and Supreme Court.
3.5There have been several published decisions of the Charities Registration Board (and its predecessor, the Charities Commission) related to sport in New Zealand[6].
3.6The High Court has only dealt with one case involving sport under the Charities Act, namely Travis Trust vs Charities Commission[7]. In this case the court held that a trust which provided funds to the Cambridge Jockey Club as prize money for a specific horse race (the “Travis Stakes”) was not charitable.
3.7There have also been several non-sport related cases in the courts on specific parts of the Charities Act. Those parts of the Act (and the court’s interpretation of them) also apply to a sports organisation seeking to be, or remain, registered. For example the Greenpeace case which was successfully appealed to the Supreme Court on the issue of political purposes[8].
3.8The Charities Act and its application as interpreted by the Charities Registration Board (including its predecessor) and the courts (where applicable) to sports organisations are summarised in this paper.
Amateur Sport
3.9There is a specific section on sport in the Act(section 5(2A)) which provides that:
“the promotion of amateur sport may be a charitable purpose if it is a means by which a charitable purpose listed in subsection (1) is pursued”.
3.10This section was added to the Act in 2012 following theTravis Trust case[9].In other words, amateur sport by itself is not charitable, but if the sport advances one of the purposes listed in paragraph 3.17of this paper, it can be.
3.11For example, if asports organisation delivers sport which provideshealth benefits to a sufficient section of a community, it can be charitable under the “other matters beneficial to the community” category.
3.12The term “amateur sport” is not defined in the Act so its ordinary meaning will apply.
3.13This was discussed in the Greater Auckland Netball case, where the entity seeking to be registered a charity owned the Auckland team in the ANZ Trans-Tasman netball league. Here the Charities Commission said:
“As players in the ANZ Championship are paid the Commission does not consider that these teams are amateur in nature. It is noted that the Oxford Concise English Dictionary defines “amateur” as a person who engages in a pursuit, especially sport, on an unpaid basis.”[10]
3.14This does not mean elite and high performance athletes are not amateur. Sports organisations with purposes related to athletes who are not paid to play or compete, will still be amateur. However even if a sports organisation promotes amateur sport, this is not sufficient by itself for the organisation to be charitable. There are additional requirements to meet, such as the purposes being of benefit to a sufficient section of the community, as set out in this paper.
Charitable Purposes
3.15A sports organisation wishing to be a registered charitable entitymusthave “charitable purposes”[11]. As noted above, the promotion of sport by itself is not charitable and it can only be charitable, if it is a means by which another purpose, which is charitable, is being achieved.
3.16This was summarised in Travis Trust where the court said[12]:
“A trust to promote racing could only be charitable in nature if its deeper purpose was the pursuit of some other objective… Thus if it could have been established that the true intention of the support for this race was promotion of health, education or perhaps even animal welfare, it might have satisfied the test.”
3.17This means a sports organisation must have one of the following purposes as its main purpose and not just exist for the promotion of the sport itself.
- To relieve povertyor other people in need, aged or suffering genuine hardship such young or disabled people.
Example: a sports organisation which is established to provide fordisabled athletes.
- To advance religion:
Example: a trustpromoting religion through sport and culture.
- To advance education:
Example: a sports organisation that delivers coaching, umpiring and other officials programmesfor young people.
- To provideany other matter beneficial to the community
Example:a not for profit organisation that runs fitness programmes for the general public.
3.18In addition, a sports organisation that provides facilities for recreation or other leisure time occupation in the “interests of social welfare”, can be charitable under section 61A Charitable Trusts Act 1957.
3.19Sports organisations will tend to fall within the categories of “relief of poverty”, “advancing education” or providing “other matter beneficial to the community”. The law and the Charities Board’s interpretation of these threecategories, together with section 61A of Charitable Trusts Act, are discussed in more detail below.
Relief of Poverty or Others in Need
3.20The relief of poverty is wider than relief from being poor.
3.21In the decision of the Charities Commission in NZ Snowboardcross,[13]the trust had been established to form a snowboardcross team to compete at the 2014 Sochi Winter Olympics as it was stated that the national body (Snowsports New Zealand) could not provide financial support for the team. In seeking charitable status, the trust said its purpose was to support young people with limited means.
3.22However the Commission said:
“to be charitable under relief of poverty, a purpose must be directed at people who are poor, in need, aged or suffering genuine hardship and it must provide relief. Poverty is interpreted broadly in law and a person does not have to be destitute to qualify as poor. People who are in need, aged or who are suffering genuine financial hardship from a temporary or long term change in circumstances are likely to qualify for assistance. Generally, this will include anyone who does not have access to the normal things of life that most people take for granted.”
3.23The Commission went on to conclude that:
“The Board does not consider encouraging and enabling young New Zealanders to participate in one of the world’s most elite sports competitions [2014 Sochi Winter Olympic Games] will amount to relief for people who are suffering genuine hardship or who do not have access to the things in life that most people take for granted.” “Providing persons from a low decile school with an opportunity to learn about snowboarding is not the provision of a necessity or a quasi-necessity.”
3.24The purpose of “relieving poverty” may therefore include sports organisations with purposes of sporting programmes and activities, for example, for disabled athletes, young people, older people or people from lower socio-economic areas.
Advancing Education
3.25The concept of education has been clarified in several decisions and cases.
3.26In the case of Auckland Water Polo Academy & Educational Trust the trust was formed to educate and train water polo players, coaches and umpires to assist in progressing towards national and international representation including introducing them to USA universities.
3.27The Commission said:
“in order for a purpose to advance education, it must provide some form of education and ensure that learning is advanced. The modern concept of education covers formal education, training and research in specific areas of study or expertise. It can also include less formal education in the development of individual capabilities, competencies, skills and understanding as long as there is a balanced an systematic process for instruction, training and practice”[14].
3.28In this decision the Commission noted that providing athlete and group education and training may be charitable “if there is a balanced and systematic process of instructions, training and practice…however merely increasing an individuals’ knowledge by providing informal advice or guidance is unlikely to amount to advancing education”[15].
3.29In addition, by way of example, research and development of sailing technology[16]has been found not to be charitable in advancing education in a sporting context.
3.30Examples of advancing education in sport which are more likely to be charitable (if all the other requirements are met) include:
- coaching and officials programmes especially if for younger people;
- sportsprogrammes held within schools or as part of some structured education; and,
- programmes that educate people about nutrition, health and other benefits of participating in physical activity and sport.
Other Matters Beneficial to the Community
3.31This category willnot includeeverykind of purpose that provides a community benefit. For example, it will not include purposes toprovide catering, recreational entertainment or social activities for members of an entity[17].
3.32Also, the benefit must be demonstrated. There must be proof that the benefit will flow from each of the stated purposes, not merely a belief that it will or may occur.
3.33In addition it must also be a direct benefit, and not a downstreamone.[18]