It could be uncanny timing but New Zealand’s charity sector is now under the microscope of several government offices.

Some rules, standards and legislation have already been put into action and some reviews are going through the motions, with recommendations expected soon.

This activity could be put down to the fact that charities attract the attention of several acts in different jurisdictions – and the sector is burgeoning.

Details of a review of the Charities Act 2005 were revealed last week by BusinessDesk.

Tax review

Inland Revenue (IRD) has been seeking comment and feedback on an exposure draft of an operational statement for charities and donee organisations (those giving to the charities).

It had a February 22 deadline for feedback.

The draft outlines the tax treatment and obligations for charities and donee organisations, and how the IRD commissioner will apply the law to the matters discussed in the draft, as well as dealing with practical issues arising out of how IRD acts are administered.

Legislation, particularly around tax exemption, is enshrined in the Income Tax Act 2007. 

But there is also the Tax Administration Act 1994, where issues can apply to charities. If, for instance, a commissioner has reason to believe funds of any gift-exempt body might be or are being applied for a purpose that is not charitable, benevolent, philanthropic, or cultural, then he or she can inform the minister of revenue for possible further action.

Incorporated societies 

A bill to replace the Incorporated Societies Act 1908 was signed into law on April 5. 

This old act is being updated to make societies more robust, help them govern themselves and give societies and their members constructive options when things go wrong. 

Of around 23,000 entities registered with the Companies Office, an estimated 9,000 are also charities registered at Charities Services. This act comes under the Ministry of Business, Innovation and Employment (MBIE).


Since 2016, charities have had to adhere to new accounting standards issued to comply with the relevant tier of Public Benefit Entity (PBE) financial reporting standards issued by the External Review Board (XRB).

Moves are also afoot by the XRB to introduce an auditing standard for less complex entities, charities included. The deadline for comments on this draft was in January. 

A charity might be created for the noblest of intentions, but there's a growing framework around this crowded sector that needs closer scrutiny. 

Tiers in detail 

A specialist charities auditor notes the regulatory frameworks for charities is more of a “pragmatic horses for courses” approach.

This metaphor translates NZ’s Charities Services into a four-tier system of financial reporting standards.

A charity will take its tier slot based broadly on its level of complexity and size. Specifically, it’s based on whether it has public accountability and what level of expenses are incurred each year (including donations).

By far, most of NZ charities fall into the fourth tier for small entities.

Charities Services' 2021 review showed 13,219 charities in the fourth tier, 8,163 in the third tier, 1,176 in the second tier and 152 in the first tier.

Because it can only evaluate what tier a charity reports when it files its annual return in any given year, the number falls short of its total number of 28,468 registrations (as of March 2022). 

Some also fail to file and are removed and others are controlled by a parent charity, so reporting is consolidated as a group on the public register where all charities’ financial statements are freely searchable.

Tier one charities incur more than $30 million in annual expenses. They adhere to full financial standards and have public accountability.

Tier two charities have a reduced disclosure regime, with their expenses between $2m and $30m and have no public accountability.

Tier three charities use simple format (accrual) reporting, have expenses of between $125,000 and $2m and don’t have public accountability.

Like tier three, tier four has no public accountability, but they use simple format reporting (cash) and their expenses are less than $125,000.

Comply with reporting

Since the Charities Act 2005 came in, tier three and four charities have had to provide service performance reports with their annual returns to comply with reporting standards set by the government’s XRB.

The XRB now requires tier one and two charities to report their service performance information from January this year, after the start date was delayed from January 2021 because of covid disruptions. 

This brings all tiers in line for accounting for who and what their charitable causes are and the benefits they provide, but the top two tiers have always been subject to higher levels of accountability.

That’s because any charity with annual expenses greater than $500,000 must have its accounts audited or reviewed when they reach this level in the preceding two years. 

If expenses exceed $1.1m, they must be audited by a qualified auditor. Third-tier charities are exempt from an audit unless they are required by statute to have an audit or review. 

In some cases, a donor might also require they do an audit, even though it's not really needed or a cheaper review would suffice.

Audits require reasonable assurances that the charity’s accounts are free from material errors or fraud whereas a review requires limited assurances for the same criteria.

Compliance in each of the tiers could yet change again with the Charities Act 2005 review. The XRB is also reviewing tier three and four requirements to ensure a high level of transparency and accountability in return for the status their benefits give them.

Both Charities Services and the XRB have detailed information on tiers and their requirements on their websites, 

 and, including detailed guides about criteria for performance statements.