The legal status of a charity has several benefits. It can amass vast wealth through commercial activity and asset building without paying the same taxes as similar organisations.  

The main requirement is that these funds must “ultimately be applied to charitable purposes”.  

But how that is defined and evaluated is far from clear-cut.  

Under the Charities Act 2005, there is a requirement for registered organisations to distribute some of their revenues to charitable causes. But there is no minimum spend, either in proportion to profit or equity.  

“Charitable purposes” can include sitting in an organisation’s large investment portfolio, while distributing far less to charitable causes.  

There isn’t even a requirement to report exactly how much an organisation has handed out, although many do. In theory, a charitable organisation could distribute just $1 to a charitable cause and still claim in its annual report to be fulfilling its legal obligations. 

“In general, charities are independent self-governing entities and are responsible for making their own decisions about how to advance their charitable purposes,” general manager of Charities Services, Mike Stone, told BusinessDesk.

“In the absence of a ‘bright line’, the test is that the funds must be ultimately applied to charitable purposes. Achieving this is the charity’s responsibility, and the annual reporting process provides an opportunity for charities to explain how they have done this to the public, and wider stakeholders.”

Controversial change

Some organisations seize the "opportunity" to report this more than others. The Wright Family Foundation (10th largest revenue), whose transformation from a daycare business into a charity was controversialreferences its donations in just two lines in its published accounts. 

“The trustees assess the requirements of the group for the year ahead in terms of cash requirements, expansion and debt reduction. Charitable distributions are then made after leaving sufficient reserves to meet these requirements.”

Of the top 30 charities, in terms of revenue and assets, assessed by BusinessDesk, this was one of the most sparse entries.  

Scant detail: the Wright Family Foundation's charitable spending disclosure.

Trust Horizon (15th largest NZ charity by revenue), which owns an electricity network in the Bay of Plenty, gave a detailed breakdown of the grants it gave out last year. It received 36 grant applications and approved 34 of them, with causes ranging from $100,000 to upgrade the Paro Rugby club to an unspecified amount to install additional lighting at the Kawerau skatepark. 

Overall it gave out $1.45 million in grants, equivalent to 11% of its net surplus for the year and 1% of its net assets. Its surplus would have been significantly reduced had it not taken more than $6m in the covid wage subsidy scheme. 

The Central Lakes Trust, another regional energy network company-cum-charity, was one of the most profitable among the country's biggest charities, with a $120m surplus from $202m revenue. It disbursed $9.45m in grants last year, less than 8% of its surplus.

It is one charity with a clear policy of how much it will distribute each year – although calculating it is complex.  

The trust works out its “reserving position”, or equity, on a rolling basis and sets its grants distribution policy at a 3% level of the actual reserving position over the next three years. It has just approved an increase from 2.5% to 3% for the 2023 financial year.

Slight deviation

Another with such a policy is Te Rūnanga o Ngāi Tahu (4th largest revenue), Kaiwhakahaere Lisa Tumahai said: “Our policy is that 4% of the market value of equity goes towards charitable distributions. We have had to deviate slightly due to the impacts of covid-19, but that is the standard model.” As such, charitable grants fell by more than 20% last year to $55.9m.

Similarly, the Selwyn Foundation (13th largest, by assets) openly commits to distributing at least 30% of its annual operating surplus to charitable causes. Last year, that totalled $798,000 because it did not take the charity’s $618m property portfolio into account.

And debate rages on in the nation’s courts as to what constitutes a “charitable purpose”. 

According to Deloitte tax experts Veronica Harley and Melissa Parmar, it includes “every charitable purpose, whether it relates to the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community”.

Over the past decade Family First, a conservative Christian lobby group, had its charitable status revoked and then reinstated. But the supreme court announced in July 2021 that it would hear an appeal from the attorney general to reinstate the ban. The debate is based on whether a group with an overtly political agenda can also qualify as having a charitable purpose. 

The reinstatement of Family First in 2015 was based on the precedent set by Greenpeace’s successful appeal to be both political and charitable. 

Amnesty International has long taken care to establish an educational function to buttress its charitable status, which its advocacy on universal human rights would not necessarily secure.

Despite sharing oversight of “self-governing” charities with the “public and wider stakeholders”, Stone insists the government will step in when necessary: “There are no minimum charitable distribution requirements under the Charities Act 2005.

“However, if there was clear evidence that a charity was not advancing a charitable purpose, or was otherwise no longer qualified to be registered, Charities Services would make appropriate inquiries.”