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Charitable registration for sport and recreation organisations - update December 2014

16 December 2014

Recent decisions by the Charities Registration Board have raised questions about the standing of sport and the desirability of sport and recreation organisations seeking and maintaining charitable status.

Below is the executive summary.

Full document: Charities advice December 2014 (DOC). The detailed legal analysis 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).

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