The law before the Charities Act
The promotion of industry and commerce has been long been held to be charitable in both England and New Zealand. The decision in Crystal Palace Trustees v Minister of Town and Country Planning  Ch 132;  2 All ER 857n, concluded that the promotion of industry and commerce for the public benefit was charitable, a decision followed in Re Tennant  2 NZLR 633.
However, some overseas decisions, in particular, CIR v Oldham Training and Enterprise Council (1996) 69 TC 231 and Travel Just v Canada (Canada Revenue Agency), 2006 FCA 343, have laid the seeds of doubt in the collective mind of the Charities Commission. In the Oldham decision, despite indicia of charity, the Court concluded that the council promoted the interests of individuals engaged in trade and commerce, providing private benefits regardless of likely beneficial consequences for employment, with the benefits to the community being deemed to be too remote. In the Travel Just case similar conclusions were reached, with the objects there also being held to be “broad and vague” and “subjective.” The Oldham decision also indicates that:
To ascertain the objects of an institution . . . where the objects are comprehensively set out in a document, it is necessary to refer to that document. . . . It is irrelevant to enquire into the motives of the founders or how they contemplated or intended that [the entity] should operate or how it in fact operated. To determine whether the object, the scope of which has been ascertained by due process of construction, is a charitable purpose, it may be necessary to have regard to evidence to discover the consequences of pursuing that object. . . . What the body has done in pursuance of its objects may afford graphic evidence of the potential consequences of the pursuit of its objects.
Those decisions, as a minimum, demonstrate the need for great care in drafting the purposes of a trust or society to make it clear that the purposes are charitable, and also the need to be able to prove that an existing entity does do charitable works, or that a new entity will achieve its charitable purposes.
Charities Commission guidelines
As the Charities Commission notes, imprecisely but accurately, on its website (checked last week) “Not all organisations which have purposes that benefit the community will be charitable. The purposes must benefit the community in a way that the law regards as charitable.”
The Commission has published a pamphlet on “Charitable purpose and community and economic development”, also found on the Charities website, which provides some guidance on its views:
- It notes that “ Local and regional promotion bodies that are currently eligible for a tax exemption under CW 40 of the Income Tax Act 2007 do not need to register under the Charities Act 2005 to qualify for or to keep that tax exemption,” and that section CW40 “provides a tax exemption for the income of some associations or societies established mainly to: (i) advertise, beautify, or develop a city or other district so as to attract population, tourists, trade, or visitors: or (ii) create, develop, or increase amenities for the general public in a city or other district.”
- other purposes beneficial to the community (for example, if they provide public works and services or public amenities and recreational facilities).”
Limiting charitable recognition to entities seeking to promote economic activity
I have some difficulties with the limits the Commission places on entities that seek to advance economic development. The Commission’s approach is illustrated by the way it seeks to explain its policies in the resource cited above. The Commission reflects the traditional legal position when it states that to be charitable under the category of “other purposes beneficial to the community,” a purpose must be “beneficial to the community” and “within the spirit of the matters listed as charitable in the Preamble to the Statute of Elizabeth Act 1601 (otherwise known as the Charitable Uses Act 1601).”
The Commission cites the list of purposes considered charitable in 1601 set out in the preamble to the statute, and reviews Court decisions holding that purposes relating to the development of a community may be charitable. Raising the bar the Commission suggests that “To be charitable under this category, it is necessary to show that real, tangible, benefits will result for the community.” Given that benefits may be intangible and that not all charities succeed in achieving their objectives, is that correct?
The Commission reviews a selection of cases where the Courts “found the promotion of industry and commerce to be charitable where this has been for the benefit of the public.” However, despite their undoubted expertise, the Commission appears to me to seek to limit the decisions to their particular facts, rather than as establishing or illustrating broader principles, and not everyone will agree with the Commission’s view of the decisions cited. For instance, the decision in Re Tennant is apparently to be restricted to “providing essential services for rural, remote, or disadvantaged communities.” The Commission cites Tasmanian Electronic Commerce Centre Pty Limited (TECC) (2005) FCA 439 in support of the proposition that the development of a community is charitable where that provides “essential services for rural, remote, or disadvantaged communities.” My reading of the case is that, while the decision acknowledged that TECC was assisting an “economically disadvantaged” rural Tasmanian community that was not as strong as its mainland counterpart, there is a clear statement implying that a benefit to the economy will be a benefit to the public at large, irrespective of whether that economy and its community are disadvantaged or not – “It seems to me self-evident that benefits to Tasmania’s economy resulting in long-term economic advantage to Tasmania will be a benefit to the Tasmanian public, and indeed to the wider national public.”
I do not believe it to be correct to contend that “essential services” or a “community under a particular disadvantage” are individually or collectively determinative of charitable status in such cases. However, in three related High Court cases, Canterbury Development Corporation, CIV 2009-485-2133, Canterbury Development Corporation Trust, CIV 2009-485-2135, and The Canterbury Economic Development Fund, CIV 2009-485-2136 (all Wellington Registry, decisions 11 March 2010) the Commission was successful in defending its decisions to decline to register entities seeking to advance economic development in Canterbury. While those decisions were not appealed, I believe the issues will and should be revisited.
Points to ponder: Would the Canterbury Development decisions have been different after the September 2010 and/or February 2011 earthquakes? If so, would charitable status be withdrawn at some future time?