2011 Article, updated May 2018
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 Charities Services. 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 Services guidelines
As noted in Charity Law in New Zealand (Charity Law in New Zealand) at 18.104.22.168, “Not all not-for-profit organisations are eligible for tax exemptions. For example, organisations that exist to serve only their members do not usually get tax exemptions. However, a great number of not-for-profit organisations do get tax exemptions, even if they do not have exclusively charitable purposes. For example, the New Zealand Income Tax Act 2007 provides at CW38 to CW40 and from CW44 to CW55 that a number of entities can have tax exemptions even if they are not exclusively charitable. This is the case for public authorities, local authorities, local and regional promotion bodies, friendly societies, funeral trusts, bodies promoting amateur games and sports, TAB (state-run gambling organisations) and racing clubs, income from conducting gaming-machine gambling, bodies promoting scientific or industrial research, veterinary services bodies, herd improvement bodies, community trusts, distributions from complying trusts, foreign-sourced amounts derived by trustees, Mäori authority distributions and tertiary education institutions.”
Limiting charitable recognition to entities seeking to promote economic activity
I have some difficulties with the limits Charities Services places on entities that seek to advance economic development, despite the fact that its approach was judicially endorsed 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 Charities Services approach is illustrated by the way it seeks to explain its policies in section 22.214.171.124 of Charity Law in New Zealand “… the New Zealand Charities Registration Board will register organisations that promote industry and commerce only where it is satisfied that their purposes provide a public benefit, and that any private benefit to individuals or businesses is incidental. Public benefit may result from assistance to the unemployed, as discussed above, or assistance to a deprived area (for example, Tasmania in the case of Tasmanian Electronic Commerce Centre Pty Ltd v Federal Commissioner of Taxation). This is consistent with Oldham and Canterbury Development Corporation.”
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?