Since the Elizabethan Statute of Charitable Uses Act 1601, the promotion of sport has not been accepted as a charitable purpose at law. Sport at the turn of the 19th century was seen as "primarily calculated to amuse individuals apart from the community at large", thereby failing the crucial test for public benefit (Re Nottage [1895] 2 Ch 649).
Under a recent Charities Commission policy ruling sport and recreation organisations can now become ‘registered charitable entities’ under the Charities Act 2005 as long as they can meet the charitable purpose test set out on section 5 of the Charities Act 2005 (the “Act”). This test is a formulation of Lord McNaghten's test in Income Tax Special Purposes Commissioners v. Pemsel [1891] A.C. 531 (P.C.) which held that charitable purposes were those relieving poverty, advancing education, advancing religion, or advancing other purposes beneficial to the community.
The Charities Commission is left with quite a broad discretion to make policies to enable the law to move with the times, otherwise, caselaw prompts change.
In December 2008 Travis Trust v Charities Commission, Justice Joseph Williams upheld the Commission’s refusal to register a trust established to provide a purse for an annual horse race. The Judge commented that charity law’s development was “evolutionary rather than revolutionary” and a “steady encrustation of new analogous charitable categories” deriving from the Elizabethan Statute.
The Advantages and Disadvantages of Charitable Status
Amateur sports clubs do not have to register with the Charities Commission. They can be exempt from paying income tax under s CW46 Income Tax Act 2007 and be granted approved donee status (s KC 5 Income Tax Act 2004) so donors can enjoy rebates.
However, as of 1 July 2008 all entities who wanted to retain or obtain the full range of fiscal privileges afforded to charities needed to apply (including exemption from paying rates and gift duty). Other advantages include:
- Enhanced public standing
- May be a prerequisite to obtain funding from charitable trusts and gaming trusts
- Receiving assistance from the advisory and other functions of the Charities Commission (see s 10 Charities Act)
- Inspire confidence in the public mind which may elicit a better response in appeals for funds
- One-stop filing of annual return
- Group applications (beyond the scope of this article)
Disadvantages include:
- Fiscal benefits already enjoyed might be enough
- Increased administrative work (notification of changes/ filing annual return/ financial statements)
- Costs: $75 filing fee (or $50 online) for filing annual return if club earns $10,000 per annum; less than $10,000 is nil
- Limits eligibility of officers (s 16 Charities Act, although arguably an advantage)
- Offences sections
- Minimally physical, expensive or dangerous sports are ineligible to register
Future Developments: Rugby Union as a Sporting Example
Professional sport is not charitable as sportspeople, owners and commercial stakeholders reap private benefits. A change in categorisation may come about by way of an analogy to mid-20th Century English cases which found the advancement of industry and commerce to be charitable and through building on the American and English cases which approve the promotion of patriotic purposes as charitable purposes.
Justice Hammond noted in a 1997 case that charity law as applied in New Zealand must evolve to keep pace with New Zealand societal attitudes, (D V Bryant Trust Board v Hamilton City Council). This evolution may come in one of several ways:
(a) Incremental change through caselaw (Travis Trust); or
(b) The Charities Commission making policies (as per its statutory powers);or
(c) Special legislation for big events (America’s Cup or Rugby
World Cup)
Rugby is itself an example of drastic change. What remains constant is our national love of the game at its highest level.
In a quick survey of some key Rugby dates, in 1985 North Harbour was established with lawyer Chris Jennings' drive and Finnigan v NZRFU played out in the Court of Appeal (ultimately stopping the All Black tour of apartheid South Africa). In 1987 our team won the first Rugby World Cup. In 1995, in post-apartheid South Africa, Francois Pienaar lifted the Rugby World Cup with President Nelson Mandela at his side. In 1996 the game went professional. In 2009 the 1000th Super Rugby game was played at Albany. Society at large has changed, and this informs on charity law. Change has been more revolutionary than evolutionary in this code, just like William Webb Ellis’ first act in picking up the ball and running with it, in England in 1823.
Today, some might say the largely amateur rugby clubs at a local level are perhaps not faring as well. Fortune Manning can assist with drafting your constitution to tailor-make governance structures for you and to assist with registering your sports club with the Charities Commission. While each situation is different, we would generally encourage you to register with the Charities Commission to maximise your competitive edge in attracting sponsorship and funding at a time when the economic environment is fast eroding the pool of funds available to sports clubs.
By the first whistle of the 2011 Rugby World Cup, there may be several rugby clubs registered as charitable entities. Any bold steps forward (such as special legislation or broadening of the policies of the Charities Commission) would require rigorous examination from a tax, rating and gift duty perspective to support any social policy initiatives. We can assist in providing strategic advice in this area.
