Transcript of E34 Charities Law - With Sue Barker
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Law Down Under Podcast - Charities Law
Fri, May 30, 2025 10:00AM • 1:40:13
SUMMARY KEYWORDS
Charities law, New Zealand, transparency, governance, advocacy, legal framework, charitable purpose, financial reporting, tax privileges, regulation, independence, social cohesion, volunteering, legal reform, public benefit., Charities law, taxation, not-for-profit sector, issues paper, unrelated business income, donor-controlled charities, FBT privilege, compliance costs, legal framework, civil society, social investment fund, prevention over cure, political champion, community sector, liberal democracy.
SPEAKERS
Sue Barker, Chris Patterson
Chris Patterson 07:13
Charities are a vital pillar of modern, any modern liberal democracy, and nowhere more evident than here in Aotearoa, New Zealand, with over 28,000 registered charities, one of the highest per capita rates in the world New Zealand is New Zealanders. Generosity is both remarkable and it's essential supporting a diverse array of causes, from social services, health to culture and advocacy. Charities not only bridge critical gaps in social welfare often stepping in where government and markets fall short, but they also foster community resilience, innovation and social social cohesion. The economic impact is significant, with not for profits, contributing almost 5% of New Zealand's GDP, 4.9% to be exact, when volunteer labor is included, volunteering is the oil that keeps our country and our communities going. It is absolutely essential, and without volunteering, what we know here in New Zealand would completely collapse. However, the sector has a lot of challenges. There's always resource fragmentation, competition for funding. There's never enough money. The needs of greater there's need for greater collaboration and sustainability and involving social landscape. There's been a bit of legislative reforms, such as the Charities Amendment Act, that's increased the focus on transparency, robust governance and underscoring the importance of sound legal frameworks. Now this is where lawyers and the legal profession play a real crucial role, and on today's episode of the law down under podcast, we are joined by Sue Barker. Sue is the director of Sue Barker charities law, an award winning boutique law firm in Wellington, specializing in charities law and public tax law, which she founded back in 2012 Sue is an internationally recognized as a charity law scholar and as a director of the charity Law Association of Australia and New Zealand. Sue is the author of The, recently, as in this month, taxation of charities in Aotearoa, New Zealand. And she's also the co author of law, the law and practice of charities in Aotearoa, New Zealand, now in its second edition, and that was published in last year in 2024 now dropping back to 2019 she was awarded the New Zealand Law Foundation International Research Fellowship, which was A world leading framework for New Zealand in terms of Premier legal research awards for her project, what does a world leading framework of charities law look like? Her landmark report, focus on purpose, was released in April 2022 it made 70 recommendations for charity law reform in New Zealand. Sue's expertise is regularly sought after by the media, by charities of all shapes, sizes and missions. She's a member of the charities services sector group, a core reference group for the government's review of the charities Act 2005 she's played a leading role in advocacy for independent first principles review of the charities act, and her work is widely cited in Sector Reform discussions. We are very privileged today to be speaking with Sue about a career. We're going to discuss all things charity law, including its future in New Zealand. Hello, Kia ora, Hi, Sue. How are you?
Sue Barker 10:33
Hi, Chris. I'm very well. Thank you. Thank you very much for that introduction and for having me.
Chris Patterson 10:38
Oh, look, I'm just so pleased to have you here. It's just such an important area of law. It's an area which, you know, unfortunately, this is just my perception. People who are working in charity space are doing such good work, but just never get properly recognized and acknowledged for the work they do. So it is so good to have you here. This is your you're someone I've been wanting to talk to for a long time and to discuss this area. It's just an area that just needs more attention. And the work that you do is just a lot of it goes sort of unnoticed in the wider sphere of things, but, but it's, it's so valuable, you know? It's just so thank you. We're really I'm really excited. Let's get into this. Let's start talking charities. So my first question, first question for you, to kick it off us, why did you choose law as a career? What brought you? Brought you to the legal profession?
Sue Barker 11:35
Well, it wasn't exactly linear. I came to the law late after trying a few other things, and frankly, I don't think that's a bad way to come to a law degree after a bit of life experience. You know, it might be different to how other people approach it, but I came to it late, and I also did it part time for much of the law degree. So it took a it took a while. Took me 13 years to complete my law degree. What
Chris Patterson 12:02
were you? What were you doing in that time, while you were studying?
Sue Barker 12:05
Well, I started off as a, I wanted to be a concert pianist, so I started off doing, I started off doing piano performance at Victoria University, and also an accounting degree. I'm also a chartered accountant. But after a year, I realized that I had no money, nowhere to live, no piano to practice on. Oh,
Chris Patterson 12:27
you were suffering from the artist's dilemma. Okay, great artistic talent, but it's just not producing money. But hey, how wonderful you're clearly a person who's got a left and right brain sort of mentality that you can, you know, with your and I can't remember whether it's the left, that's the creative one and the right, that's sort of, you know that more, you know technical in terms of accountancy, that's fantastic. What a great combination. There can't be too many concert pianist accountants out there. Yeah,
Sue Barker 12:58
well, I was studying to be one. I must say, I didn't actually become one, but,
Chris Patterson 13:03
oh, look, I'm sure, I'm sure, that you could blow a lot of people away with your capability. Maybe that's for another, another podcast we'll get you to talk about, you know, hey, so you then got into the law. And was, was was charities law, you know the thing for you right at the beginning, or did you how did you end up in the space of charities law?
Sue Barker 13:27
Well, because I didn't have any money, I got a bursary with the Inland Revenue Department. Because back then, the IRD was encouraging people to come and work for it, and it was helping them through the university degree, and then bonding them to work for them for a while afterwards. So I that was how I was doing my degree, part time. IRD was supporting me, and actually they gave me my last year on full pay, for which I'm very grateful. It was very nice to study with actually money. That was a refreshing experience. Oh
Chris Patterson 13:58
no, no. That's great. I mean, look to have have financial support just means that you can focus on your studies. You know, extremely well. I Yeah, actually, look, I'll just share with you something that I that I picked up on a feed, and it was a it was a lawyer. Was a criminal lawyer here in Auckland. Was it was, was commenting that when she's recruiting, she she goes, you know, if you weren't working and you had financial support from your parents, or whatever it is, you've got to be, you've got to be excelling at at law school. You've got to really, because, because you're not worrying about money. So, so, what a great thing to have that support. Yeah,
Sue Barker 14:36
yeah. It makes a huge difference. Yeah. And I, it was at IRD that I was exposed to the definition of charitable purpose. And I, you know, the four heads, the advance the relief of poverty, the advancement of religion, the advancement of education, other purposes beneficial to the community. And with the hubris of youth, I was like, Oh, well, you know that, you know, easy to satisfy that. And then I was introduced to the centuries of case law that inform what constitutes other purposes beneficial to the community. So that was my introduction to the concept of of charitable purpose. And I moved to the policy advice division and was working on the review of the Income Tax Act. And, you know, charities receive tax privileges. So it was really interesting to, you know, look at the fundamental principles underlying, underlying the various exemptions and, you know, privileges. And then I went to crown law and became counsel for the commissioner of Inland Revenue and the Attorney General, sometimes arguing tax cases. And that was at the time that the Latimer litigation was going through the Crown Forestry Rental Trust Case, which is really I would argue, the seminal, seminal charities law case in New Zealand. So it was wonderful. I wasn't acting on it, but it was wonderful to be exposed to it. And then I went to, after about four years there, I went to butt of Findlay as a private tax practitioner. And that was just at the time the charities Act was going through Parliament. And I have to say, it's really, it's really lucky to be there at the beginning of a new regime. And we, we made submit or help charities, a number of charities make submissions on the original charities bill back in 2004 and then after I left battle in about 2008 after six years, I went to Chapman trip and their finance team and then I went to Chen Palmer and their public law team. But everywhere I went, people were coming to me with their charities law issues. So I decided the universe was trying to tell me something, and I decided to set up my own firm. And here we are. Here we are
Chris Patterson 16:54
today. And so look, it's interesting that background that you've got. Perhaps, I sort of developed this, this way. We live in a great country, okay, but, but New Zealand has its challenges. I mean, we're not an oil producing country, so we just don't have all this foreign money just just coming in that we can go and spend on, on all the services that we we need. So we, you know, we've got, you hear the saying we're a small country? Well, geographically, we're not, okay. I'll just contrast that. I was fortunate to be in Belgium earlier in the year, and Southland is the same size as Belgium. You know, it's just, but there's 10 million, over 10 million people there. You know, we've got five and a half here. We don't have a massive tax base of tech, you know, people earning taxes. We've got an aging population who are, you know, retiring, and you know, they're not producing like they're consuming. But you know, we've got all these costs that we have to have to run. You know, we've got a country that's very long and geography is tough. So putting infrastructures in tough. We're constantly on the news hearing that our health system is collapsing and it's in chaos and all of this. So your ID experience of going, Okay, well, we've got to have a fair tax system, because we've got to fund all this, you know, like, where's the money going to come from? Okay? And then you've then got this charity side, which is, okay, there's all these gaps here. So there are these charities. And I guess people who donate to charities, a lot of them will also be taxpayers. Will go, Well, you know, when I hand my tax money over, I don't have any say where that goes. That's up to the the administration. But at least with charities, I can, I can go, I really believe in this. I want to give my money to make a greater cause. And so there's, is there an intersection there? And how that all links in? Is that the way you see it, or am I seeing it the wrong way?
Sue Barker 18:48
I do think that done e state is the ability for a donor to get a tax credit or a tax deduction for their donation. It is an important way of democratizing the system. It recognizes that government doesn't have all the answers. And in any event, it's a major, majoritarian government. It's a democracy, so by definition, isn't necessarily catering for all the needs and, you know, aims within society. So I think Tony's status is important that that way that tax privileges for charities to help Democrat the system. Yeah,
Chris Patterson 19:21
yeah. And I guess it's also encouraging people to be givers, you know, to be generous, and to go, Look, I've got an ability to help others. And if we've got a good, functioning, you know, efficiently functioning charities sector, yeah, then that's going to help that process achieve its outcome and avoid friction, friction points and bleed, you know, where, where money is going off, which isn't intended, you know, because of expenses or regulation, or whatever the things are. So, so this is an important process, and that's where the law can help? Yeah. Oh, absolutely.
Sue Barker 20:01
And I do believe the current legal framework for charities is actually hampering, impeding the work of charities. Charities are so important for creating social cohesion, they have such a big impact on our culture of volunteering and on our democracy, it's critical, in my view, to get the legal framework right, because otherwise we risk undermining all of those, all of those things that New Zealand is internationally known for. I mean, it wasn't so long ago we had the highest level of social capital in the world. We also had very high levels of volunteering, and all of these factors are dropping and and, you know, there's all the pressures on democracy as well. And I find when I, you know, read, you know, commentary about all of this, the link between these trends and the current legal framework for charities is just never made, but I think it's a critical part of the discussion. I'm not saying it's the answer to everything. That's never a magic bullet. It's always multifaceted. But the legal framework for charities is critical in this context, in my view. Oh,
Chris Patterson 21:08
absolutely. So I guess what you're saying is no different to many other areas. But the important point is, is that our laws, you know, in our law and our lawmakers who make them need to be enablers, like they need the laws need to enable outcomes to occur, yeah, in a certain way. And if it's accepted that the work of charities is an important, you know, it's important, it has an important place in our in the society we want to live in, then our laws should enable that work to be undertaken without unnecessary difficulties. You hear the phrase cutting through the red tape. Look, sometimes you need red tape, because without the red tape, you get unintended consequences. But am I hearing from you that we've still got a long way to go before we've got a legal framework that that that is efficient and is leading the world? Is that what I'm hearing? Oh,
Sue Barker 22:12
absolutely, and we've never had a proper look at what the legal framework for charities should be. I mean, that's the big frustration, because the original charities bill that that was originally, excuse me, introduced into parliament in 2004 was widely regarded to be fundamentally flawed, and it was almost completely rewritten at select committee stage, in response to submissions, and then that rewritten bill, plus further changes that were made by supplementary order paper, were rushed through Under urgency, without proper consultation, and the deal was that, you know, don't worry about it. Charitable sector will subject the charities act to a proper first principles post implementation review. And here we are, two decades later. There's been plenty of tinkering and lots of piecemeal reform that have generally made matters worse rather than better, but we've never had a proper look at what we're trying to do with this legislation and why. And I think that's causing harm, you know, significant harm. Okay,
Chris Patterson 23:07
well, look, I mean, that's a formula for disaster, isn't it? You know, you put together a badly drafted bill, okay? That doesn't, that's, that's, that's the first mistake. The second mistake is you rush it through, through a consultation process, which should be only dealing with fine tuning, like super fine tuning, and start to try and panel, beat it into something that looks like it's fit for purpose, or, you know, looks like it should do this, yeah. And then you then think, okay, over successive governments will will try and amend it to again panel, beat it into into some functional shape. That's not good. Okay, that's that. That's that's not the way that legislation should ideally be done. Well, no,
Sue Barker 23:51
Chris Patterson 24:57
you think there's an element of some sort of paternalistic attitude, where the administrator, and it doesn't matter which government's in power, that goes, Look, we know what's best. We're the best ones to deal with this, and you just stay out of our space. Is there an element of that?
Sue Barker 25:15
I do think there was a bit of that with certainly with the review of the charities act that resulted in the Charities Amendment Act. But there's also a big problem with underlying assumptions. There's a lot of underlying assumptions that have not been adequately tested, and they're they're applied, and they're built on as if they were immutable truths, and it's those assumptions that I would like to see properly examined. Okay,
Chris Patterson 25:39
so look, I sometimes have a bit of a love hate relationship with the maybe I should say this The Law Commission so, but this is something they should be perhaps going we need to get this on our scheduling And agenda to announce a review of of charities law. I mean, I assume you would encourage them to do that. I
Sue Barker 26:06
would love to see them do that, because they were supposed to do a second stage of their review of the law of trusts. The trusts act 2019 was actually the culmination of the first stage of their trusts Law Project the state. The second stage was supposed to be a charitable and purpose trust review, which would have included a review of the Charitable Trust Act 1957 which is nearly 70 years old and has never had a proper look either, so that that project appears to have fallen off their work program, their website describes the trusts project as closed or completed, so that there's a whole body of trust law work in the context of charities that really needs to be done so the charities Act, as you know, I'd like to see that reviewed as well. Perhaps we could do a review of the whole of charitable charities law, you know, not necessarily in the area of trust, but it's certainly needed. Yeah, okay,
Chris Patterson 27:00
well, look, and this is a great opportunity for the legal profession to also advocate for reform in this area and encourage reviews. So look, wouldn't it be great if, if somehow that happened, shall we start diving? Sorry, you go. You go
Sue Barker 27:21
sue. Oh, just on that point. That was how the trusts review got started in the first place. I understand on the base, on, on due to the advocacy of lawyers. So I'd really love to encourage lawyers to advocate for a proper review of charities law, because we really need it. Yeah. Well,
Chris Patterson 27:37
you know there are, I know for a fact there are a few lawyers that listen to this podcast and and some of them very senior. But there's also, I also know a few of the listeners are also have a bit of influence in the political sphere. So here's a little project, if someone was looking for one, and it actually, let's be fair, it's not a little project from what you're saying to sue. This is actually quite a big project, but it's so important and it's just, it's just got to be made more of a priority to if we want to have the society that New Zealand's capable of. This is, this is one area that differences could be made. Now let's dive a bit into the into the law. Let's start off with a legal definition, charitable purpose. What does it mean, and why is it important? What has relevance?
Sue Barker 28:23
Yeah, well, that's interesting. The government has used the concept of charitable purpose as the gateway to certain privileges, but the concept of charitable purpose derives from trust law. It's a it's a long standing concept. It's an exception to the rule that a trust for purposes automatically fails for lack of certainty of object. It's a wonderful invention, but it resides in trusts law. And I think the key difficulty is using an equitable concept as the gateway to all of this. Black letter law, tax law, regulation, whatever it is, and it risks. I think the the equity gets crowded out by these rules based type, type of law. And I think that that point hasn't been understood. I see this endless quest for certainty. We want to have rules. We want to know exactly when a charity can be registered and when it can't, like the Companies Act name, you know, Director, shareholder, tick. And they thought that was how the charities Act was going to work, and it just doesn't work, because we're using an equitable concept. There is no way we will craft black letter rules that will adequately cater for the diversity of ways that people try to benefit other people. So I would like to see the legal framework recognize the fundamental underlying equitable principle that we are dealing with, because that law works. It's been around for centuries, because it works, and we're at risk of damaging the very concept that we're trying to promote by over regulating and, you know, I think a bit in terms of acid and alkali. I don't know, I'm just developing this concept, but I think of trust law as alkali, and I think of tax regulation, rules based laws as kind of acid. And you have to have a pH balance. You've got to find the balance. You've got
Chris Patterson 30:20
to get the chemistry Correct. You do,
Sue Barker 30:22
but if you get the chemistry too acidic, if we err too far on the side of acid, we create an environment that risks killing off the very things we're trying to promote and instead encouraging things that thrive in an acidic environment, which are usually things like weeds, pests and diseases, we have to be very careful that. That's, again, why I think the legal framework is so important, because we risk killing the patient. The medicine is worse than the affliction. Yeah, yeah. Look
Chris Patterson 30:51
really good point you've made. You know, the law of equity has developed over over centuries and centuries of of the passing of time, where these principles, you know, there are, you know, obviously some golden threads that have run through the passage of time there. But these are equitable principles that don't actually fit neatly with, as you rightly say, Black Letter concepts. It's trying to force a square peg into a round hole, since we're using metaphors and analogies, and it doesn't really work. Okay, doesn't work, yeah, but, but if, if, if you come to saying, look, the outcome we want is we want to we want an efficient and effective legal framework. We have to accept and not ignore that one of the underlying basis of that is founded in equity, which has different concepts and principles that won't always but up against and neatly fit with, with black leader law. So so that. So you almost need, like, a bridging component, some some connector that will connect the legal principles and concepts so that they work efficiently. And am I hearing you saying that they've just gone into this in the wrong way, that they go, Look, equity is the same as black letter law, and you don't and you can treat them both the same way, and that doesn't work well.
Sue Barker 32:15
I don't think they've really thought about equity. They I don't think they think trusts law applies to them. IRD and dia appear to have a complete blind spot when it comes to trusts law, and that is a problem because charities don't have the option of saying, Well, okay, we'll just, we'll just have this law not apply to us. It does apply to them. So they're being forced into a position where they're having to try to comply with two conflicting bodies of law. And we're dealing with, you know, a sector that is comprised of volunteers, people trying to make the world a better place. You know, we should be making it as easy as possible for them to do that, or certainly not creating all these barriers, legal barriers, that are preventing them from doing that. We should be encouraging and enabling that, in my view, and we're doing exactly the opposite right now. Yeah, would it be, would it be
Chris Patterson 33:04
fair to say that, in a way, I'm not sure if you picked up on Duncan. Duncan, we've had a private members I think. Was it a private members bill that he's wanting an amendment to our company's legislation to change the directors duties to switch them away from effectively, best interest of the company and the shareholders, so that they have more flexibility to say, well, actually, we want to be able to provide a social purpose. Okay, this may not necessarily result in the shareholders getting massive dividends, but it's going to result in other benefits that are wider beyond that, and it's an attempt to take, you know, our corporations concept, which has been very much focused on one outcome, and start giving directors, I guess, the ability to think of interests beyond just making money, yeah. And is it, I mean, is that what the problem is with that, that these, these charitable trusts have, you know, and these trustees who've got all these equitable duties and and they're being forced to comply with our existing framework, which, which doesn't, which, which causes problems.
Sue Barker 34:18
I think that, I think that bill did pass into law from memory, and it was very controversial at the time. I mean, you'd think, why would it be controversial for directors to consider these other points? But I think the argument was that the law already enables them to do that, and we risk creating a rod for directors backs as I understand it. I haven't looked at it for a while, but I think the real the real issue in that context for charities is that that duty to act in the best interest of the company was imported into the incorporated societies act. So societies, offices of societies, have a duty to act in the best interest of the society. But the problem is, when you're dealing with purpose based organizations, and incorporated societies, by definition, must operate for a purpose, as every charity must do, is that there's a there's a lot of academic research going on about the purpose based governance, that the best interests of an organization that exists to further a purpose is what is in the best interests of those purposes. And actually, I'm using interests and purposes in there. There's a lot of academic work going on about all of that, but I use the phrase for a charity. Every decision you make must be made in the best interests of your charitable purposes. Because I know that purposes can't have interest, but I still think it works at a conceptual level. Yeah,
Chris Patterson 35:40
presumably that makes defining the purpose really important for a charity.
Sue Barker 35:44
Critical, critical, yeah, yeah. And there's a lot of uncertainty at the moment about how you ascertain purposes, and that's why I've entitled The report focus on purpose, because there's been a real because trust law appeals appears to be a blind spot charities services, appears to apply an approach that so long as a charities furthering a purpose that they consider to be charitable, that it doesn't really matter what it says in their rules. And my view, that's a fundamental misconception of the requirement, the duty, the fiduciary duty, to act in accordance with your rules and to further the purpose that's stated in your rules. So there's a lot of issues about how we ascertain purposes and then the fiduciary duties to comply with those so that's really what the one of the gists of the focus on purpose report is that we make those principles clear in the legislation, so that everybody is clear that these principles apply to charities and to charities services, and also to IRD. So we're all on the same page.
Chris Patterson 36:44
Yep. And I guess this is also another area where the law role that the law has, and that is so that people know what the rules are, what the law is exactly. It's got to be, it's it's got to be. How do I phrase us, the law? There has to be a way that the law can be ascertained and discovered, and usually the way that we do that, as we you know, we have a piece of legislation. One of the great things here in New Zealand is that we can freely, if you've got access to the internet, we can look it up, okay, we can get on the internet. It's all there, on the legislation.govt.nz, and we can, we can look at the act, the charities act in this case, and we should be able to look at it and go, well, here is the law. Okay, yeah, right now. So one of the things that I did want to also touch with you as the role of Trustees, people that are in a governance role with a charity, my questions around you know, what sort of you know, training and resources, given that they do such important work that's there, and I'll just contrast that to one organization. So there's the Institute of directors. So if you're involved in running a company, you're a director, you can join, sorry, this isn't a plug for the institute, by the way. I'm just using it by contrast. Okay, you can join the Institute, and they have each ongoing, continuing education opportunities and events. Is there something similar like that, for for trustees and charities? Are they like someone? Is it becomes a trustee, or they're in a governance role in a charity, and they go, Hey, look, I'm donating my time. It's really important, you know, I'd like to get better at what I'm doing. How does someone go about doing that? There
Sue Barker 38:28
is a lot of resource available. There are a lot of charities that do, do work in that space. So there's plenty available. And charities services also has quite a lot of material on its website. And actually, I find the Charity Commission for England and Wales, England and Wales website also very helpful. And actually the Australia, the ACNC, the Australian charities and not for profits commission, their website is also very helpful as well. There's lots of material available. There's a myth, I think that the charitable sector is struggling with governance. And personally, I don't think that is a correct articulation of the issue. I think we've created rules that are making it so complex and it's so difficult for a charity work to work out what it can or cannot do. And that's what another reason why I'd like to refocus the legislation on charities purposes, and what I say to charities is that make sure every decision that you make is made in the best interest of your charitable purposes. That is easy for charities to understand. It's easy for volunteers to understand. It's not complicated, and it's actually how the underlying law works. And I think if we worked with that underlying law, rather than trying to cut across it, we would transform governance overnight. If charities knew that if someone acted in breach of their constituting document, that there would be consequences for that, I think that would transform governance overnight. But charities services does not do that. It doesn't enforce the compliance with the constituting document, or at least, certainly, what I see in my practice is that I'm constantly approached by people saying, something terrible has gone on in our charities. Somebody sold a building, somebody's, you know, paying themselves. They're doing this, they're doing that, and we went to charities services, and charities services said it's not our role and
Chris Patterson 40:19
carry on. But I do want to ask you about charities services. Charities services. Please, carry on. Yeah,
Sue Barker 40:24
a charity services says it's not our role. And so then they go forum shopping. They go to the attorney general, they might go to the real estate agents authority. They'll go all over the place trying to find someone to help them with this problem. But all of these people will say, No, it's charities act as you go to charities services. So the law is not providing a remedy for significant issues that are really undermining public trust and confidence in charities and in charities services around the country and the the the feeling that comes across from the people who call us like so you know, they don't care about the little people unless We've got enough money to go to court and prosecute this through the High Court, you're on your own. There's nothing that will be done, and the law is not working in that regard. People should know that they the fiduciary duty to comply with their document and act in the best interest of their charitable purposes will be enforced. That would transform governance overnight, in my view,
Chris Patterson 41:21
really good point. So this is, this is an example of one friction point in the charities sphere that's causing so that's something that that could, could be remedied, okay, and fixed. Tell us about charity services. What is it? You know, you know, who funds it, you know, what is it? It doesn't sound like it's a regulator. Doesn't sound like it's going to enforce anything. But what does it do?
Sue Barker 41:45
Charities, Services is a business unit of the Department of Internal Affairs, and I think they've now been moved within another business unit of the Department of Internal Affairs. They're now with gambling, anti money laundering and other similar things of a similar ilk, which I think, to my mind, reflects how charities are viewed within the within government. Originally, the charities act as originally passed, we had a charities commission which was independent. It was a it was an autonomous crown entity. We wanted it to be an independent crown entity, but it was better than the crown agency classification that was originally in the original bill, because the whole purpose of charities is that they're independent of government. You know that they're able to be the eyes, ears and conscience of society to hold government to account. They have an important role in holding government to account a lot of the important societal changes that have occurred over the centuries have happened as a result of the advocacy work of charities, and often actually charities will pilot something and it will get picked up by government, so that independence of the the body deciding which entities qualify for charity or registration and which don't, was critical. It was a huge issue when the charities Bill was originally going through Parliament, but then in 2012 the charities commission was unceremoniously disestablished and its functions transferred to the Department of Internal Affairs and Rory.
Chris Patterson 43:16
Can I ask you a question about that? Why? What? Why was the charity like, I mean, Australia has a commission now, no, I'm not advocating that. Just because Australia has something, we've got to have it. Okay, like, we've got an opera, a lovely Opera House in Sydney Harbor. We don't need one in Wellington harbor. Okay, yeah. Well, maybe, maybe we do, I don't know, but, but the point is, why does it? Why does this? Why did we have one? Why don't we? I mean, Australia has one. England, Wales have one. Yeah. What's the role of a commission? Why is it gone? Well, I
Sue Barker 43:51
mean, I this is one of the key issues, I think that needs to be looked at in a proper first principles review of the charities act, because again, it comes down to an underlying assumption. I refer to it as an underlying clash of paradigms. There's a there's an underlying clash of paradigms that permeates this area of law, and in a way, it comes down to the distinction between acid and alkaline. But I think the there is a, perhaps a perception within government, that, because charities receive tax privileges. Well, then government owns them, and government gets to tell them what they can do, what they can say, and when they can spend their own money. And the problem with that is that if we turn charities into instruments of the state, if we use this framework as a mechanism for turning charities into instruments of the state, we undermine everything that makes them distinctive and valuable, and we also turn people away from charities, particularly young people. People are voting with their feet. So that is a that is the key boundary, protecting that boundary between charities and government is one of the key, the key functions of a legal framework that we need to fix, in my view. So anyway, that it was disestablished. You know, it is common for a right leaning government when they come in to do a kind of a quango hunt and get rid of a number of organizations. And as I understand it, the charities commission got caught up in the wash. It wasn't really thought through. It was a bit of a knee jerk reaction, because there was a lot of controversy that it was interpreting the definition of charitable purpose too narrowly. And I think there was also a lack of understanding about how these decisions as to whether a purpose is charitable are not like the companies that it's not tick, tick, tick. You actually have to, you know, it can take a bit of time. So the charities commission was getting a bit of negative press, and I think the government thought, Okay, well, we'll just get rid of it. And that was a huge mistake the charitable sector, in my view, that the charitable sector fought against it and it came down to one vote. In the end, if one vote had been decided differently in Parliament, it would not have passed. But anyway, it passed. And in order to the idea that decisions about registration must be made independently of government was kind of kind of wrapped up in this idea of the charities Registration Board. So we've got this charities Registration Board, originally of three, and now of five, which ostensibly is supposed to make all decisions about registration and de registration, and it is required by statute, to be independent, to make its decisions independently. But the problem is, is that charities Services provides administrative and secretarial support to the board, and in practice, and we argued this in the foundation for anti aging research case, in practice, what's happened is the board really is just exercising a government governance role of approving the process that's been undertaken by charities services. And in effect, what we have is that decisions about charitable registration are actually being made by charities services. So the irony is that by having decisions about registration made by a business unit of a government department that is closer to government than the original crown agency classification that was so comprehensively rejected when the original charities Bill was going through Parliament. So, you know, it's it's one of the issues that really does need to be looked at. And I accept that charity services doesn't want it to be looked at. It's no reflection on them. I think they do the best they can within the framework that they've got, although I do disagree with some of their interpretations, and that won't be a surprise to them, but you know, I do think we actually we need to look at it in the interest of our country. We need to look at it.
Chris Patterson 47:34
Yeah, no, no, all, all, extremely good points. And I guess this is the segues nicely into the role that our courts play in this area, because our courts have been and our Supreme Court has been active in clarifying some of these key points. Can you sort of walk us through sort of some of the more key developments from the case law to help shape the charities law landscape.
Sue Barker 48:05
Sure, happy to I'd like to preface that if I could by one of the key structural issues that is causing difficulty in the charities act, and this was identified by the National Party who were in opposition when the charities bill were going through. They said, you know it's going through so fast. There could be all these structural issues that and charity, the charitable sector, will pay the price. Well, the key issue, I think, the key structural issue, apart from the structure of the agency, is the nature of the hearing on appeal. So when the charities bill is introduced, the appeal would have been to the district court whose decision was going to be final, and charities submitted that well, you know this, this decision as to whether a purpose is charitable should be able to go to the highest court in the land, and actually it should start in the High Court, because it's a it's an area of trust law. It's not really normally within the area of the District Court. So they changed it at select committee stage. They crossed out the word district, and they put the word high. So now the appeal goes to the High Court, and it's not no longer final. It can continue through through the appeals process. Sorry,
Chris Patterson 49:11
can I just get it get a clarification before you move on with that? So we what I'm understanding is saying is, I'll just use a scenario. We've got an organization that is providing some social good. It's a not for profit, and it says we want to register to become a charity, so they go through the application process and submit it to charity services, if I got that right, yeah. And then if charities services decline, or there's something that that organization is unhappy with in terms of their decision, yeah, that's when the appeal right clicks on, yes,
Sue Barker 49:45
or if they get deregistered. You know, the charity the definite the decision will be made by charities services, ostensibly under delegation from the charities Registration Board, because under the Act, the decisions are supposed to be made by the charities Registration Board, but in practice, they're mostly made by charities services, and if a charity doesn't agree with the decision to not to register them or to de register them, then they have a right of appeal. And the original appeal was to the District Court, which the courts have confirmed, would have allowed them to have a proper first instance oral hearing of evidence, but by crossing out that word district and putting the word high and appeal to the High Court, nor is an appeal on the record. It's a, it's a, not a de novo,
Chris Patterson 50:31
yes, so the judge hearing it doesn't get to hear the evidence. Any, any in the parties can't lead, lead any, any fresh evidence. Yeah, well, maybe they can get leave to lead fresh evidence. They've got to do it on the record of the evidence that was put before the charities services. Is that, yes,
Sue Barker 50:48
yeah, yes. And those rules in the High Court rules all evidence must be given by affidavit. There's no automatic right to cross examination that's premised on the assumption that there's already been a proper first instance oral hearing of evidence in the tribunal below, but neither charities services nor the charities Registration Board conduct an oral hearing. So what the net effect of that little change from District High has been to remove charities ability to access a first instance oral hearing of evidence and proving that their purposes are charitable. Now the whole concept, both of as to what your purposes are and also as to whether those purposes are charitable, turn on questions of fact, and that's how we protect the diversity of the charitable sector and the mechanism of the common law. And the fact that charities have been deprived of an oral hearing of evidence has caused our charities law to become distorted, in my humble view, the
Chris Patterson 51:46
also, I mean, doesn't, it doesn't seem to accord with basic principles of natural justice. I know. I mean, no one can really say I've had a fair hearing if they haven't been heard. I
Sue Barker 51:57
know. I know. And so we would advise charities to make submit evidence to charities services before they make their decision, as if you are intending to go to the High Court, as if you were making a high court appeal. So we'd get affidavit evidence and put it into charity services. We do all the work before charities services makes its decision, because once it's made its decision, there's no automatic ability to add, use any evidence without leave at the High Court. And even if you do get leave, you still can't so there's no cross examination. So there's no ability, there's no trier of fact, there's no ability for the court to to really, you know, get to the bottom of whether these purposes are charitable, and that that has caused our law to become distorted. And, well,
Chris Patterson 52:47
yeah, so we've got a scenario where the finder of facts here charitable services are reaching determinations just based on paperwork. And look, I mean, let's just contrast that to an area that the lawyers listening will know very well, and that is, you know, we've got a dispute. Do we apply for summary judgment? And the critical question is, is that, can the factual disputes be determined on the papers? And if they can't, well, then you're not going to go for summary judgment. You're not going to say to a judge, or you can sort this all out and determine what happened just on the paperwork, and what you're describing. And I could imagine, and there'll be, there'll be countless, as much as your imagination could be, scenarios where a charitable or an organization would say, well, we don't accept that, though that allegation was, you know that those factual position, but we need to be heard on it. It needs to be tested. And you know, and testing evidence properly, which is, you get a witness in the witness box, and you know, evidence is tested through what did one person say? You know, the great invention of the law is the as cross examination, because it's the it's the engine of truth, and if that's not available, that, presumably, it can create perverse outcomes,
Sue Barker 54:16
exactly, and every other citizen that was challenging a decision that has existential consequences, potentially, would have the ability to access an oral hearing of evidence, but that is deprived to charities on the basis of a change hastily made, not properly consulted, consulted on and rushed through under urgency, without proper consultation. That is, I think, the key change that the review of the charities act needed to make, and it didn't
Chris Patterson 54:41
okay. Now look, you know the I guess the other aspect of it is putting aside the fact that it doesn't meet one of the core objectives of of any system of justice in terms of dispute resolution, which is what we've talked about, fairness, natural justice. But the other one is what I sometimes refer to as judicial accuracy, and that is that the judgment is accurate. It's sound okay, where? Where the the person who's trying to make findings of fact is having to fill in gaps and assumptions because the evidence isn't being properly tested, okay? And you've got two people or two conflicting positions that the Finder effect is scratching the head going well, how could I possibly resolve that without hearing from these people? I mean, does it doesn't that then also add another problem, and that is, well, it also adds to cost. You know, while it all sounds very nice having things determined on the papers, you know, you can have cost savings there, but that's a false economy, because if it produces the wrong outcome, we're then all off to the High Court, which we wouldn't have needed to do, because the system's got a systemic
Sue Barker 55:58
fault in it, absolutely. And we see even in high courts, even at Supreme Court level, applications to reduce evidence. Evidence is being admitted because, I think the court sense that there hasn't been a fair process to start off with. But even that, it not only adds to cost, but it's also not a perfect fix, because there's still no ability to really test that evidence. Agree,
Chris Patterson 56:20
it's, we've got, you know, at that first instance, you know, two disputed matters of fact that there are set out in affidavits. And then you can, you can lead as much fresh evidence as you like by more affidavits. It's just Compounding the problem.
Sue Barker 56:36
Yeah, and I think the real problem is that it means that the the factual matrix is set by the report or the decision of charities registration, the charities Registration Board or charities services, and it's very difficult. This was at the point that Greenpeace made through their legislative litigation. It's very difficult for the charity to challenge that, you know. So the odds are really stacked against them from the beginning, you know. And it does lead to a sense of unfairness that the system is unfairly favored in favor of the crown. Well, presumably
Chris Patterson 57:12
the just in terms of evidential onus that presumably sits with the organization seeking a determination of charitable status. So, so they're, they're on the back foot to start off with, because they've got the onus to, you know, put the evidence forward. And if, and if their hands are tied, you know, they're sort of being, you know, hamstrung by saying, well, the only evidence we're going to let you put forward is, is affidavit evidence. And if it's, if there's, if there's contrary evidence to that you'll just, you know, you've got the onus if you can't charge it on that tough,
Sue Barker 57:45
yeah. And you can see it in the cases, the cases where the charity has had the wherewithal to present evidence to charities services, as if they were preparing for a high court trial. I mean, they there, they get better outcomes. And I would argue, and I disclaimer, I was counsel in the foundation for anti aging research case, but, but that you get a much better outcome, because there is a matrix of fact, and when they don't, you see that in the cases as well. When there's been no, no ability, no Trier effect, then the charity is materially disadvantaged. You see that in a lot of the cases, like the Freemasons case, the Education Trust Case, a lot of the early cases, the Canterbury development case, the Queenstown Lake, you know, almost all of them, you can see that charities have been disadvantaged by the inability to access a Trier effect. Yeah, yeah.
Chris Patterson 58:38
Look, do you have a view on just putting aside this whole issue of how evidence is LED? Do you have a view on whether the adversarial model is the right fit for charities compared to the European inquisitorial model, which is, which is, which is adopted in things like our employment relations, authority, to an extent the Disputes Tribunal is somewhat inquisitorial. Would this space, if someone was designing a system, would it be a better fit to move to something more inquisitorial? Well,
Sue Barker 59:16
possibly. I mean, the taxation review authority is technically a commission of inquiry under the tax taxation review authorities act, they have relaxed rules of evidence. You know they so you know a process like that could work. And the Charities Amendment Act does remove charities ability to go to the High Court, and it requires them now to make their first instance, appeal before the taxation and charities review authority. But the problem is, is that for if a taxpayer was challenging a decision of IRD before the taxation review authority, they would be able to access an oral hearing of evidence if either party chose. But they the Charities Amendment Act has amended the rules, the taxation review authority rules, just for charities, so that it's not a de novo or hearing of evidence, it's a rehearing. Who knows how it might work that there haven't been any cases under that new approach that I'm aware of. It came into force on five July last year, but you know, so I'm not sure that that even after all this work through the review of the charities act, that the amendments that have been made are actually going to make it better for charities. And the real irony is that by requiring charities to go to the taxation and charities review authority in the first instance, that has effectively removed their ability to go to the Supreme Court.
Chris Patterson 1:00:42
Well, yeah, you carry on. Sorry,
Sue Barker 1:00:44
no, no, yeah,
Chris Patterson 1:00:45
Sue Barker 1:01:11
would laugh that we so need more research and we need people looking at this area. That would be wonderful. If there's any students out there wanting to look at this. That would be
Chris Patterson 1:01:20
great. All right, okay, so what? What's our Supreme Court been doing recently? What? What? What about our highest judges in the land been what's the amusing come up with in this area?
Sue Barker 1:01:34
Well, the two Supreme Court decisions are green, peace and family. First, by way of disclaimer, I'm a director of the charity Law Association of Australia and New Zealand. We intervened in the family first litigation at the Court of Appeal and the Supreme Court level, because, you know, this, this, this, the law of advocacy by Charities is critical to what makes to charities role in our society. It's so important to get the law right. Okay,
Chris Patterson 1:02:00
so we've got, we've got some concepts here that I think. So I'm going to get you to be very clear about because, because what you're about to say, I get the sense is actually going to be really quite important. And for people listening, they need to understand the concept of what you're talking about right from the bat. Otherwise, I'll misunderstand going forward, is that you're talking about charities in terms of advocacy and political activity and the effect that that has on the registrations. So can you, can you give some definition around that? Please?
Sue Barker 1:02:35
Sure. Well, I mean, all of those concepts are actually contested.
Chris Patterson 1:02:42
So are you saying this is just your opinion?
Sue Barker 1:02:44
Yes, oh yes, absolutely. It's my opinion the definition of charitable purpose. So the section five of the charities Act has a definition of charitable purpose, but it's not really a definition. It's actually a method of defining whether a purpose is charitable by reference to four heads, which, which come from the PEMS or case, which, which really date back to the preamble. So there's these four heads of charity. But the act, our act, does not set out how you define determine whether a purpose falls into one of those four heads. That is another key flaw in our act. You're not
Chris Patterson 1:03:21
a code in that regard, no
Sue Barker 1:03:23
at all. And and you'll notice in other jurisdictions, they do set out the test for charitable purpose. The test was set out in New Zealand case law and the court of appeal decision in Latimer. Very clear two step test is the purpose. Does the purpose operate for the public benefit? That's a question of fact. If it does, is it charitable in the sense of falling within one of the heads of charity, or within another head that has another purpose that's been accepted as charitable previously? Or there is also the Latimer decision recognizes a presumption of charitable charitability. So if the purpose is charitable, sorry, if the purpose operates for the benefit of the public, but there's no analogy. The courts recognized a presumption of charitability. Now that's another area of controversy, but we don't have the test set out in our legislation, which has unfortunately caused difficulty because the test is not applied, the test set out by the Court of Appeal in Latimer is not even referred to and if we were going to depart. Well,
Chris Patterson 1:04:34
sorry, okay. Have you got any theory on why that is not why Latimer was not referred to. Well, that is the test I
Sue Barker 1:04:43
would like to know. I mean, has it been overlooked? They the decision in Latimer, the actual case, the factual matrix of that case. Case is actually quite complex. It's, I sometimes am asked to deliver lectures at Otago University and great
Chris Patterson 1:05:02
university, great university.
Sue Barker 1:05:05
Yeah, well, on charities law, and good on them for actually offering a paper on charities law. And when, when I do, I go into the facts of the Latimer decision, because they're not written anywhere. It's not actually easy to discern from the judgment itself. There's a lot of context that's not in the judgment. It's all about our treaty settlement process. It's all about the lands case. It's a it's a complex factual matrix, and I do wonder if that has contributed to this case not being given the, you know, the acknowledgement and the authority that it deserves the recognition
Chris Patterson 1:05:42
of its significance Absolutely, and
Sue Barker 1:05:45
it went to the Privy Council as well. It didn't go to the Privy Council on that issue, but the Privy Council didn't take, you know, cast any aspersion, and that test that the Court of Appeals set out in Latimer itself was based on decades of case law, including the 1968 unanimous decision of the House of Lords in the Scottish burial reform case. So it's not like it was plucked out of thin air. That is the test in New Zealand law as to how you determine whether a purpose is charitable. But it's not mentioned in the case law under the charities Act and the government the select committee was very clear that the charities Act was not intended to change the definition of charitable purpose. It just puts those four heads in the legislation, and was expected expecting it to just continue. So why then, when we get the charities act that was not intended to change the law, have we turned centuries of case law on its head, with with no with no acknowledgement that that is what is happening. It's just, yeah.
Chris Patterson 1:06:46
Well, yeah. I mean, it seems, seems odd to, not to put too much of an understatement on it. So how have our, you know, courts on appeal? How have they resolved that, or try to reconcile that point that, you know, the ACT isn't intended to change the law on that, but it seems to have ignored, you know, a fundamental underlying part of our common law. Well,
Sue Barker 1:07:09
that's a very good question, and I think that would be another very good topic for a master student. You know, where we've got to now is that there's no particular test. Arguably, it's just really a free range assessment of a charities activities and whether the decision maker happens to like them or not, which which actually means we've devolved to a business unit of a government department the power to determine with almost complete subjectivity, the nature and scope of our civil society, which is a very dangerous position, in my view, for a liberal democracy to put itself in.
Chris Patterson 1:07:42
And this goes back to your point about the independence of the of the charities landscape. In terms of the charity, I don't want to use the phrase industry, but you know the charity sector, sorry, searching for the right phrase charity sector is that it needs to be independent because it's got a because there's a conflict. It needs to be able to hold, as you rightly say, the government of the day to account on these social issues. And how does it do that? If it's going to be treated as just part of or under the control of of the then government of the day,
Sue Barker 1:08:22
exactly. And I charities come to me with these letters. They get letters from charities services. They might be doing this wonderful campaign, advocating passionately for their charitable purposes, really having an impact. And then they'll get a letter from charities services, or you're advocating you can't do that. And and that has an enormous chilling effect, because this letter will go to the board. The board will be horrified. The chief executive will be moved on. It will be all quiet under hush hush. Nobody wants to upset the funders or spook the horses, and it all goes on behind closed doors as we slowly and systematically dismantle the advocacy role of our charitable sector. It's a huge issue, in my view, is
Chris Patterson 1:09:03
there, is there a parallel that could be run with, for example, the role of an independent media, you know? So, you know, we have, you know, we've, we've got a statutory framework, and then we've got the common law and the statutory framework. I'll just loving all these metaphors. Common Law is the floor and the statutory framework is the rug that lies across it, which which provides certain privileges and powers to journalists, okay? And like one that listeners will be familiar with, as as journalist privilege around confidentiality of sources, so a source can come to them and tell them something of public interest, and the journalist doesn't have to reveal the source if they've agreed not to do so. And this is all important, because we need you know, in terms of a properly functioning society, we've got to have a proper independent media who's who plays that that role. But in this case, if we look at it in terms of the charities sector, an organization that's also doing something that's important for for our communities, you know, our society, the public, can't get that status as being charitable unless the charities services, which is effectively A branch of a government department, say, so, whereas anyone can the law will say, provided you know, common law meets it can say, I'm a journalist,
Sue Barker 1:10:30
right? I mean, there's a there's a quote that I use sometimes, that the independence of the charitable sector is as critical to democracy as an independent judiciary, free and fair elections and a free press, it is critical. And and and charities are scared, because if they get deregistered for doing nothing wrong, but for advocating for their charitable purposes, as family first did, then they face, you know, they face losing their funding, and they face extinction often. I mean, Family First has managed to survive. But that's not always the case.
Chris Patterson 1:11:09
Yeah, so, I mean, to a certain extent, you could say that the charity sector is the, you know, the unacknowledged. You know, if I've got it right, the fifth pillar of our, you know, our Absolutely, society, yep. So in this point, he makes really good. Isn't that that's, you know, these are the serious implications of that distinction between for a charity, between purposes and their activities. With that presumption of charitability, you mean extinction doesn't just have a significant adverse consequence for the organization itself. It has a consequence for those that receive the benefits and the services that organization would otherwise provide, yes,
Sue Barker 1:11:52
and the advocacy work that our society is deprived of, which often has led in the past to, you know, really important societal changes, such as anti smoking changes, universal suffrage, you know, you name it, the abolition of slavery. It's norm. It's been done through the advocacy work of charities. So we, we prevent them from advocating at our peril. Okay,
Chris Patterson 1:12:18
let's you mentioned really early on that importance of, you know, the tax breaks that that charities get. You know, how does financial report, the financial reporting reforms and tax law changes, how do they intersect with the charities regime and the sector?
Sue Barker 1:12:35
Well, the financial reporting rules, they were brought in from 2015 so every registered charity, without exception, is required to prepare financial statements in accordance with financial reporting standards issued by the external reporting board and make these publicly available on the charities register every year. New Zealand, I would argue, has the most comprehensive set of transparency and accountability requirements for charities in the world. We are actually very lucky with our financial reporting regime. It was world leading when it came in, and it really touches on that underlying clash of paradigms. Another way that the underlying clash of paradigms manifests itself is in the distinction between purposes and activities. So the alkali the trust law concept would be to focus on purposes. We hold charities to the purposes that they have signed up to, whereas the acid side of the paradigms would focus on activities. And it would be like, we don't care what your purposes are. We're going to micromanage your activities. We're going to say how much accumulation you can do, whether you can run a business or not, what sort of business you can run, what you can advocate for, you know, basically controlling charities activities, which is how we undermine the independence of charities by enabling the state to control what they do, what they say. So the the underlying clash of paradigms, I would argue, could be summarized as a contest between accountability and regulation and gosh, I'm going to forget his name, but the former Chief Commissioner with the Charity Commission for England, Wales. Richard frees, yeah, he really pushed for accountability rather than regulation. We hold charities accountable for how they have been furthering their purposes, but we don't. It's not about interfering with the soul of charity. It's not about the state coming in and telling charities how to run themselves. You know, just as IRD doesn't tell taxpayers how to run their businesses, similarly, the state shouldn't be telling charities how to further their charitable purposes. That is the that is the tension. But we are definitely in a regulation mindset, and what the focus on purpose argues, report argues for, is that we should be focusing on accountability, not regulation. And that's a summary, because everything's regulation really. It's a continuum. And, you know, even just registering, you could argue is a form of regulation, but it's a headline kind of summary. Yeah,
Chris Patterson 1:15:15
yeah. I mean, we were really, you're really talking about getting the balance right, though, because there is always going to be a need for some regulation,
Sue Barker 1:15:23
just to
Chris Patterson 1:15:24
make sure that there's protect your proper protections. But without making the compliance costs become so much that the charity spends most of its time just dealing with compliance rather than actually delivering the services or that it's purpose to set it for
Sue Barker 1:15:40
and what happens? And what I'm seeing is that we're making it so complex and so scary that people with good charitable intention are being pushed away. And what we are doing is attracting people who may have nefarious intent, who are quite happy, kind of working their way through rules, you know, that's, I don't
Chris Patterson 1:16:05
perhaps go, we're not going to comply with them anyway. So that's the intention. So, you know, so it doesn't matter, you can put as much regulation as you like. We're going to do our own thing, yeah?
Sue Barker 1:16:14
And we'll find a way around it, yeah? And the problem with that is that, you know, that's presumably the opposite, the very opposite of what we're trying to do with the charitable sector, and we don't need to. That's, that's, that's my frustration, is that the common law already contains adequate protections about charities activities, namely that they must all be done in furtherance of the charitable purposes and otherwise in accordance with the constituting document and the broader law. So we the broader law. So we don't actually need to bring in all these other rules that will cut across the underlying law and be expensive to comply with and administer. We actually just need to use the law that's already there, and that's not that's what we're not doing. And now that we have all this amazing information, comprehensive information, so it's not just for charities services. They all stakeholders can access this information, and they all have a role in holding charities to account, the media, the public, volunteers, suppliers, customers, you know, you name it that the una Breen from Ireland calls it the triumvirate of security. So, you know, it's an ecosystem, but we need to get the balance right. Yeah, yeah.
Chris Patterson 1:17:27
And look, you talked before about the trusts act here in New Zealand, 2019 as being sort of that first stage. And one of the things that the Well, one of the key parts of the Act are the mandatory duties of Trustees, sections 22 to 2027 which are really just a restatement of what our common law is. But the reason the value of that is that not everyone who's a trustee is a trained lawyer and will know what the common law is. And it's great for them to just, you know, get on the internet, and they go, Oh, well, here we go, the mandatory duties. And they make sense. They're in plain English. Everyone can understand that. You know, this is a duty that I have to comply with. It's said here. There's no contracting out or avoiding it. Stay with the note, of course, the importance of the IRD, the IDS issues paper on taxation for the not for profit sector. What was the key take outs of that for the charities sector?
Sue Barker 1:18:31
Yeah, well, that that was a very interesting exercise. So it was issued on the 24th of February with only just over a four week consultation period. It's quite short. I think it was only 24 pages long. From memory, it's split into four chapters, well, three, really, plus the introductory chapter. And the Minister of Finance was quoted in the media in December last year saying that she was looking at taxing charities and that Sanitarium and Best Start were examples of the types of charities that she was looking at taxing when
Chris Patterson 1:19:09
I'm when I'm buying my week backs, okay, which is made by Sanitarium. The GST of it, at least, is going back to to the well, to the state to spend, but, but what about the profit that Sanitarium makes? What happens with that? Well,
Sue Barker 1:19:26
my understanding is that all of their profit already gets distributed to their parent charity, the Seventh Day Adventist Church. But, but the but the from the purpose, from the perspective of the issues paper, chapter two is effectively, I call it the sanitarium chapter, because in chapter two, they propose to tax the unrelated business income of larger charities. And the irony is, is that to the extent that healthy eating is a pillar of the Seventh Day Adventist religion, it's arguably their food manufacturing business is arguably a related business. So what to that extent? Yeah, it wouldn't have, it wouldn't have addressed Sanitarium in any event. Anyway, Chapter Three was direct. I call it the best start. Chapter it was looking at creating a new category of charity called donor controlled charities, which is an oxymoron. And they were looking at imposing
Chris Patterson 1:20:22
Zimmerman, depending on how you pronounce it. All right. So what were they? What are that? What were they looking at with the best? So
Sue Barker 1:20:32
in chapter three, they were looking at, for this new category, imposing minimum distribution requirements and restricting transactions, certain transactions, investment types of transactions. And then in chapter four, there was a whole kind of missile. How do you say miscellaneous? Yeah, list of ways they were proposing to tax charities. They're proposing to tax the mutual transactions, which would have brought about 9000 small community clubs into the tax net. It was they were looking to remove, and a corollary of that was related to friendly societies and credit unions. They were also looking at removing the income tax exemption for local and regional promotion bodies, bodies that promote Scientific and Industrial Research, herd improvement bodies, veterinary science bodies and overseas charities with no charitable purposes. In New Zealand, they were looking at removing the FBT privilege for charities. And then there were a couple of I think I got the impression it was as if to say, well, it's not all bad. You know, I do want it to be able to be able to say it's not all bad. They had some suggestions of questions, how might we improve the donations tax credit regime, and how might we encourage volunteers? Have I missed any in chapter four? But anyway, it was, it was a miscellany of ways of taxing charities. So it was, even though it was a very tight timeframe, and there were weeks, yeah, and the 31st of March happens to coincide with the end of financial year for a lot of charities. So it was not a good time of year, but there was a lot of work going on behind the scenes. There was actually a lot of work going on behind the scenes to actually get government to consult because from the Minister of Finance's comments, it looks looked like the first we were going to hear about whether, about what they were actually proposing was going to be on the introduction of a bill on Budget Day, which would be passed through under urgency, etc. So there was a lot of work going on. Asking the government to please consult with the charitable sector before you do this. And so good on them for issuing that issues paper, which I understand was kind of flung together in a couple of weeks, and then good on them for actually listening to the charitable sector. I understand about 900 submissions were made, and that as a result of that, the Minister of Finance has stepped away from those proposals. There were no announcements to tax charities in the budget. So, you know that that is, I mean, it's wonderful what the charitable sector can achieve when it works together like that. It was a very good outcome. It's the generic,
Chris Patterson 1:23:11
yeah, no. Well, I mean, no announcements, as it can be a double, double edged sword. It depends on whether the announcement is going to help a charity or not, and so. So I guess you could look, you could look at it on the positive, hey, there was no announcements that they're going to increase taxation that'll prejudice charities, take money off them, distributed elsewhere, yeah. But on the flip side, they also missed the opportunity there to say, actually, charities do a really valuable play a very valuable role in our society, and we need to support them more, and this is how we're going to do it.
Sue Barker 1:23:46
So we now have a real opportunity, because the issue hasn't gone away. The Minister of well, RNZ, was quoting the Minister of Finance as saying, it's only being pushed out by a year. So you know that's they were doing more work on it, but the issue hasn't gone away, and they've actually issued two issues paper, one continuing that idea of taxing the 9000 small community clubs. They've issued an exposure draft, I think submissions close on the 25th of June. So, you know, I am encouraging affected charities and their advisors to please make submissions, because the reading between the lines, it looks like they recognize that the impact of this will, you know, the cost will outweigh the benefits. So that, I think there is a possibility that if we, if there's a good response from the charitable sector, then it might not be quite how they're proposing it in the in the exposure draft. So that's another good opportunity for charities to have their say. Not all charities, of course, some of them are trade unions, charter clubs, cooperatives. You know, there's a range of clubs. The ones that aren't tax exempt are the ones that will be affected. And then IRD is also continuing work on FBT. They've issued an issues paper reviewing FBT, and they're looking at trying to reduce compliance costs, because it's widely observed in the breach, I understand, and even IRD auditors don't like don't like looking at these issues, so they're looking at really trying to improve the compliance aspects of the regime or modernize it and maybe simplify it somehow. And I think their thinking is, once they've done that, if it's not going to be such a bad regime that maybe they could justify removing the FBT exclusion for charities, which was the position they took in the issues paper. But, you know, certainly I submitted and I haven't read, I hope they do make the submissions public, but the ones that I have read, some of them made the same point. Is that that FBT exclusion for charities, it it's one way of helping charities. They already struggling with increasing costs, increasing demand for services, increasing pressure on volunteers, you know, but diminishing revenue streams. It's really hard for many of them to actually pay their staff what they really should be paid, and this is just one way of supporting that. So I think it would be a very backward step to remove that FBT exclusion. I know IRD says, oh, it's not coherent. You know, if you're taxed on PAYE, you should be taxed on your FBT as well. But if they want to talk about coherence, then they really need to be allowing imputation credits to be refundable to register charities. You know, happy to talk about coherence if they want to.
Chris Patterson 1:26:20
Well, our entire tax regime and system in New Zealand is incoherent in a number of gas so, you know, it's not, yeah, look. So the idea having not the only ones that have been busy sort of writing little issues, papers and reports. I mean, you, I mentioned it earlier. You, you've, you've produced your report, focus on purpose, and I get the sense you, you've you've touched on many of your your recommendations in there today, where, how could, how could someone listen to the podcast? How can they find that that report, if they want to, want to dive deep into into the areas that you've identified and how things might change for the better? Well, I'd
Sue Barker 1:26:55
be, it'd be great. I would. It's freely available online the news. It was a condition of the research fellowship that it be open sourced. So I think if you Google it, it's on NZ Lee. It's also on the New Zealand Law Foundation websites, on my website as well, and actually the law and practice of charities in Aotearoa, New Zealand, that's just been published last year, chapter eight of that is actually a summary of the focus on purpose report. Effectively, it takes the draft bill, which was the product of the research, the International Research Fellowship, and it's got accompanying commentary with the relevant drafting, rather than spread throughout a 600 page report. So it is intended to it's intended to be a starter for discussion. It's look it what's what it's trying to say is, look, this is what I think. This is after two years of dedicated research and consultation with several 100 people, this is what I think the New Zealand charities law framework should look like. But don't take my word for it. You know, have a look at it. Do you disagree? What would be better? What should come out, what should go in? Let's have it. Let's have an informed discussion about what the legal framework for charities should be, rather than constantly having to react to knee jerk, piecemeal proposals that get issued without any overarching vision of what we're trying to do with the legal framework for charities. You know, why don't we actually stop and think? And we've got an opportunity now, because the minister's saying that they want to address these issues. I believe this report would address those issues, but they would do so in a way that's consistent with the underlying law, rather than cutting across it. But you know, maybe you know, it's a starter for discussion. I really think it would be great to have a look at it, and let's have a proper have a proper discussion about what the legal framework for charities should be.
Chris Patterson 1:28:49
Yeah, well, so important look, one of those things. You know, the old saying, if you're going to do something, do it right? You know, clearly, the ACT isn't fit for purpose. Doesn't matter the amendments they make to it, they don't seem to it doesn't seem to be delivering what the what the intended outcomes should be. And also, in a way that that puts New Zealand, you know, ideally, as a leader in this area, not, not someone who's not, not a country that's that's got an inefficient and ineffectual charities sector. Let's talk a little bit. Because it seems to me, you know, we're now, we're now crossing into the future of charities law. You know. Do you think that, you know this is that we really need a political, I guess, champion to step up? I mean, I was thinking of when you were mentioning regulation, is David Seymour should get in here and cut through all this ridiculous regulation since, since that's one of his interest areas in terms of finding regulation that's not fit for purpose and getting rid of it. But do we need a political party doing Do we need a politician? Do we need someone to step up and say, this needs to be made a priority. It needs to be more on the agenda. Absolutely,
Sue Barker 1:30:05
absolutely, and I strongly believe that this issue transcends the political spectrum. Every political party of whatever stripe should want a strong, thriving community sector, because it's critical to it's critical to liberal democracy. It's critical to New Zealand society as we know it. We do, I agree with you. We have the opportunity to be world leading in this area. You know, as a small, unicameral nation at the bottom of the world with a proud history of standing up for itself on the world stage, we could lead the world in this area. And if we lead other, other jurisdictions, I believe, would follow other jurisdictions are looking at these issues. We could do it, and we we don't lose anything by by by working with the existing law. We don't lose the ability to exercise sufficient control over charities activities. We just do it in a way that respects the independence and autonomy of charities and allows the charitable sector to thrive. So it's a win win, in my view. Yeah,
Chris Patterson 1:31:08
look, I completely agree, and we don't have a lot of the sort of historical and systemic disadvantages that many other countries have that prevent charities from being able to be more effective. Look, I'd be surprised if there's a New Zealander out there that would say that we also, from a cultural point of view, we are a generous people, you know, we, I mean one, one example I'll use which, which is unique in the world is as our accident compensation regime. There's nowhere else in the world where you know, you know, a country will look after the you know, the the injured, the way that we do. We're a generous people. We care about others. That is our Kiwi way in our culture, and charities play such an important part to enable New Zealanders to be New Zealanders, and that is to be generous with their time, to be generous with their resources. And they need to have a legal regime that promotes that, rather than discourages it. And that's what I'm hearing loud and clear from you sue Absolutely,
Sue Barker 1:32:22
absolutely, I know. And actually another aspect that we haven't really touched on, but a lot of what the focus on purpose report touches on is the backsliding of democracy around the world and increasing authoritarianism. And one thing that I find is not always featured in those discussions, is that the legal framework for charities is at the front line in that tension. Because, if you think about it, if you were an authoritarian country or or dictator, or whatever, wanting to impose authoritarianism on a people, where would you start? You'd start with civil society, you know. You'd start like, you know, I don't want to draw in the way Harvard is being treated. But you'd start with people coming together and thinking for themselves, you know. And the legal framework for charities is at the front line in the battle for liberal democracy. So that's another way in which New Zealand could be world leading, in my view,
Chris Patterson 1:33:22
look, totally agree, and it's such a good point. And you know, you can think about the measure of how civil a society is, and that is the extent to which it looks after and takes care of its needy, you know, the people that are in some form of need. And if you start eroding the ability to to provide, provide to the needy, then you're starting to erode the fundamental elements of a civil society. And yeah, this if we want to have a great if we want our country to be greater, and we want to improve wellbeing and happiness across the board, then we need to be able to make sure that charities are able to do what they want to do in a way that strikes the right balance. And one thing Sue I've taken from this, I'm sure the listeners will as well, is that you're at the forefront of this as a lawyer, and you're saying the balance is wrong. Okay, it needs, it needs the law needs to change if we're going to be able to ensure that the sector is operating as efficiently as it can, so that, you know, we're getting the best bang for people's time, for people's bucks, for for what it is we want to do. Yeah,
Sue Barker 1:34:48
absolutely. And another dimension to that, that I think is often overlooked is that if we want to grow the economy, having a strong civil society is essential to that, because, you know, trust, the ability, the social cohesion, the networks between people, directly impacts on our ability to grow the economy. And I'd really recommend Robert Putnam's work. In that regard, they've just issued a documentary on him. It's on Netflix. It's called Join or Die. I'm
Chris Patterson 1:35:18
always looking for great recommendations. So Join or Die on Netflix. And sorry, who's produced that? Well, it was
Sue Barker 1:35:28
produced by a student of Robert Putnam, whose name has escaped me, and his sister. Sorry, I can't remember their name, but it is on there. Yeah, okay. Hey,
Chris Patterson 1:35:37
look, I'm gonna go and look that up. I'll try and put it on the listening notes, possibly, watch and do a review. Look, you know, that's, you know, it's, it's been great talking to you sue through these issues, I've learned an immense amount about such an important aspect your point, just as we're sort of coming out of all of this about, you know, improvements to society, New Zealand has a productivity issue. I mean, we're we're not as productive as other nations that are fair comparisons to, and I get the sense that the work that charities do can help in that regard, in making us more productive by addressing the issue of need, you know, if, if what's holding, you know, at a really micro level, you know, holding a person back is because that you know, they're missing something that they need, and if it's provided, they can then return to being, you know, either, you know, fully productive or more productive, then We need to focus on those things as well. Exactly,
Sue Barker 1:36:42
prevention is infinitely better than cure, and it ultimately costs far less. And in that regard, I do, I do agree with the kind of principle behind the social investment fund that the Minister of Finance is, you know, mentioned in the budget, but, but it's so much more than that, and it's great to have that social investment fund. But if we're wanting charities to be innovative, to focus on strengths rather than deficits, and prevention rather than cure, you know, we also need to get the legal framework for charities right. It's actually a fundamental building block in the in the whole, you know, vision that the minister has that she's, you know, putting forward with the Social Investment Fund. It's critical, in my view, critical infrastructure.
Chris Patterson 1:37:27
Sue Barker, thank you so much. This has been, again, such a privilege to have your experience and expertise shared on the podcast for for for people who are connecting in and listening anyone who's interested at all and the work of charities and that really should apply to everyone. So much, so much knowledge, and in the wealth of that knowledge, you've shared with us today, you've given us your time. Thank you so much. Thank you for being on the law down under podcast. It's been an absolute pleasure.
Sue Barker 1:38:07
That's very kind of you. It's been a pleasure. Thank you so much for having me. Okay,