Public benefit and charitable purpose

One of the most important things charities do is provide a public benefit, but not everything that benefits the public is “charitable.”

To qualify as a charity, an organisation has to provide a benefit to the public which is very similar to what has been accepted as charitable by the courts. Charities Services assesses applications on a case-by-case basis in light of those previous court rulings about charitable public benefit.

Many cases have discussed these matters and it can be confusing to navigate. If you have questions, please don’t hesitate to ask us.

Although each charitable purpose involves a specific set of considerations, there are some general principles that apply to all organisations:

  1. The benefit must be very similar, but does not need to be identical to another charitable purpose
  2. The benefit must be for the public or a sufficient section of the public
  3. The benefit must be capable of being identified and defined
  4. Illegal purposes or purposes that result in a harm to the community do not benefit the public
  5. The benefit cannot be for the private profit of individuals

This page discusses each of these principles in more detail. For more information on how public benefit applies to each category of charitable purpose, see the specific pages on relief of poverty, advancement of education, advancement of religion and other matters beneficial to the community.

What is charitable public benefit?

One of the most important historical laws discussing what it is to be charitable is the Preamble to the Statute of Charitable Uses 1601. To be charitable in modern times, charities still need to fit within the “spirit and intendment” of that document.

This concept has developed over 400 years of social changes and is now accepted to mean purposes very similar to the charitable purposes that have been accepted by the New Zealand courts.

Identifying whether an organisation’s purpose is charitable can be difficult. It depends on the wording of an organisation’s stated purposes in their rules and their activities. We look at the key facts in previous court cases dealing with similar purposes and consider whether the organisation’s purposes are similar or analogous. We are always happy to help charities rewrite their stated purposes, or amend their activities, to meet requirements.

Although each purpose will involve a specific set of considerations, there are some general principles that are relevant to charitable public benefit.

Similar but not identical

Charities Services does not seek to closely match purposes with those that have been previously accepted as charitable, however they must be sufficiently similar so as to reflect the previously accepted public benefit which has already been established in court decisions. This does not mean they need to be identical. Even where they are not sufficiently similar, we will work with you if you wish to change your rules and activities to meet registration requirements.

The benefit must be public in character

The benefit must be aimed at the general public or a sufficient section of the community. Most importantly, we look at who can benefit from the organisation’s purposes.

In some situations, limiting who can benefit may be justified. If the organisation’s benefits are available to anyone within a group in need that chooses to take advantage of the benefits, the purposes will be considered to provide benefit to the public, even though in some cases the number that can benefit may be quite small.

For example: a group seeking to provide support to individuals suffering from a rare disability might limit who can benefit from its activities, but it does so in a way that is necessary to relieve the disability. However, if this purpose was limited to only named individuals then this would usually not qualify.

Some further examples of how an organisation may limit who will benefit from its charity:

  • Directly by making a rule about it (e.g. giving grants to those who live in Auckland)
  • By providing a benefit that can only be accessed by members of a certain group (e.g. a scholarship for Māori students)
  • By charging (e.g. a health clinic charging a fee).

Some principles that are important to consider:

  • Imposing fees for a benefit can be acceptable if done reasonably.  For example, unjustifiable fees that exclude many people would not be acceptable. The support of sports that require very expensive equipment would not usually qualify as a charity due to the prohibitive costs of playing the sport. However, if the purpose of the organisation is to give the wider community the opportunity to play an expensive but healthy sport, the organisation may be charitable.
  • Limits on public access must be reasonable and appropriate. For example, when an organisation is set up to maintain a hall or protect a heritage site, restricting people from bringing animals may be a reasonable limitation whereas limiting access to a closed club of members may not be.
  • When members of an organisation can also benefit, any limitations on membership must also be reasonable in the context of the benefit to the public. For example: a society of doctors set up to improve medical practice may reasonably limit its membership to doctors, because the real benefit is to the wider public from the improvement of public health.
  • In New Zealand a purpose to help individuals that are related by blood may be charitable. For example: if a group is set up to educate a particular hapū, this may be acceptable even though the people in the group may be all related. The group still needs to be numerically significant: in the Nga Uri O Wharetakahia Waaka Whanau Land Trust decision, the Charities Registration Board found assisting a group composed of 20 people was not a sufficient enough section of the public to be charitable.

Defined and identified benefit

Some benefits can be seen to be directly for the public, for example, maintaining a public park. Some are less direct, for example, providing a student scholarship that leads to a more educated society for everyone. The key in both instances is that there is a benefit to the public that can be identified and defined, and it is sufficiently similar to a previous charitable purpose.

Where the benefit is remote or merely hoped for, it will not usually be sufficient. For example:

Illegal purposes or purposes that result in harm to the community will not be beneficial

If a purpose is illegal or there is a benefit outweighed by a greater harm to the community, then we won’t be able to determine a public benefit. For example:

  • A purpose to encourage people to break the law, such as through engaging in recreational smoking of marijuana, will not provide a benefit to the public.
  • The courts found an organisation seeking to ban testing on animals was not charitable. Purposes to protect animals can be charitable, but in the case of testing on animals, the benefit from protecting animals was outweighed by a greater harm to humans.*
  • A purpose to attempt to cure homosexuality was seen to be non-charitable as homosexuality is not considered a disease in New Zealand and attempting to cure homosexuality might have the impact of hurting individuals. [See the Exodus decision].

In some cases, organisations carry out advocacy activities that are illegal. Our advocacy page explains why these organisations may have non-charitable illegal purposes.

A purpose cannot be charitable if it is for the private profit of individuals

It is a key element of charities law that a charity must provide benefits to the public, and not to private individuals or groups. This is particularly important when charities fundraise through profit-making activities, support for-profit businesses or pay individuals for services.

A registered charity can carry out profit-making activities, as long as all of the profits created are used to further charitable purposes and are not used to further the private financial interest of individuals or other non-charitable organisations (known as ‘private benefits’). When a profit is made, payments or dividends must not be distributed to shareholders, as this would create private benefits which are not considered ancillary or incidental. The only exception is when the shareholders are themselves registered charities or the shareholders hold the money on trust for charitable purposes, which needs to be specified in the charity’s rules. Any profit created by a registered charity can only be used to further charitable purposes.

For example:

  • If a foundation owns all of the shares in a charitable company, the company can make profits and distribute dividends to the foundation.

When a charity is providing support to for-profit businesses, charities need to be careful to weigh up any benefits to individual businesses with the public benefit they are seeking to achieve.

For example:

  • Providing a ramp to a business to assist them to support those with disabilities will usually be charitable, even though this may support the for-profit business.
  • Promoting the business of educational providers overseas to try to encourage more overseas students to study in New Zealand will usually not be charitable if a significant number of educational providers are for-profit businesses. For example: see the Re Education Trust High Court decision.

When a charity pays for goods or services, payments should be reasonable and based on ‘arms-length market rates’ or be lower than market rates. Arms-length means they must be made as if they were between two unrelated individuals. The activities must also be to further their charitable purposes and not to benefit the individuals concerned. When making decisions in this area, the officers of the charity should be aware of conflicts of interest.

For example:

  • A trust with two trustees may run a shop to raise funds for its charitable endeavours. If both trustees decided to hire themselves to run the shop, at higher than average wages, this may not qualify for registration. It may be an independent purpose to benefit the individuals and not the trust. For example: see Karmic Charity Trust(external link) decision.

More information on public benefit

The legal decisions available on our website deal with the issue of public benefit. Some important court decisions in this area include:

  • Plumbers Gasfitters and Drainlayers Board(external link): a group set up by legislation to register plumbers, gasfitters and drainlayers was considered charitable because although individual businesses may benefit from registration, the purpose of registration was public health and safety.
  • Grand Lodge of Antient Free and Accepted Masons(external link): a group that sought to advance education and other charitable purposes for the benefit of its members was not charitable because the membership requirements were too strict.
  • Queenstown Lakes Community Housing Trust(external link): a group provided various schemes to help individuals into home ownership or housing. Although finding that purposes directed towards social cohesion or the composition of communities are capable of being charitable, the court found in this case the private benefits to individuals from home ownership were too significant.
  • Liberty Trust(external link): an organisation that gave people the ability to buy homes consistent with their religious beliefs was found to be charitable for the advancement of religion. Although the organisation did provide private benefits, they also provided information on their religion, and the court found the public benefit of religion was the focus of the organisation’s activities.
  • Travis Trust(external link): a horse racing group closed to public subscription was not sufficiently open to the public.

NOTE: These summaries are only relevant to the question of public benefit. Each court decision also made comment on whether the purposes of the groups were charitable.

Charities Law in New Zealand  is a book available for free on our website. There is a chapter on public benefit, which explains what may be acceptable. It is not an authoritative statement of the law.

We are also happy to help if you have any questions about charitable purpose and public benefit, please email info@charities.govt.nz, and one of our staff will be in contact with you.

*National Anti-vivisection v CIR [1948] AC 30