Is sport charitable any more? Swimming NZ deregistration
In 2008 Swimming NZ was a registered charity under the Charities Act 2005. By October 2014 it was not.1 After six years as a fully compliant registered charity, the Charities Registration Board decided that it no longer had charitable purposes and deregistered it.
This decision has raised the eyebrows of sports organisations around New Zealand many of whom2 took up the well marketed invitations to sports organisations in 2006/7 to become charities by the then Charities Commission.
The consequences could be significant for sport. There are approximately 7,500 sports organisations3 on the Charities Register who benefit from tax exemption and access to funding and other benefits which are only available to charities. Losing these benefits could leave many sports without the much needed income to run sport in our communities.
Perhaps the biggest impact for sports organisations is the loss of status as donee organisations.4 This status enables donors to donate to charities and receive a tax credit. With donations and grants to sport amounting to an estimated $77 million per year,5 the potential implications for sport in losing donations could be significant.6 Even for sports which do not currently receive donations, it may put off potential donors from donating new money to sport in the future.
As a result of the Swimming NZ decision, questions are now being asked about whether sport is, or can still be, charitable under New Zealand law anymore. This is especially so, given the Charities Act 2005 was amended in 2012 to expressly provide that sport can be charitable. This was achieved by adding to the meaning of "charitable purpose" for the purposes of the Act to provide7 that:
"The promotion of amateur sport may be a charitable purpose if it is the means by which a charitable purpose referred to in subsection (1) is pursued."
One might now ask, what was the point of that amendment?
Also, as Swimming NZ is a national body, what does this decision mean for the thousands of regional sports bodies and sports clubs across the country?
Further, if sport is no longer charitable, then is it time for an amendment to the Charities Act similar to that made in the United Kingdom a decade ago?
These questions have not only circulated among sports organisations but many lawyers are questioning the Charities Registration Board's decisions affecting sports organisations. The Swimming NZ decision is not the first decision under the Charities Act affecting sport,8 but it is understood to be the first deregistration of a national sports organisation (based on its charitable purposes) that was an existing charity.
So what are the answers to these questions?
Swimming NZ Decision
Swimming NZ is the national body for swimming in New Zealand. It runs learn to swim programmes, swimming competitions and a high performance programme for talented and elite swimmers. It works with its regional centres and clubs to deliver swimming at local level reaching thousands of New Zealanders every year.
In 2012 Swimming NZ filed amendments to its constitution with Charities Services. These amendments reflected changes to the sport following a review into swimming in New Zealand. It was the act of filing these amendments which prompted the Charities Registration Board to review Swimming NZ's charitable purposes and its activities.
The Charities Registration Board said Swimming NZ did have some charitable purposes. It promotes the public participation in swimming as a means by which public health is promoted, and also it advances education through its Swim Safe programmes.
However it found that the high performance programme and competitive swimming activities of Swimming NZ do not advance any charitable purpose, and are an end in themselves. It said they are not means by which any charitable purpose (such as health) is advanced for sufficient public benefit. The Charities Registration Board said:
"Viewed holistically we consider Swimming NZ's operation involves a significant investment in elite swimmers, coaches and events that constitutes an independent (free standing) purpose to promote sporting success."
It also rejected the submission that there are significant public benefits which elite athletes bring as role models to develop swimming at all levels of society, on the basis that any such benefits were indirect and downstream.
In deciding that it was in the public interest to deregister Swimming NZ as a charity, it concluded that:
"Swimming NZ has a mix of charitable [learn to swim programmes] and non-charitable purposes [competitive swimming and high performance] and that its non-charitable purposes are more than ancillary to its charitable purposes."
More importantly, the Charities Registration Board went on to record its position on sport more generally as follows:
"As a general proposition, bodies established to administer and manage a sporting code or discipline in a region or for a nation are likely to be established for the purpose of promoting sport as an end in itself.
The promotion of sport (including amateur sport conducted on a not for profit basis) as a means to the following ends is not a charitable purpose:
- providing private pecuniary interests to players and others involved in the sport;
- promoting sporting success for elite athlete;
- providing entertainment and recreation to spectators at sports events."
Impact of decision
The effect of the Charities Registration Board's position could be significant for sport in this country. The traditional funding sources for sport, such as gaming funds, are drying up and the loss of donors and other funding sources available to charities could be the death knell for many sports organisations.
It seems clear that this new position will result in few, if any, national or regional sports organisations becoming or remaining registered charities. Every time a rule amendment is filed, (whether minor or otherwise), existing sports organisations that are charities will be up for review.
There have also been rejections by the Charities Registration Board of other sports entities set up to run events and manage sports facilities. So the application of its position is not limited to national and regional sports bodies.9
The application of this position could go further to local club level if clubs exist to promote their sport, which is the case for many. Can it be said, for example, that rugby clubs exist to promote health, or to promote rugby?
It will be challenging times ahead for sports organisations to prove otherwise and to seek to retain charitable status, unless there is change.
The Charities Registration Board has suggested that splitting off charitable and non-charitable purposes into separate legal entities could be considered. However this is easier said than done when dealing with largely volunteer-based entities with limited capacity and resources to manage the complexities of administering multiple entities. In any event, such demarcation may not result in good governance of sport nor be suitable for delivering sport, especially at a local level.
Is it time for reform?
The benefits that sport and physical activity provide to individuals and the public at large are well known and documented10. They are not only health benefits, but social and economic ones including reduction in crime and an increase in social connectedness.
The pride we have in our country from watching elite sport is a benefit to the public. It has flow-on benefits to our economy and makes us feel good. Whether this comes from our stars taking gold at the Olympics or supporting our Black Caps at the ICC 2015 World Cricket Cup, sport has a special place in this country which positively impacts on us. These social benefits have been well documented following significant sports events such as the 2011 Rugby World Cup.11
At a time where our health problems and consequential costs are rising, all measures must surely be considered to remedy these alarming metrics. Supporting the organisations that deliver sport and physical activity is an obvious way to do that.
So, is the Charities Registration Board "off the mark" in applying such a strict interpretation of the law?
Is it being sufficiently cognisant of the courts' view that "more recent cases tend to support the idea of the concept of charitable purpose is evolving in response to changing circumstances and the steady development of a more unique New Zealand culture"?12
It seems that this strict interpretation was not the intention of Parliament when the 2012 amendment was passed, as the then Associate Minister of Justice Nathan Guy said when moving the amendment for its first reading in Parliament:
"The amendments to the Charities Act 2005 include a proposed change to the definition of "charitable purpose" to clarify the circumstances in which amateur sports purposes are indeed charitable. This amendment is meant to address uncertainty amongst sports groups, funders, and the legal community about the charitable status of amateur sports and the consequent confusion about funding eligibility"13
So should decisions like the Swimming NZ one be challenged? Or is it the fact that the meaning of "charitable purposes" in the Act is not wide enough to cover amateur sport?
Maybe this is about sports organisations needing to "up their game" when supplying evidence to the Charities Registration Board to show the public benefits their sport brings?
However appeals and judicial reviews cost time and money. So does sourcing academic research and scientific evidence on the benefits of sport. And like all charities, time and money is not something these organisations have readily available.
In my view the answer is that we need to remind our politicians of the significant value of sport and physical activity to the public including all of its benefits, and to promote an amendment to the Charities Act 2005 to expressly include amateur sport. They have done so in the United Kingdom where the advancement of amateur sport is expressly stated as a charitable purpose14.
Such a change would then allow Swimming NZ, and the thousands of other sports organisations in New Zealand, the ability to focus on what they are good at – delivering sport and physical activity to our communities – rather than the costly distraction of retaining their charitable status.
Maria Clarke is the founder of sports law firm, Maria Clarke Lawyers. It specialises in advising sports organisations and other not-for-profit entities on a range of legal issues. Maria is a member of several international commissions including the IOC Sport and Law Commission, and the juridical commissions of the Association of National Olympic Committees and the International Association of Athletics Federations.
- Swimming NZ, Deregistration Decision No D2014-3, 30 September 2014.
- As at date of writing there were 7292 registered charities identified on the Charities Commission register as being from the sport/recreation sector. This amounts to approximately one third of the total number of registered charities (approximately 27,000).
- See footnote 2 above.
- Another significant impact is loss of FBT exemption from which charities can otherwise benefit. For many sport organisations the use of motor vehicles are an important means by which sport can be delivered so paying tax on that use may have additional financial implications for some. The loss of income tax exemption may not be as significant as many amateur sports organisations can be income tax exempt under section CW46 Income Tax Act 2007.
- Giving New Zealand 2011 (January 2012) by Philanthropy NZ report found that the culture/recreation category (which includes sport) received approximately 77.9 million in donations and grants in the 2010/2011 year (excluding grants from gaming machines which was an additional 131.7million).
- To my knowledge, the exact impact of the loss of donations has not yet been quantified due to the costs involved in reviewing the volume of sports organisations which could be effected.
- Section 5(2A).
- For example, Travis Trust v Charities Commission, High Court, Wellington, CIV-2008-485-1689, 3 December 2008 and Southern Zone of NZRL Inc Decision of Charities Registration Board, 15 April 2013, Decision No. 2013-4.
- For example Northern Equestrian Trust, Charities Registration Board Decision, Decision No 2013-6, 15 April 2013; and Optimist World NZ Ltd, Charities Commission Decision, Decision No 2011-2, 16 February 2011.
- For example, The Economic and Social Value of Sport and Recreation to New Zealand (October 2011).
- One of the major social impacts of the RWC 2011 was the high percentages of people feeling proud of the way we hosted our visitors; a greater sense of community spirit, and a sense of involvement (Rugby World Cup 2011: Evaluation Report (Auckland Council).
- Travis Trust at paragraph 45.
- Hansard Volume 671, page 17981, First Reading of Statutes Amendment Bill (No 2) on 12 April 2011.
- Section 2(2)g of the Charities Act 2006 (UK).
This article was also published in LawTalk 862, 10 April 2015, page 29.
Last updated on the 23rd July 2015