After a long period that involved several rounds of consultation and drafts, the IRD this week issued their views around the meaning of “wholly or mainly” as it relates to tax donee organisations operating in New Zealand.  We were sent a copy of the fact sheet and statement because we were involved in the consultation process and provided feedback on this so this is a short news flash – a more detailed analysis will follow.

 

As at the time of writing the documents are not yet available on the IRD website and we will include a link to that soon.  In the meantime, if you would like a copy of the fact sheet email stevenmoe@parryfield.com for more information.

 

Prior to this interpretation statement, 50% was the figure accepted as being “wholly or mainly” that was used to determine if an organisation was operating in New Zealand in order to be eligible for tax donee status – that is, it needed to apply its funds to specified purposes within New Zealand.  So, if it applied 51% or more for purposes overseas it was not operating “wholly or mainly” in New Zealand.

 

This figure has now changed to 75% – a substantial difference potentially particularly in the context of aid organisations or Church groups because if they apply funds of say 30% to overseas purposes then they will potentially not be tax donee organisations.  At one point it had been proposed that the figure be increased to 90% so it is good to see it is lower than that but it will still have impact on many organisations who support work offshore.

 

This interpretation statement will apply from the beginning of an organisation’s 2019/20 income year so you should consider if there will be impact on your operations prior to that point.  For example, some groups may want to potentially look to implement some giving before it takes effect.

 

There will be a “safe harbour” regime which involves looking beyond any one year to take into account dips or unusual increases (eg due to natural disasters overseas).

 

We are preparing a more detailed analysis and summary and will post this in the coming week so check back for more.

 

What is a Charitable Trust?

In New Zealand a common form that a charity will take is a charitable trust. These are used where there is not a “profit” motive for private gain for an individual from the activities of the trust. The regulator is both Charities Services (which registers charities if they meet legal criteria under the Charities Act 2005) and the Registrar of Incorporated Societies (which approves the incorporation of the trust boards under the Charitable Trusts Act 1957).

A registered charitable trust has the following key features:

– it is a separate legal entity;
– the liability of trustees is limited if the trust board has been incorporated;
– there is some cost involved in establishing the trust as certain documents are required but there is no cost to registering it; and
– there are ongoing reporting and administrative requirements.

Some Advantages

1. Separate Legal Entity

A charitable trust board which has been incorporated is a separate legal entity which can contract with others. A settlor (sometimes called donor) is needed to provide the initial amount which is how the trust is created (this is often a nominal figure such as $10).

2. Limited Liability

The liability of trustees is limited if the trust board has been incorporated. It is also common for a trust to provide indemnities for its trustees and officers and to take out insurance. Note, however, that trustees will be personally jointly and severably liable for certain taxes (GST, ACC levies, PAYE).

3. National Registration

New Zealand does not have a state-based system like Australia, so when a charitable trust has been registered by Charities Services that is a national registration.

4. Purposes are Restrictive

A charity in New Zealand must act to further its purposes which are set out in a trust deed. To be accepted as a registered charity those purposes must be charitable as defined in New Zealand law (which includes advancing religion). The charity cannot distribute funds or assets for the private gain of any individuals.

5. Powers of Trustees

Trustees can have a wide range of powers depending on how they are written in the Trust Deed. They can include matters such as use of funds, purchasing property, accepting money and carrying on a business.

Some Disadvantages

1. Establishment Costs

A charitable trust has some costs involved to set it up (usually more than $2,000.00 NZD). A lawyer will likely be involved to make sure that the purposes are charitable according to New Zealand law. They can also provide ongoing advice on the trust’s ongoing regulatory and filing requirements.

2. Disclosure and Reporting Requirements

A registered charity will have reporting requirements which can vary depending on their size (there are four tiers). There are financial reporting and auditing obligations on registered charities.

Every situation is unique so please discuss your situation with a professional advisor who can provide tailored solutions to you. We offer advice on all aspects of charitable trusts and are happy to answer any questions that you might have. Contact Steven Moe at stevenmoe@parryfield.com or 03-348-8480 for more information.

 

1. Govern don’t manage: Avoid getting into too much of the detail of how the trust operates. You shouldn’t be talking about minor issues at the Board level.
Yes! What is our strategic plan for the next 5 years?
No! Can we save $7 per month by purchasing paper in bulk?

Your rating out of 10?______

2. Have clear agendas: Don’t let meetings turn into a conversation that starts “what are we talking about again”? Have a clear defined standing agenda that then has key points added.
Yes! Circulate agenda in advance along with relevant pre-reading. Read it.
No! Show up late and try to remember what was discussed last time, with no agenda to guide the meeting (and ensure it finishes on time).

Your rating out of 10?______

3. Board Charters: This is a document that can provide overall guidance – set out role, relationships, how decisions made, procedures, inductions, committees.
Yes! Consider having a Board Charter and clearly set guidance out.
No! Continue without clear thinking and strategy behind what you are doing.

Your rating out of 10?______

4. Know your Trust purpose: It is surprising how many Trustees are unclear on the actual purpose and maybe have never even read the Trust Deed to see the original purposes.
Yes! Be clear on what the purpose is and let it guide decisions.
No! Put the Trust Deed in a drawer and not look at it for 10 years.

Your rating out of 10?______

5. Know the purpose behind the purpose: Think about and understand how the day to day and month to month work is of value – know your “why”. In many cases there are deep needs which are being met by each trust
Yes! Know your why (if you have not seen the Simon Sinek video, google it)
No! Don’t forget the real reason behind the activity and work being done.

Your rating out of 10?______

6. Plan ahead: Think long term not short term – discuss finances, properties, succession for your board, strategy, growth, is this Trust relevant …
Yes! In 5 years I think our landscape will have changed so here is what we need to do to prepare…
No! Where shall we hold our next meeting?

Your rating out of 10?______

7. Trust board size: I think optimum size is 4 to 6 Trustees. Many Trust Boards are more, but once you get above 8 the opportunity for participation drops. This results in a drop of enjoyment (less sense of contribution) and also reduces the quality of decision making because discussion is more limited.
Yes! Keep boards efficient by not growing them too large.
No! Don’t get too big – boards that have crept up above 10 are like a parliament and are also far more difficult to chair.

Your rating out of 10?______

8. Increasing need for professionalism as a Trustee: There is a growing need to create a culture of continuous improvement or learning within the Trusteeship itself. Have a view that you can never stop learning. Governance is a high calling.
Yes! Trustees ought to be encouraged to read material that takes them a bit further in their journey of understanding what it is to a Trustee and how to contribute.
No! Just wing it.

Your rating out of 10?______

9. Who should be on a Trust Board? In a small charity this may be a luxury but the ideal answer is someone who has both a strong belief in the vision and purpose of the Trust as well as a particular skill set that the Trust most needs.
Yes! Consider skill sets around tangible matters e.g. finances, property matters, operational issues but also the soft issues – the ability to think strategically, a high EQ and focus on building a great team.
No! Don’t focus on one set of skills instead aim for a diversity of thought.

Your rating out of 10?______

10. The right Chair? Good outcomes are largely the result of effective meetings and effective meetings are not possible if the Chair is not suited to the task. A good Chair creates an environment of respect, fair opportunity to speak, but without restricting candor and ensuring discussions do not go on any longer than necessary and a clear conclusion is reached. Also, if the organisation is large enough to have employed staff then the relationship between the Chair and the Chief Executive is a critical one.
Yes! Have those awkward conversations to ensure that the person most suitable to facilitate good meetings is the Chair.
No! Like all of these points, don’t continue on if change is needed.

Your rating out of 10?______

Some resources:

Simon Sinek, “The Power of Why – YouTube Video

“Joan Garry’s Guide to Non-profit Leadership (because non-profits are messy)”.

“Good to Great and the Social Sectors” – Jim Collins (speaker on commercial/corporate leadership, but has good things to say for charity leadership as well).

“Boards that Lead” – Charan, Carey and Useem.

In terms of podcasts there a number of great leaders who speak to the leadership area including Andy Stanley and Carey Nieuwhof.

Seeds is a podcast I have been doing each Tuesday interviewing people for an hour on what they do and why – often this includes people who have started or run charities www.seeds.libsyn.com

 

Should you need any assistance with these, or with any other Trust and Asset matters, please contact Steven Moe at stevenmoe@parryfield.com  (+64 3 348 8480).

Until recently, not many people knew what a social enterprise even was. But in the last few years there’s been a growing awareness of companies that pursue “for purpose” objectives beyond the traditional profit motive. Often, these companies are able to reinforce and grow the communities they operate in, often meeting social needs which might otherwise have resulted in state-sponsored intervention or social programmes. Simply put, they do good.

While the term ‘social enterprise’ itself is relatively new, the fundamental concepts behind it are not. We are still at the early stages of the growth of the social enterprise sector here in Aotearoa. What better time to think about how Māoritanga – Māori culture, practices and beliefs and way of life – can help flavour our particular recipe?

By examining some of the key principles of Māoritanga, we can better understand what social enterprises are – and what they could be.

Here are some examples:

Kaitiakitanga

Kaitiakitanga is the guarding of treasures and the concept of reciprocity and giving back. When creating a social enterprise it is vital that the purpose is well defined, understood and articulated for others. That purpose then needs to be closely guarded so that there is not a slow creep away from the core values in the midst of either success or failure – either extreme lends itself to a reframing of what the entity stands for. Keeping a sharp focus on the purpose of a social enterprise is a discipline: guarding the treasure.

Mōhiotanga

Mōhiotanga is the sharing of information, the building up of knowledge, and the provision of new information and strategies. In order for a business to succeed there is a lot of information which needs to be absorbed – and this is particularly true of social enterprise, which challenges the traditional way of doing things. The early days of a social enterprise are critical as the right structures are chosen, the team is assembled and the vision cast.

Tuakana/Teina

Tuakana/teina refers to relationships between older and younger people, and in particular the experienced helping those who are less experienced. This is reflected in many social enterprises with community elements where more experienced people work alongside – and support the career growth of – those who have less experience.

Manakitanga

Hospitality, kindness, generosity and support. The process of showing respect and care for others directly relates to the altruistic and community focus of social enterprises. Often these social enterprises exist to meet some need in society through the business operation itself – for example, the type of person who is employed or the kind of product made.

Wairua

Wairua is spiritual well-being that involves a connection to our whenua (land), ngahere (forests), moana (sea), maunga (mountains) and awa (rivers). Many social enterprises consider natural resources and how they use them (or don’t). From the first, they focus on their impact on the environment and how they can operate in a sustainable way.

Mātātoa

Mātātoa is the Māori concept of being fearless, courageous and energetic. In a similar way, social enterprises need to be open to embracing new and innovative ideas that generally go against an established way of doing things. They often challenge the inbuilt assumption that a business is all about making a profit as they strive to also fulfil their purpose, which is usually the real driver.

Social enterprises have a unique opportunity to do something different here in Aotearoa; embracing the perspectives of Māoritanga and understanding their full breadth and impact could help us achieve just that. Instead of doing things the same way as every other country, we should try a new way of operating. The result could be a truly homegrown version of social enterprise which acknowledges and learns from our own rich cultural heritage and embraces it fully as a means to explain what we do and why we do it.

Tihei mauri ora!

This article was originally published on The Spinoff: https://thespinoff.co.nz/business/21-08-2018/what-social-enterprises-in-aotearoa-can-learn-from-maoritanga/

Legal Mashup recording now available: Kris Morrison and Steven Moe talked about what a social enterprise is, best legal structure options for them, the charitable option, governance, board size, liability, intellectual property, overseas considerations, employment, start-up issues .. a lot was covered!