Charitable trusts have a long history of supporting those in need. Yet those in charge of decisions about how to use funds should be cautious to ensure that any giving does not create a private gain or financial benefit to an individual. Failure to give in accordance with the permitted charitable purposes can mean a charity may lose its registered status.
To illustrate this it is good to look at a practical example. In 2014, the Charities Registration Board determined that the New Zealand Affordable Art Trust no longer qualified for registration as a charitable entity. The Board found that the Trust’s primary purpose was to promote the private interests of artists. This was outside the scope of charity as it conferred private benefits on artists which were more than incidental to any charitable purpose.
The Trust submitted that its support of artists fell under the ‘relief of poverty’ charitable purpose. This argument was rejected as the Trust chose to assist artists based on criteria such as originality, technique and development, rather than the relative wealth or poverty of the artist. The Board did acknowledge that the Trust helped to advance education in the arts for the general public, however this was not the main focus of the Trust.
A similar approach has been found in the courts. In Commissioners of Inland Revenue v White, Fox J held:
The promotion or advancement of industry (including a particular industry such as agriculture) or of commerce is a charitable object provided that the purpose is the advancement of the benefit of the public at large and not merely the promotion of the interest of those engaged in the manufacture and sale of their particular products. The charitable nature of the object of promoting a particular industry depends upon the existence of a benefit to the public from the promotion of the object.
At the risk of providing too much detail, Lord Simonds, when considering the question of whether an element of public benefit is necessary to achieve charitable status in Oppenheim v Tobacco Securities Trust Co Ltd said:
My Lords, once more your Lordships have to consider the difficult subject of charitable trusts … It is a clearly established principle of the law of charity that a trust is not charitable unless it is directed to the public benefit. This is sometimes stated in the proposition that it must benefit the community or a section of the community. Negatively it is said that a trust is not charitable if it confers only private benefits. In the recent case of Gilmour v Coats [1949] AC 448 this principle was reasserted. It is easy to state and has been stated in a variety of ways, the earliest statement that I can find being in Jones v Williams (1767) 2 Amb 651, in which Lord Hardwicke, LC, is briefly reported as follows: ‘Definition of charity: a gift to a general public use, which extends to the poor as well as to the rich …’With a single exception, to which I shall refer, this applies to all charities. We are apt now to classify them by reference to Lord MacNaughten’s division in Income Tax Commissioners v Pemsel [1891] AC 531, and, as I have elsewhere pointed out, it was at one time suggested that the element of public benefit was not essential except for charities falling within the fourth class, ‘other purposes beneficial to the community’. This is certainly wrong except in the anomalous case of trusts for the relief of poverty with which I must specifically deal. In the case of trusts for educational purposes the condition of public benefit must be satisfied. The difficulty lies in determining what is sufficient to satisfy the test, and there is little to help your Lordships to solve it.
What does this mean for charities?
Charitable trusts should ensure that any benefit they bestow are intended to create a benefit for the public. While a private benefit incidental to a charitable public benefit may be allowed, this should not be the primary focus if a trust wishes to maintain its charitable status.
This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. We would be happy to assist you in your journey. Please feel free to contact Steven Moe at stevenmoe@parryfield.com should you require assistance.
