Vicki Ammundsen: Amateur sport winner if charitable purpose better defined

Opinion

The headline that the millions that keep local sports clubs going is under threat because of the decision in Travis Trust overstates a complicated matter that is perhaps overdue for review.

The Travis Trust case, which was the first decision under the Charities Act 2005, highlights the difficulties that exist for sporting bodies that seek registration as a charity.

Travis Trust was an unsuccessful appeal against the decision of the Charities Commission to deny the trust registration as a charitable trust.

The High Court held in that case that funding a horse race (the Travis Stakes) was neither charitable nor for the benefit of an appreciable group of the public.

Although the case can be limited to its facts it is a useful reference for sporting bodies seeking registration as a charity.

A trust or organisation can be charitable, regardless of whether it is a registered charity. However, a charity that is not registered under the act is not entitled to the tax exemptions that are available to registered charities.

For bodies that promote amateur sports the entitlement to tax exemptions that flows from registration as a charity is generally irrelevant as a specific provision of the Income Tax Act 2007 provides that income derived by such bodies is exempt from tax.

However, as a practical matter, registration is important where third parties require confirmation of charitable status.

In the context of sports funding, if a funding body can only make grants to a charity, the funding body will logically favour making grants to a registered charity so that the matter is beyond doubt. For sporting bodies this is where the matter becomes difficult.

There are four types of charity referred to legally as four heads - relief of poverty, advancement of religion, advancement of education and any matter beneficial to the community.

As sport, including horse racing, is not a head of charity in its own right, it is necessary to demonstrate that the deeper purpose of the sporting body is the promotion of health, education or some other matter that will bring it within one of the four heads.

For charities with a purpose other than the relief of poverty it is also necessary to demonstrate that the charity benefits an appreciable sector of the public.

While it can be stated as a general principle that sport for its own sake is not charitable, regardless of the sector of the public who can benefit, if the purposes of the body promoting the sport include a demonstrable health or education benefit, then charitable status is achievable.

This is confirmed in Travis Trust where the judge says: "... contrary to the line of cases suggesting that trusts or gifts for the promotion of sport and leisure are not charitable, it cannot be said that such purposes are never charitable".

Referring to decisions where sporting bodies have been recognised as charitable and recognising that what is accepted as a charitable purpose evolves over time, the judge notes that: "The general principle appears to be that sport, leisure and entertainment for its own sake is not charitable but where these purposes are expressed to be and are in fact that means by which other valid charitable purposes will be achieved, they will be charitable."

While this may provide some measure of comfort for sporting bodies, no sporting body can assume charitable status without careful consideration of that body's purpose and how that relates to decided cases.

One way this could be addressed would be to amend the Charities Act 2005. Although this act largely restates how matters existed before the rules were recorded in legislation, a change was made to the law of charity for New Zealand purposes when the act was passed so that a charity will not fail the public benefit test only because the charitable purpose is limited to favouring specified blood lines, an issue that had been of major concern to the Maori community.

At the same time that decision was made, the committee considering these matters decided not to amend the definition of charity to specifically include sporting bodies, preferring that the matter was dealt with by the legislation that governs gaming trusts.

Accepting the recognised public benefits of improved physical fitness and recognising changing social behaviours means serious consideration should now be given to amending the act to confirm that the promotion of amateur sport can have a charitable purpose.

This happened in Britain in 2006. Given the place of sport in New Zealand culture and a healthy community, it is timely and appropriate to amend the definition of charitable purpose to include the promotion of amateur sport within the community.

* Vicki Ammundsen is a partner in Ayres Legal.