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Summary
Overall only a small percentage of total charities in NZ are corporate charities – about 4% or 895 out of 25,000 total charities. However they are significant in terms of size, with assets of $3.2b, equity of $1.5b and turnover of $1.6b.
The largest corporate charities {ranked by equity} are mostly maori corporates that were initially funded through treaty settlements.
There is a spread of corporate charities across the country, which indicates no specific advisor or promoter has led to growth in any particular area.
About 10% of corporate charities have some overseas operations or purposes. In the most recent year, corporate charities paid $17m grants outside NZ.
The main sectors corporate charities operate in are education, health and accommodation. Their main beneficiaries are the general public, children/young people and “other charities”.
It’s not surprising that almost half of the corporate charities have listed “trading activities” as one of their sources of funds. In the most recent year their cost of trading was $175m and they recorded surpluses of $71m. These figures will be understated, because they do not include corporate charities which have had their financial accounts withheld from the register on the grounds of commercial sensitivity.
An initial review of shareholders of corporate charities indicates that their shareholders include other corporate charities, charitable trusts, charitable incorporated societies and individuals. In the majority of cases corporate charities are part of a bigger structure involving other related entities.
What advantages could corporate charities obtain that the informed public may frown upon?
· Existing charities may set up a corporate charity and transfer some assets to it so that it ‘looks poor’ and can access funding.
· Corporate charities may qualify for Inland Revenue donee status even though their shareholder does not. This is because the corporate charity’s purposes may be to fund the NZ charity shareholder (so funds are all spent directly in NZ), whereas the NZ charity shareholder’s purpose may be to fund overseas purposes and therefore not qualify for donee status.
· Shareholders of corporate charities may be able to personally access some of the value of accumulated funds by selling their shares. This would enable them to personally benefit from the cumulative effect of tax exemptions and other advantages of registered charitable status.
· If a corporate charity is in business and the business relates to its charitable purpose, it may be paying unreasonably high salaries. This may be cause for alarm when the corporate charity is a closely-held company where the shareholder is the employee. Even more alarmingly, the high salaries may be funded by government or other grant income.
· If a corporate charity is in business but the business does not relate to its charitable purpose, it may also be paying unreasonably high salaries. Alternatively it may be reinvesting funds into its business and making minimal (or nil) charitable distributions to its charitable shareholder or, if the shareholder is not charitable, to independent charitable activities.
· The corporate charity may have foreign shareholders so it becomes difficult to assess whether some funds are being transferred overseas through related party transactions.
· Dividends paid by corporate charities to their charity shareholders may give the impression, on an unconsolidated basis, that charitable activity has taken place. However if the ultimate shareholder has not made grant distributions and does not itself conduct charitable activity, then the public may be misled about the extent of charitable activity actually taking place.
In conclusion, the small but significant group of corporate charities is important to keep an eye on. A subset of this population could potentially abuse the system in ways that other entity types could not.
The Details
A total of 1,026 limited liability companies have been registered as corporate charities since 2007. Of these, 131 have subsequently been deregistered, the largest being Metro Water Ltd which deregistered in 2010 as part of the Auckland local government ‘supercity’ changes. Excluding deregistrations, there are therefore 895 corporate charities on the register. Only 656 have ever filed returns (some are newly registered and their first returns are not yet due). The 656 companies have assets of $3.2b, equity of $1.5b and turnover of $1.6b.
Ranked in size by equity (on an unconsolidated basis), the largest companies are dominated by maori corporate charities. They are:
· Tainui Group Holdings Ltd, Tainui Corporation Ltd and Tainui Development Ltd ($303m)
· Kahungunu Asset Holding Company Ltd ($54m)
· Ngati Ruanui Holdings Corporation Ltd ($46m)
· Anglican Care (Waiapu) Ltd ($43m)
· Trust House Ltd ($39m)
· Ngati Porou Seafoods Ltd ($32m)
· Ngapuhi Asset Holding Company Ltd ($28m)
· Pioneer Generation Ltd (formerly Central Electric Ltd, a central Otago electricity company owned by the Central Lakes Trust) ($25m) and
· Marist Holdings (Greenmeadows) Ltd ($23m).
Sectors of operation and main beneficiaries
The most common main sectors which corporate charities operate in are:
· Education / training / research 131 charities listed this as their ‘main sector’
· Health 107
· Accommodation/housing 51
· Religious activities 50
· Social services 35
· Economic development 31
The most common main beneficiaries of corporate charities are:
· General public 169 charities listed this as their ‘main beneficiary’
· Children / young people 72
· Other charities 68
· Older people 52
· Religious groups 37
The register currently allows charities to use “other” categories to customise a description for their main activity, main beneficiary and main sector of operation. 233 recorded their main activity as “other”, 148 recorded their main beneficiary as “other” and 115 corporate charities recorded their main sector of operation as “other”.
Government grants
About 30% (193/656) of corporate charities received some government grant income. This is approximately the same percentage of government grant income that is received by the whole NZ charitable sector. Total government grants to corporate charities are $652m in the most recent year. Of this amount, $457m went to corporate charities that operate in the health and disabilities sectors (which includes 11 PHOs) and $139m went to corporate charities operating in the education sector.
Location
The most common street addresses for corporate charities are Auckland Wellington Christchurch Hamilton Dunedin
Overseas operations
About 10% (65/656) of corporate charities have some overseas operations or purposes. The five which provided the regulator with the highest percentages of NZ funds spent overseas were:
· ChildFund New Zealand Limited 100% $16m gross income
· Minerva International Education Limited 95% $76k gross income
· African Enterprise New Zealand
· RNZWCS LIMITED 87% $4m gross income
· Arrowmight International Limited 70% $0.6m gross income
Some of the 65 corporate charities with overseas operations did not provide any percentage, but stated they did operate overseas or that they made overseas grants.
The 65 corporate charities recorded a total of $17m as grants paid outside NZ in their most recent returns. They have assets of $923m, equity of $196m and turnover of $339m. (Note that these figures include three Tainui corporate charities which have recorded just 1% of their funds being spent overseas).
Employment
About 60% (392/656) of corporate charities employ paid staff, the top five being:
· Access Homehealth Ltd 46,000 paid hrs/week (equivalent to 1,100 full time staff)
· Auckland
· The Electrical Training Coy Ltd 20,000 paid hrs/week (equivalent to 503 full time staff)
· Richmond New Zealand
· Anglican Care (Waiapu) Ltd 9,900 paid hrs/week (equivalent to 247 full time staff).
Unrelated commercial activity with no/minimal charitable distributions
About 45% (295/656) of corporate charities listed “trading activities” as one of their sources of income. Cost of trading for these charities was $175m. Their gross income was $640m, their surpluses exceeded $71m and their deficits were approximately $22m.
Some of the more curious corporate charities are those which have income from trading activity that is not related to their charitable purposes, record general or unspecified beneficiaries, make relatively high salary payments but no or minimal charitable distributions. Here are some examples:
· Aeroparks Ltd: a car park provider with ‘other charity’ beneficiaries. Financial statistics are: equity -$251k, gross income $1.4m, net deficit $24k, salary exp $635k for 9 employees, grants paid $921. The companies register shows the sole shareholder is Business Life Investment Fund Ltd, itself a registered fundraising charity with ‘general public’ beneficiaries. Financial statistics for Business Life Investment Fund Ltd are: equity $1.9m, gross income $489k, net surplus $276k, salary expense $110k for 1 full time employee, grants paid $1,032. The companies register shows the three ultimate shareholders are Grant Sai Cheung Kwok Sidnam, Marshall Gray and Murray Zander.
· GTL Ltd: an importing business with ‘general public’ beneficiaries. Financial statistics are: equity $2m, gross income $462k, net surplus $32k, salary expense $43k for 1 employee, grants paid $7k. The companies register shows the sole shareholder is Aotearoa Institute Te Kuratini O Nga Waka Trust Board, itself a registered charity with the following financial statistics: equity $20m, gross income $2m, net deficit $207k, salary expense $664k for 8 full time and 1 part time employee, grants paid $4k. The Trust Board spends 62% of its NZ-sourced funds in North America . Interestingly both GTL and the Trust Board are approved IR donee organisations, despite GTL’s shareholder spending most of its funds overseas (under the Income Tax Act 2007 NZ funds must be spent mainly or wholly within NZ to qualify for donee status).
· Tui Bee Balme Co-Operative Society Ltd: trading in bee balme with ‘other charity’ beneficiaries. Financial statistics are: equity $713k, gross income $661k, net deficit $58k, salary expense $306k for 1 full time and 14 part time employees, grants paid $0. The companies register does not list this entity and its website actually describes itself as a workers’ cooperative, so whether it is actually a company remains to be seen. Its website explains that profits which are not used to develop the business are donated to registered charitable trusts and it lists three – Tui Spiritual and Educational Trust (a registered charity that is effectively the same group of people - 30-40 adults and children living on 50 hectares as a community on the edge of Able Tasman National Park), Tracks Trust and Tides Trust (both trusts are registered charities and are operated by similar people, providing leadership training for young men and women respectively).
Related commercial activity with salaries paid to shareholder-employees
53 corporate charities have just one full time employee; a further 33 have just two full time employees. Is it possible that some of these corporate charities put a primary focus on paying a high salary to a shareholder employee or related party, with charitable activities carried out as a secondary objective? Consider these five examples, each of which pays salaries of around $100,000 or more. Unlike the above charities, the nature of these activities is directly related to charitable purpose so minimal distributions are not a concern. However another difference is that some receive government or non-government grants which helps to fund their salary payments.
· The Open Education Resource Foundation Ltd: provides online resources to students. Financial statistics are: equity -$29k, gross income $194k, net deficit $68k, salary expense $242k for 2 full time employees, grants paid $0. This corporate charity received non-government grants of $194k. The companies register shows the shareholder is Otago Polytechnic.
· Energy Options Charitable Company Ltd: operates in the environment/conservation sector to benefit the general public. Financial statistics are: equity $760k, gross income $4.4m, net surplus $87k, salary expense $197k for 2 full time employees. This corporate charity received non-government grants of over $4m. The companies register shows there are six individual shareholders who are also directors of the company.
· Student Management Software Solutions Ltd: receives income from trading to benefit the education sector. Financial statistics are: equity $178k, gross income $1.8m, net surplus $116k, salary expense $1.1m for 10 full time and 1 part time employees. This corporate charity received no grant income. The companies register shows the sole shareholder is Artena Society Ltd and the sole director is Kerrin Rhyl Marshall of Napier (who was, as an aside, awarded a QSM medal in 2012 for services to pipe bands). Artena Society Ltd itself is not listed on the NZ companies register.
· Warbirds Over Wanaka (2010) Ltd: provides arts/culture/heritage to the general public. Financial statistics are: equity -$209k, gross income $2.5m, net surplus $74k, salary expense $143k for 1 full time employee, grants paid $0. This corporate charity received no grant income. The companies register shows the sole shareholder is Warbirds Over Wanaka Ltd which itself has one sole shareholder – Warbirds Over Wanaka Community Trust Board.
· Camp Kaitoke Ltd: provides camp accommodation with children as beneficiaries. Financial statistics are: equity $315k, gross income $437k, net deficit $112k, salary expense $247k for 2 fulltime and one part time employees. This corporate charity received a government grant of $77k and non-government grants of $5k. The companies register shows the sole shareholder is YMCA of Greater Wellington Charitable Trust which is itself a registered charity with the following financial statistics: equity $2.1m, gross income $191k, net deficit $10k, salary expense $0. The Trust, not the company, records Camp Kaitoke
Nominee companies
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