This article outlines the principal features of the Charities Act 2009 (the Act) and the practical implications of the Act for charities and other not-for-profit organisations operating in Ireland. The Act will bring about fundamental changes to the regulation of all charitable organisations operating or carrying on activities in Ireland, including the establishment of both a Regulator of Charities (the Regulator) and a register of charities.
The Charities Sector in Ireland
It is estimated that there are almost 25,000 non-profit organisations operating in Ireland. This figure encompasses all non-profit bodies (including, for example, some hospitals and education providers), but the majority are community and voluntary organisations.
It is difficult to determine the precise monetary value of the charities sector to the Irish economy, due to difficulties in defining the sector and also due to the absence of regulation in the sector to date.
However, while the definitional difficulties and a lack of data on the sector have limited the number of investigations into its economic value, it has been estimated that the economic value of the charities sector was in the region of EUR2.5 billion in the middle part of this decade, which is indicative of the substantial resources involved in the sector. Irish charities have not, however, escaped the effects of the global economic downturn and this figure may be subject to significant revision in the current environment.
The purpose of the Act is essentially threefold, namely:
In attempting to achieve these objectives, the Government has had to bear in mind that the overwhelming majority of charities in Ireland are small and are managed entirely by volunteers. The charities sector derives much of its dynamism from such small voluntary community groups and, clearly, inappropriate or excessive regulation could stifle the activities of those organisations. The challenge facing anyone attempting to draw up new legislation to regulate charities in Ireland was always going to be that of striking the appropriate balance between proper accountability and vigorous intervention where charitable status is being abused, and not placing an undue burden on small charities which would prevent them from being able to function.
The Act, together with the existing Charities Acts 1961 and 1973 and the Street and House to House Collections Act 1962, will provide a composite regulatory framework for charities through a combination of new legislative provisions and retention of existing charities legislation, updated where appropriate.
The Act was enacted on 28 February 2009, but rather than coming into force automatically it will be commenced in stages over time by Ministerial Order. The latest information available indicates that the lead-in period to full commencement of the Act could be up to two years from the date of enactment, with significant work to be undertaken in order to establish the Regulator and to introduce the secondary legislation required to implement the Act in full.
At this time it is still unclear just how the Regulator will be funded, and this poses a considerable obstacle for the Government in the current economic climate which is likely to take time to overcome. It would be possible to commence different parts of the Act at different times, and this is being considered. However, because so much of the Act depends on the Regulator being in place, it is unlikely that a significant portion of the Act could be commenced early.
MAIN AREAS OF REFORM
Charitable Status and Charitable Purposes
Charitable status under the Act will depend on an organisation having exclusively charitable purposes and conferring a public benefit, rather than having any particular legal form.
Charitable purposes are defined in the Act, for the first time in primary Irish legislation, as follows:
This definition therefore provides a statutory footing to the existing common law definition of charitable purposes which derives from the well known Pemsel1 case. The definition was provided by Lord MacNaghten in that case and is commonly known as the ‘MacNaghten Rules’.
The Act also provides a list of purposes that are to be included within the definition of ‘purposes of benefit to the community’. The list, which is not exhaustive, is designed to achieve clarity in relation to a number of recognised charitable purposes, and broadly reflects those already used by the Irish Revenue Commissioners in determining eligibility for certain tax exemptions for charities.
‘Charity trustees’ are defined in the Act essentially as those persons having day-to-day control of a charitable organisation. Where charities are companies, its directors and other officers are charity trustees. Trustees or other officers of unincorporated organisations are charity trustees in those circumstances.
Charitable Tax Exemption
The Act makes it clear that its provisions have no effect on the law relating to determining eligibility for tax exemption for charitable organisations, and the Revenue Commissioners are not bound by any determination of the Regulator as to whether a purpose is of public benefit or not.
A new Regulator of Charities will be established under the Act. The functions of the Regulator will include:
The focus of the Charities Regulator is clear from the list of its functions, namely to promote public trust and confidence in charities and ensure accountability for charity trustees.
There is currently no central public register of charities in Ireland and there is therefore neither the obligation nor the possibility to be officially recognised or acknowledged as being a properly constituted charity.
One of the primary functions of the Regulator will be to establish and maintain a register of charities which will be accessible by the public.
The main purpose of the register will be to promote transparency. The Regulator will make the register available for inspection by members of the public and will also publish the register on the internet. The register will therefore enable the public to confirm the bona fides of genuine charities, thereby limiting the scope for abuse.
All charitable organisations operating or carrying on any activities in Ireland will be required to register within six months of the establishment of the register. All charitable organisations which already avail of charitable tax exemption from the Revenue Commissioners will be registered automatically.
It will be an offence for a body not on the register to claim that it is a registered charity or to operate or fundraise as a registered charity in Ireland.
A number of sections of the Act deal with fundraising and update the law in relation to charitable fundraising by providing for the amendment of the Street and House to House Collections Act 1962. This is in order to take account of developments in fundraising methods that have come about since that legislation was introduced, such as the collection of donations by direct debit or standing order for example, which are increasingly common in Ireland.
The Act also confers powers on the Minister of Community, Rural and Gaeltacht Affairs to make Regulations in relation to charitable fundraising, which would be designed to further regulate these activities in the interest of protecting the public. However, it is intended that this will be a reserve power and that agreed codes of practice will first be implemented in relation to fundraising activities of charities. Work on the agreed codes of practice has advanced significantly, in partnership with the charities sector.
Agreements with Charity Trustees or Connected Persons
Under the Act, charity trustees will be permitted to receive remuneration from the charity in certain specific circumstances in respect of work undertaken by them which is unrelated to their trusteeship. These provisions would also apply to persons who have a ‘personal connection’ with the charity trustee. All payments received by the charity trustee or connected person must be reasonable and proportionate having regard to the service provided. In addition, all of the charity trustees, other than the charity trustee receiving the remuneration, must be satisfied that the arrangement is in the best interests of the charitable organisation.
This type of arrangement may require an amendment to the constitution of the charitable organisation, as the constitutional documentation of most charities availing of charitable tax exemption from the Revenue Commissioners will prohibit such remuneration.
It is important to note that in the context of charity trustees receiving remuneration under contracts of employment, or in consideration of their acting as charity trustees, the law is unchanged, and these types of payments would remain prohibited.
Indemnity Insurance for Charity Trustees
The Act provides that a charitable organisation can purchase indemnity insurance in order to indemnify its charity trustees in respect of any liabilities of the charity trustee to pay any damages or other sum in respect of any act done or omitted to be done by the charity trustee in good faith and in the performance of their functions as a charity trustee.
Charities and Political Activities
The Act does not permit charities to support a political candidate or party, but charities will be permitted to promote a political cause if it relates directly to their charitable purpose. Therefore, while lobbying by charities will be permitted, charities need to ensure that they remain focused on their principal charitable purposes and engage in lobbying and similar activity strictly in furtherance of their charitable purposes.
Historically, there have been no statutory accounting or filing requirements for charities. It is only where a charity is constituted as a company that it is obliged (subject to certain exceptions) by the Irish Companies Acts 1963 to 2009 to make an annual return to the Companies Registration Office. For charities that are set up as unincorporated organisations or by way of trust, there is no such obligation to make any financial information available to the public.
The Act contains provisions requiring the keeping of proper books of account, as well as the filing of annual statements of accounts, by charitable organisations that are not companies. There are also provisions in relation to audit or examination of those accounts. Companies are excluded from these provisions, as they have their own requirements to file annual returns and accounts, and to have those accounts audited, under the Companies Acts.
Annual Reports of Charities
All charitable organisations (including companies) will be required to prepare and submit to the Regulator annual reports on their charitable activities during that year. The annual reports will be made available for public inspection by the Regulator, except those in respect of ‘private charitable trusts’, being organisations that are not funded by donations from the public.
The past number of years has seen a greater understanding internationally of the role played by voluntary activity and voluntary organisations in the building of a strong, inclusive society. There is also growing recognition that, as charities are becoming more professional and sophisticated, they deserve and require equivalent progress in the legislative framework in which they operate.
The Charities Act 2009 signals the Irish Government’s recognition of the importance of the voluntary sector to Irish society and its commitment to supporting legitimate charitable activity.
A significant portion of charities operating in Ireland will not see a great deal of change once the Act is in force and the Regulator is established. It should be viewed as a significant achievement that the impact on many existing (mainly corporate) charities should be relatively small, while the legislation goes a long way to improve transparency and accountability within the sector.
However, the obligations of unincorporated charitable organisations to comply with the legislation will add a further adminstrative burden, which may be considered unwelcome at a time when the future of many charities is uncertain.
1 Commissioners for Special Purposes of Income Tax v Pemsel  A.C. 531
Cormac Brennan is a solicitor and tax advisor, and a Partner in O’Connell Brennan Solicitors, Dublin. O’Connell Brennan is a boutique private client law firm, established in 2012 by Susan O’Connell and Cormac Brennan following the demerger of the private client practice of McCann FitzGerald Solicitors.