“Public Benefit” Test: Guidance for Charities

October 2009

“Public benefit” test:
Guidance for charities
The key elements for deciding
whether a purpose is aimed at
the public are that the group
that will potentially benefit is
not numerically negligible and
that the criteria for identifying
those who will be part of the
group are essentially
objective. Introduction
To be registered as a charitable
entity under the Charities Act 2005
(the Act) an organisation must have
exclusively charitable purposes.
The Act states that “charitable
purpose” “… includes every
charitable purpose, whether it
relates to the relief of poverty, the
advancement of education or
religion, or any other matter
beneficial to the community”.
These categories of charitable
purpose were identified by the
Courts in the 1800’s
2, although
charitable purposes were first
developed and applied by the
Courts in 1601, when the Charitable
Uses Act came into force in
Since then, Courts have based their
decisions on charitable purposes on
whether a purpose is the same or
within the spirit and intendment of
the purposes set out in the
Preamble to that Act. What is
considered to be charitable has
developed over time and has
changed to reflect the changes in
society over the last 400 years;
however, the underlying qualities of
what is charitab le have remained
consistent. The C
have recognised that, to
be charitable, a purpose must be
aimed at the public, or a sufficient
section of the public. This was not
specified in the Charitable Uses Act
but was explained by the Court of
Chancery in 1 767.
The Courts have been concerned to
ensure that individuals do not take
advantage of the benefits available
to charities to carry out private
4. On the same basis, the
benefits given to charities, such as
tax benefits, are justified on the
basi s that the charities exist to
benefit the public.
The Commission will not register an
organisation unless it is confident
that the entity has exclusively
charitable purposes. An
organisation can still qualify for
registration under the Charities Act
if it has non- charitable ‘ancillary’
purposes that are undertaken to
further its main charitable purposes.
In making a registration decision
under the Act, the Commission is
required to consider the applicant’s
current and proposed activities.
This is to assess whether the
activities support a view that the
purposes are charitable.

“Public benefit” test: Guidance for charities
Reference to “public benefit”
in the Act
In the Act, the term “public benefit”
is specifically used only in section
5(2) (a), i.e.:
“the purpose of a trust, society,
or institution is a charitable
purpose under this Act if the
purpose would satisfy the public
benefitrequirement apart from
the fact that the beneficiaries of
the trust, or the members of the
society or institution, are related
by blood;”
This provision acknowledges that
the public benefit test is part of the
legal test for charitable purpose.
Section 5(2) (a) allows purposes to
be charitable even where the
people benefiting are related by
blood. This section is discussed in
more detail below.
The ‘public benefit test’ as
part of charities law
There are two aspects to the “public
benefit test”, that is:
 There must be an identifiable
benefit, assessed in the light of
modern conditions and
 The benefit must be to the
general public or to a sufficient
section of the public. To
determine whether a purpose is
charitable at law, the Commission
looks at what the Courts have
previously decided and follows the
decisions and principles developed
in case law.
Under N
ew Zealand law, if a
purpose is considered to fall within
one of the f irst three heads of
charity, (i.e. relief of poverty,
advancement of education or
advancement of religion) it is
presumed to be a purpose that
would benefit the public
5. This
presumption of benefit may be
reversed where the circumstances
show that the purpose is not in fact
beneficial to the public. The courts
adopt a benevolent approach in
such situations.
However, particularly in the case of
advancement of education, and
advancement of religion, the public
aspect also has to be shown, i.e. –
the purpose n eeds to be
established as being for the public
or a sufficient section of the public
In the case of the fourth head of
charity, “other purposes beneficial
to the community”, it is necessary to
establish positively
7 that the
purpose has a tangible or well –
recognised benefit to the
8. Once this is
established, it is also necessary to
show that the purpose is for the
public or a sufficient section of the
The ‘benefit’ aspect
Benefit to the public should be
capable of being identified and
defined. It is also important to note
that perceptions of public benefit
can change over time, influenced by
increasing knowledge and
understanding, changes in social
and economic conditions, and
changes in social values.
Indirect ben
efits (where the benefit
extends beyond the immediate
beneficiaries) as well as direct
benefits may be taken into account
in assessing whether an entity
provides sufficient benefit to the
public. For example, courts have
held that a registration system for
medical practitioners provided a
public benefit by ensuring that
medical practitioners met an
appropriate standard and therefore
protecting the public by ensuring
that those practitioners were
adequately qualified.
Purposes not beneficial
If a purpose is illegal or if, taking
i nto account all of the relevant facts
and circumstances, there is a
benefit that is outweighed by a
greater harm to the community, no
benefit will result. For example, a
purpose to promote or support an
illegal activity such as euthanasia
will not provide a public benefit.

The courts have been unwilling to
form a view on whether political
purposes provide a public benefit. A
“political purpose” means any
purpose directed at furthering the
interests of any political party; or
securing or opposing any change in
the law or in the policy or decisions
of central or local government,
whether in this country or overseas.
The reason for this is that
Parliament is responsible for
making laws and it is not
appropriate for the courts or the
Commission to pre- empt th at
process by forming a view on
whether a new law or a change to
an existing law would benefit the
public. For this reason,
organisations with main political
purposes will not be considered to
provide a public benefit.
Many charities undertake political
activities in order to achieve their
charitable purposes. As long as the
entity’s main purposes are
charitable, the use of political
activities to achieve these purposes
will not disqualify the entity from
registration. However, where
political activity ap pears to be an
independent purpose in itself, this
may cause the Commission to
doubt whether the entity’s main
purposes are exclusively charitable.
The ‘public’ aspect
To be charitable, a purpose must
have a public character. This
eans that it must not be
private in nature, that is it must be
aimed at the public or a sufficient
section of the community to amount
to the public
12; and it must not be
aimed at creating private profit. 13
The key elements for deciding
whether a purpose is aimed at the
public ar e that the group that will
potentially benefit is not numerically
negligible and that the criteria for
identifying those who will be part of
the group are essentially
Any limitations placed upon who
benefits must be justifiable and
reasonable given the nature of the
charitable purpose being pursued. If
the entity’s benefits are then
available to anyone who, being
suitably qualified, chooses to take
advantage of them, the purposes
will be considered to provide benefit
to all the public, even though in
some cases the number of actual
beneficiaries may be quite small.
As an example, purposes to provide
support and assistance to the
sufferers of a rare disease will be
charitable, even where there are
only a few people who actually
suffer from that disease. This is
because the purposes are open to
benefiting all sufferers of that
condition regardless of the number.
Alternatively, a purpose to benefit
named people (even if these were
the only sufferers of the same rare
disease in New Zealand) would be unlikely
to provide sufficient public
benefit because it would not be
based on open and objective
An e
ntity may charge fees which
more than cover the cost of the
services or facilities it provides,
unless the charges are so high that
they effect ively exclude the less
well -off.
Where an entity is set up to provide
or maintain particular facilities for
the benefit of the public, any
restrictions on public access must
be reasonable and appropriate in
the circumstances.
Where members of an entity are
also the beneficiaries, any
restrictions placed on who may join
as a member must be reasonable
and justifiable in the circumstances.
Benefits must still be provided to a
sufficient section of the public,
either by providing benefits to
members of the enti ty or by
providing benefits to non- members.
Courts have found that providing
amusement, entertainment, or
social activities for members of an
entity are not primary purposes
which provide a public benefit.
Section 5(2) (a) of the Act
Under section 5(2)(a) of the Act, a
purpose aimed at people who are
related by blood, will not be
prevented from being a charitable
purpose as long as the group could
otherwise be considered to be ‘the

“Public benefit” test: Guidance for charities
This provision is based on wording
which has been in Income Tax
legislation since 2003. This
approach differs from the traditional
legal approach, which is that
individuals related by blood are not
a “sufficient section of the public”.
Examples of groups of people
who are ‘the public’ include:
 adherents of a pa rticular faith
which any member of the public
could join
 people who live in a particular
 refugees
 people related by blood but who
would otherwise be considered
to be a sufficient section of the
public, for example members of
an iwi
Examples of groups that are not
‘the public’ include:
 employees of a specific
 members of a particular trade
 members of a professional
Private profit
As noted above, it is a key element
of charities law that a purpose
cannot be charitable if it is for the
private profit of individuals. This
means that there cannot be a
main purpose of private profit –
even if other main purposes could
be considered charitable.
This does not prevent a charity from
carrying out activities where a
person may pr ofit – provided that
the purpose of the organisation is
not to profit individuals. For
example, charities may purchase
goods and services where the
providers of those goods and
services make a profit – i.e. pay a
builder or invest money in a bank.
However, the activities must be to
further their charitable purposes
and not to benefit the individuals
Public benefit issues in
relation to the four heads of
Relief of poverty
The first head of charity is often
referred to as ‘the relief of pov erty’;
however, in fact, it is ‘relief of the
poor, aged and impotent’.
Over the years, the courts have
tended to more easily recognise
public benefit where the purpose is
the relief of financial poverty.
23 It
has been suggested that this is
because purposes to relieve those
who are impoverished are
inherently so beneficial to the
community that they do not require
proof of public benefit.
24 In
cases of purposes for the relief of
the aged or the impotent (i.e. the
physically weak, disabled, or
helpless), benefit is presumed, but
can be negated, and the purpose
must still be directed at the public or
a sufficient section of the public
Advancement of education
A purpose that advances education
will not provide sufficient public
benefit where:
 the purpose is to educate
specific individuals
26; or
 the purpose is the protection and
advantage of those practising in
a particular profession
 the purpose is to change the law
or promote a particular
A k
ey case in the development of
charity law held th at purposes to
provide educational benefits to the
children of employees and former
employees of a particular company
were not charitable.
29 The ground
for this decision was that it was not
open to ‘the public’ but rather only
available to an exclusive group, that
is all those who had or had had an
employment relationship with the
company. In that case, even though
the employees in question
numbered around 110,000, they
were not considered to be a section
of the public.

Advancement of religion
The courts have taken the view that
even though religious purposes are
usually aimed at members of a
particular faith, there will be
sufficient public benefit as long as it
is open to anyone to join that faith
or church.
A religious purpose may fail to
provide public benefit where its
practices are detrimental to the
safety of the public or against public
policy. This could be the case
where the purpose promoted
practises that are considered
harmful, or those that are illegal
such as making animal sacrifices.
Purposes otherwise beneficial to
the community
To be charitable within the fourth
head of charity, a purpose must be
‘beneficial to the community’ in a
positive and tangible sense, and
must fall within the spirit of the
Preamble to the Statute of
Charitable Uses 16 01
30. In addition,
the purpose must satisfy the public
benefit test by being for the benefit
of the public or a sufficient section
of the public.
What is considered to be ‘beneficial
to the community’ changes over
time to reflect modern views and
attitudes . However the essentially
charitable character must be found
by finding that the purpose in
question is within the ‘spirit and intendment’
of the matters that were
originally stated to be charitable 400
years ago. In this way, while the
actual purposes wi ll reflect the
current environment, the essential
attributes of what makes something
‘charitable’ stay consistent over
Examples of cl
asses of purposes
that have been held to be charitable
under the fourth head of charity are
as follows:
 Relief of human distress
(provided that is not for political
 Safety and protection of the
 Purposes for the benefit of a
locality (for example a gift to a
local authority)
 Protection of animals (through
promoting humane and
generous behaviour and
discouraging cruelty)
 Improvement of agriculture
 Providing recreation and leisure
facilities where these are ‘in the
interests of social welfare’
(however, not where they are for
the purposes of mere
entertainment or amusement)
In all cases, purposes that fall into
these categories, or any other
purposes that are considered to
pass the ‘two -stage test’ will not be
charitable if a main purpose is
considered to be for private benefit
or profit. Matters
that do not fall into the
fourth head of charit y and that are
not charitable are:
 Purposes that confer a private
benefit on the members of a
group or association where that
benefit is not merely incidental to
a charitable purpose
 Purposes that are to change the
law or to lobby for a political
outcom e
 P
urposes for mere entertainment
or amusement. 39
Legal r eferences and
1. The Charities Act 2005 contains two
tests, one for ‘societies and institutions’
and the other for ‘trustees of trusts’.
Under section 13(1) (b) a society or
institution must be established and
maintained exclusively for charitable
purposes, and not carried on for the
private pecuniary profit of any individual.
Under section 13(1) (a) the trustees of a
trust will qualify for registration where the
trust is of a kind in relation to which an
amount of income is derived in trust for
charitable purposes. However, under
trust law, a trust will be ‘void for
uncertainty’ if it is for mixed charitable
and non- charitable purposes. This has
the effect that, to be a charitable trust,
the trust’s purposes must be exclusively
charitable. Section 61B of the Charitable
Trusts Act 1957 operates to validate
trusts that are substantially charitable by
deeming any non- charitable purposes to
be ineffective. Where section 61B
applies, this will mean t hat the trustees
must act as if the noncharitable purposes
do not exist – having the effect that the
trust will only operate for its charitable

Th is informati on sheet was first publi shed in October 2009.
Please refer to www.charities.govt.nz for any new develop ments or up dates.
2. The four ‘heads of charity’ are
considered to have originated from Lord
Mcnaghten’s statements in the case of
Commissioners for Special Purposes of
Income Tax v Pemsel [1891] AC 531 at
3. Jones v Williams (1767) AMB 651 at
652; 27 ER 422 per Lord Camden LC.
See also Re Delany [1902] 2 Ch 642 at
649 per Farwell J
4. Perpetual Trustee Co (Ltd) v Ferguson
(1951) 51 SR NSW 256 at 263 per
Sugerman J
5. National Anti -Vivisection Society v Inland
Revenue Commissioners [1948] AC 31
at 65, Molloy v Commissioner of Inland
Revenue [1981] 1 NZLR 688 at 695 per
Somers J
6. Verge v Somerville [1924] AC 496 at 499
per Lord Wrenbury
7. D.V.Bryant Trust Board v Hamilton City
Council [1997] 3 NZLR 342 at 350 per
Hammond J
8. National Anti -Vivisection Society v Inland
Revenue Commissioners [1948] AC 31
at 49 per Lord Wright
9. Commissioner of Inland Revenue v
Medical Council of New Zealand [1997] 2
NZLR 297
10. Re Collier (deceased) [1998] 1 NZLR 81
at 91
11. Re Collier (deceased) [1998] 1 NZLR 81
at 91; McGovern v Attorney -General
[1981] 3 All ER 493.
12. Verge v Somerville [1924] AC 496 at 499
per Lord Wrenbury; Lloyd v Federal
Commissioner of Taxation ( 1955) 93
CLR 645 at 662 per McTiernan J, at 667
per Fullagar J; at 670 per Kitto J.
13. D.V.Bryant Trust Board v Hamilton City
Council [1997] 3 NZLR 342 at 347 – 348
[affd [1999] 1 NZLR 41] 14. Oppenheim v Tobacco Securities Trust
Co. Ltd [1951] AC 297 at 306 per Lord
Simmonds 15.
See Re Compton [[1945] 1 Ch 123;
[1945] 1 All ER 198] and Davies v
Perpetual Trustee Co Ltd [[1959] AC
439; [1959] 2 all ER 128].
16. Inland Revenue Commissioners v
Baddeley [1955] AC 572 at 590 per
Viscount Simmonds
17. Verge and Somerville (see above)
18. Re Cohen [1954] NZLR 1097
19. Section 5(2)(a) Charities Act 2005
20. Oppenheim (see above)
21. Re Mead’s Trust Deed [1961] 2 All ER
836 at 840 – 841
22. Re Mason (deceased) [1971] NZLR 714
at 722
23. Re Compton [1945] Ch 123 at 137 – 139;
Re Hobourn Aero Components Limited’s
Air Raid Distress Fund [1946] 1 Ch 194
at 203 – 207; Dingle v Turner [1972] AC
24. Re Compton (above)
25. New South Wales Nursing Service and
Welfare Association for Christian
Scientists v Willoughby Municipal
Council [1968] NSWR 791
26. Re Mason (deceased) [1971 NZLR 714
at 721
27. Re Mason (deceased) (see above) (a
trust for the constitution and
maintenance of a law library or libraries).
28. McGovern v Attorney -General [1982] 1
Ch 321 at 336- 337, 339 per Slade J
29. Oppenheim v Tobacco Securities Trust
Co. Ltd [1951] AC 297 at 306 per Lord
30. In New Zealand key cases on this issue
are CIR v Medical Council of New
Zealand[1997] 2 NZLR 297; and Latimer
v Commissioner of Inland Revenue
[2004] 3 NZLR 157; (2004) 21 NZTC
31. McGovern (see above) 32.
Downing v Federal Com missioner of
Taxation (1971) 125 CLR 185 at 198
33. Re Williams Trustees v Inland Revenue
Commissioner [1947] AC 447
34. National Anti -Vivisection Society v Inland
Revenue Commissioners [1948] AC 31
35. Re Tennant [1996] 2 NZLR 633 (gift of
land for a creamery for a particular
locality held to be charitable as for the
promotion of dairying)
36. In accordance with section 61A of the
Charitable Trusts Act 1957
37. Commissioner of Inland Revenue v New
Zealand Council of Law Reporting [1981] 1 NZLR 682 at 687 per Richardson J;
Ins titution of Professional Engineers New
Zealand Inc v Commissioner of Inland
Revenue [1992] 1 NZLR 570 at 572 –
573 per Tipping J; Commissioner of
Inland Revenue v Medical Council of
New Zealand [1997] 2 NZLR 297 at 309
per McKay J
38. B
owman v Secular Society L td [1917] AC
406 at 442; McGovern v Attorney –
General [1982] 1 Ch 321 at 336- 337, 339
per Slade J; National Anti -Vivisection
Society v Inland Revenue
Commissioners [1948] AC 31 at 62 per
Lord Simonds
39. Re Nottage [1985] 2 Ch 649
Further information
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information sheet Charitable purpose
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under the Charities Act, please browse
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