Understandability and Transparency of the Financial Statements of ...

2.2.1 Pemsel case
The 1601 statute was enacted during the English Reformation and consequently
religious uses were absent from the developed charitable purpose (Fishman, 2007). The
1601 statute remained „prima facie‟ until the emergence of the 1891 common law test
for charitable purpose which was contained in the judgement by Lord Macnaghten in
Income Tax Special Purposes Commissioners v Pemsel (AC 531, 1891) commonly
referred to as the Pemsel case.
Lord Macnaghten classified charitable purpose into four „heads‟ i.e. categories
(Charities Commission, 2006d; Dunn & Riley, 2004):
1. Advances education;
2. Advances religion;
3. Relieves poverty; or
4. Is otherwise beneficial to the community
These came to be known as the „four heads of charity‟ and were incorporated into the
United Kingdom‟s previous Charities Act 1960 and New Zealand‟s Charities Act 2005.
2.2.2 New Zealand’s Charities Act 2005
Utilising the Pemsel case four heads, section 5(1) of the New Zealand Charities Act
2005 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.
Charitable purpose is also defined in two other New Zealand Acts: section 38 of the
Charitable Trusts Act 1957 and part YA1 of the Income Tax Act 2007. Of the two acts
the Charitable Trusts Act 1957 is more specific as its definition of „charitable purpose‟
in section 38 specifies eleven categories by elaborating some of the education activities
and also includes sports in the definition:
(a) The supply of the physical wants of sick, aged, destitute, poor, or helpless
persons, or of the expenses of funerals of poor persons;
(b) The education (physical, mental, technical, or social) of the poor or indigent or
their children;
(c) The reformation of offenders, prostitutes, drunkards, or drug addicts;
(d) The employment and care of discharged offenders;
(e) The provision of religious instruction, either general or denominational;
(f) The support of libraries, reading rooms, lectures, and classes for instruction;
(g) The promotion of athletic sports and wholesome recreations and amusements;
(h) Contributions towards losses by fire and other inevitable accidents;
(i) Encouragement of skill, industry, and thrift;
(j) Rewards for acts of courage and self sacrifice; and
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