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Charitable Trusts, Gifting, Income Tax, Taxation

Is debt forgiveness on account of a loan to a charity a gift that allows a tax credit?

In Roberts v CIR the question for the court is whether the forgiveness of debt a monetary gift for the purposes of s LD 3(1)(a) of the Income Tax Act 2007?

Background

The Oasis Charitable Trust (the Trust), a registered charitable trust, was settled by Mrs Roberts and her late husband on 14 October 2007 to facilitate the growth of the Christian faith in New Zealand.  On 16 October 2008 Mr and Mrs Roberts “transferred $1,708,080.90 to the Trust by way of loan.”

A gifting program was commenced, and gifts made by way of forgiveness of debt for the years ending 31 March 2011 to 2015.  Tax credits were claimed on account of the forgiveness of debt.  These were initially allowed.  However, on 1 December 2015 the CIR initiated a risk review.

The decision in Roberts v CIR usefully canvasses the statutory scheme to s LD 1 of the Income Tax Act 2007 and the circumstances in which a tax credit is available on account of a charitable gift and the parameters of a monetary gift as defined in s LD 3 of the income Tax Act 2007.

LD 3 Meaning of charitable or other public benefit gift

Meaning

(1) For the purposes of this subpart, a charitable or other public benefit gift—

(a) means a monetary gift of $5 or more that is paid to a society, institution, association, organisation, trust, or fund, described in subsection (2) or listed in schedule 32 (Recipients of charitable or other public benefit gifts) (the entity):

Conclusion

In conclusion the court was satisfied that a monetary gift of $5 or more does not require cash payment.  However, the gift must be a specific sum and not a chattel or property. As noted at [74]:

“I have reached the view that a monetary gift of “$5 or more” does not require a cash payment. Consistent with the policy approach to the legislative amendment, it must be a gift that is sum specific, not a chattel or property item of uncertain value. It must pertain to money, which includes not only actual cash, but a credit of a specified amount, such as a forgiveness of debt. I also accept that payment can be effected by the crediting and debiting of accounts that is involved in giving effect to a reduction of debt.”

This decision was upheld by the Court of Appeal, the following explaining the Court of Appeal’s reasoning:

[58] We consider there has for a number of years been somewhat of a disconnect between the actual wording of the legislation in question and the commentary or discussion generated by officials. As early as 2001 the government review spoke of the need for donations to “be in cash in order to qualify”.[46] Yet the legislation made no such requirement and the Income Tax Act 1994 spoke of “any gift … of money” — not cash. As noted above, the review appeared to equate “non-cash” donations with donations of goods and services. It seems that the 2001 review did not analyse the statutory word “money” or address the legal meaning of “money” and where the boundaries of this term might lie.
[59] The same might be said about the 2006 discussion document. The legislation continued to refer to “any gift… of money of $5 or more”, whereas the discussion document spoke of “non‑cash donations” and the difficulties that might arise from valuing such gifts. Again, no attempt was made to offer an analysis of the statutory wording and what might, or might not, fall within the statutory provisions as defined in the legislation.
[60] Similar observations can be made of the officials’ commentary on the bill under consideration in 2007. The discussion was focused on “cash donations” with no attempt made to analyse the statutory terms “money” or “monetary”.
[61] It is noteworthy that in the officials’ report following the High Court judgment (quoted at above), officials spoke about the policy intent of the legislation. It was said that “only monetary gifts of cash, including payments made by way of electronic bank transfers, credit cards, and cheques qualify as gifts. They do not include gifts in kind or debt forgiveness.” This appears to be the first time the so‑called policy intent had been expressed in this manner to include the issue of forgiveness of debt.
[62] Having carefully considered the legislative history described above, we are satisfied it provides no support for the interpretation of “monetary” or “money” contended for by the Commissioner. Comments in reports by officials about “cash” do not assist the Commissioner when that is not the wording of the statute, and the term appears to have been used in a broad sense and by way of contrast with gifts of goods and services. The task of the Court is to interpret the words used in the statute, not paraphrases, and in particular imprecise paraphrases, used in discussion papers and officials’ reports. We should add that comments by officials, unless they form part of the parliamentary record, are not an especially reliable, or orthodox, form of legislative history.
[63] We turn finally to the policy grounds advanced by the Commissioner as driving the interpretation she advances. None of these policy arguments are compelling.
[64] The first contention is that excluding forgiveness of debt avoids significant compliance and administrative costs. We agree with Mr Coleman that the concerns advanced under this ground are exaggerated. If Parliament is concerned about such matters it would be able to address these concerns through more detailed and specific drafting of the statutory provisions.
[65] Second, we are not persuaded that greater administration costs will arise with the inclusion of forgiveness of debts. Significant investigation and checking may be required for tax rebate claims in relation to gifts of cash, depending on the circumstances of the giving.[48] Concerns about tax avoidance are overstated. And there are now robust statutory mechanisms in place to deal with any instances of tax avoidance in this context.
[66] In summary, we do not find any of the policy grounds advanced by the Commissioner to be persuasive. Certainly, the arguments advanced under the policy head cannot succeed in carrying the day in circumstances where the words used in the statute do not support the Commissioner’s case and the legislative history is at best unhelpful.

Result

[67] The appeal is dismissed.

 

References:

  • Roberts v CIR [2018] NZHC 2153
  • Court of Appeal Decision in CIR v Roberts [2019] NZCA 654
  • CIR v Roberts [2019] NZCA 654

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