Donation tax credit clarification

Revenue Minister Stuart Nash has announced that the Government will move to restrict donation tax credits and gift deductions to cash donations (including payments made by credit card or bank transfer).

This announcement follows the Court of Appeal decision in CIR v Roberts that upheld a High Court decision in the same matter and ruled that under current law, donors are entitled to claim a tax credit or gift deduction on debt forgiveness.

For the background to this case see Is debt forgiveness on account of a loan to charity a gift that allows a tax credit?

The approach of the Court of Appeal was a matter of statutory interpretation that carefully consider the terms used in the Income Tax Act 2007.  As noted at [37]:

“Like Cull J in the High Court, we are attracted to the wider definition … in this context. We are satisfied that the words “monetary” and “money” in s LD 3(1)(a) mean more than just cash. Such a conclusion is consistent with
the Commissioner’s long-standing practice of accepting that gifts made by way of electronic bank transfers, credit card payments or cheques qualify as monetary gifts under this provision.”

The Court of Appeal rejected the submission on behalf of the Commissioner that
the words “monetary” and “money” used in s LD 3(1)(a) are limited only to cash
payments and the like.

The Court of appeal’s consideration regarding the reality of the legislative history and policy factors is set out at [58 to [61] and provides that:

[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”. 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”,47 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 [53] 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.

The Court of Appeal was of the view that the policy grounds advanced by the Commissioner were not persuasive and “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.”

The proposed legislative change will be included as a late item in the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill due for its second reading in Parliament early next year.

References:

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