The High Court has held that annual forgiveness of debts to a charitable trust are monetary gifts paid to that charitable trust and as such qualified as charitable gifts.
On 14 October 2007, Mrs Roberts and her late husband jointly established the Oasis Charitable Trust (the trust) which was registered with the Charities Commission in November that year. The charitable objects of the trust were to facilitate the growth of the Christian faith in New Zealand by helping local churches to provide shelter, clothing and education to those who could not afford them and by raising money for the benefit of the community.
On 16 October 2008, Mr and Mrs Roberts transferred $1,708,080.90 to the trust by way of loan. In each of the income years ending 2011 to 2015, Mr and Mrs Roberts executed deeds of gift releasing the trust from liability to repay specified amounts of the loan. They then claimed a tax credit in each year on the basis that the forgiveness of debt was a charitable gift.
A person who is eligible for a tax credit under s LD 1 of the Income Tax Act 2007 (the Act) may apply to the Commissioner for a refund under s 41A(1) of the Tax Administration Act 1994 (TAA). The total amount refunded may not be more than the annual amount of tax credits. Further, a tax credit may not be claimed for charitable gifts over the sum of the taxable income of the taxpayer in the tax year in which the gifts were made. The requirements of s 41A were met in this case.
The Commissioner allowed the tax credits in each of the relevant years but on 1 December 2015 wrote to Mrs Roberts initiating a risk review in respect to the tax credits claimed. On 4 May 2016, as a result of the review, the tax credits for the five years were reversed and Mrs Roberts was required to repay them. That constituted a disputable decision within the meaning of s 3 of the TAA. Mrs Roberts challenged the Commissioner’s disputable decision. The challenge was filed in the High Court.
The issue for determination was whether the annual forgiveness of debts to a charitable trust were monetary gifts that were paid to that charitable trust, such that they qualified as charitable gifts under ss LD 1 and LD 3 of the Act.
The High Court’s decision
The High Court upheld Mrs Roberts’ challenge and found as follows:
1. The forgiveness of debt to the trust met the definition of gift. The gifts were for an amount of more than $5 each year. The recipient of the gifts was a charitable trust as required under s LD 3 of the Act.
2. A monetary gift of “$5 or more” does not require a cash payment. Consistent with the policy approach to the 2014 legislative amendment of s LD 3 by inserting the word “monetary”, 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. The payment can be effected by the crediting and debiting of accounts that are involved in giving effect to a reduction of debt.
3. In this case, $1.7m was transferred to the trust by way of loan. Subsequently, Mrs Roberts gifted $274,732 of that from the income years 2011 to 2015 to the trust. On the execution and receipt of the forgiveness of debt from Mrs Roberts, the trust received a monetary gift of $5 or more, and in those instances, payment was effected by the reduction of the debt.