CIR v Wellington Stadium


CIR v Wellington Regional Stadium Trust (2005) 22 NZTC 19,445

The Court of Appeal confirmed Wellington Regional Stadium Trust’s (“WRG Trust”) charitable status because it did not fall within the definition of a council controlled trading organisation (“CCTO”) or local authority trading organisation (“LATE”) in the Local Government or the Income Tax Legislation.

The WRG Trust issued proceedings to clarify its status after being informed by the Commissioner that its charitable status had ceased following changes to the legislation.

By way of background, the Wellington Regional Council (“WRC”) considered there was a need for a new sports stadium in the region. Special legislation was passed that enabled the Council to lend money to a trust to be established with the Wellington City Council (“WCC”). The WRG Trust was established and registered under the Charitable Trusts Act. Funding was obtained from various sources. WRC and WCC provided interest-free limited recourse loans. A loan was made on commercial terms by the ANZ Bank while the remainder of the funding for the stadium came from the sale of corporate boxes, membership and the like, and grants from the Lotteries Board and the Community Trust of Wellington.

The Court of Appeal found that the WRG Trust had been set up by the Empowering Act which is modeled on the community trust regime in the Local Government Act 1974 and that the provisions of the empowering legislation were intended to be a code. This regime is separate from the council controlled trading organisation regime (“CCTO”). The legislation relating to a CCTO is not intended to apply to community trusts and there was no reason to treat the WRG Trust as coming within the income tax provisions that were designed for the CCTO regime.

Even if the Court was wrong on this point it held that the Trust did not operate for the purpose of making a profit and was not so caught by the definition of a CCTO. The WRG Trust was established for a limited purpose, to own, operate and maintain the stadium as a multipurpose sporting and cultural venue for the region. The purpose of the Trust’s promoters was provided for in the empowering legislation, the trust deed and the funding deed and could not be separated from the purpose of the WRG Trust itself. The WRG Trust is required to operate in a financially prudent manner so that the stadium can be operated as a community asset. It has an operating surplus and is operated in a businesslike manner. However, these factors were insufficient in themselves to mean that its purpose was profit making.

The WRG Trust was required under the empowering legislation to be a charitable trust with all its inherent limitations. The intention of the LATE regime was to capture for tax local authority trading enterprises that were clearly commercial in character and that compete with the private sector. The legislation never intended to capture true charities, even those that were intended to operate in a business-like way.

The mere intention to make operating surpluses was not sufficient to affect charitable status. Indeed, the stadium could never operate on proper commercial terms. The only reason operating surpluses were achievable was that the stadium was funded on non-commercial terms. It could not distribute its profits, was inherently charitable and was not competing in any meaningful sense with the private sector and was unlikely to do so in the future, in the Court’s view.

This case was of concern to many “not for profit” organisations that have a connection with local authorities. They feared that if the WRG Trust was a CCTO, many others would be treated in the same way and would lose charitable status. The decision is a helpful one for them in that it reinforces the ability to preserve charitable status while retaining a funding connection with a local authority. Where, however, the charity is not established by its own legislation and a local authority retains the right to appoint members to the charity, there may still be risks to charitable status that need to be addressed.

© G D Clews, 2005

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