Tucked away in Daisy Goodwin’s book ‘The American Heiress’ there is a rather thoughtful observation about charity, ‘... anyone can acquire wealth, the real art is giving it away.’ When it comes to giving until it hurts, most people have a very low threshold of pain. However, in the recent case Roberts v Commissioner of Inland Revenue (2018) 28 NZTC 23-070, that threshold was seemingly hit by Inland Revenue long before it started to sting the taxpayer. The tax credit for charitable giving has long been regarded by Inland Revenue as being limited, for fear that it might be manipulated. Roberts is a case that saw IR’s efforts to limit the rebate thwarted.
Is a Gift a Gift?
In 2008, Mr and Mrs Roberts transferred $1,708,080.90 by way of a loan to a charitable trust they had established called Oasis Charitable Trust (“the Trust”). The charitable purpose of the Trust was to ‘facilitate the growth of the Christian faith in New Zealand, by helping local churches to provide shelter, clothing and education to those who cannot afford them, and by raising money for the benefit of the community’. The loan was earmarked, with $500,000 to be invested in Telecom bonds, and the remainder to be reinvested in the name of the Trust. The loan was made in the form of a bank term deposit from which investments were made in the Trust’s name – in this way the loan was always a monetary asset.
In support of the Trust’s mission, Mrs Roberts forgave varying sums of this loan every year by way of a deed of gift. According to her accountant’s expert testimony, this was an irrevocable action resulting in the Trust’s liability to repay some of the debt being waived entirely. In total, between 2011 and 2015, Mrs Roberts forgave $274,732.
Mrs Roberts claimed the forgiven amounts as charitable gifts and claimed the usual tax credit – some $91,577. Despite allowing the tax credits during these years, the Commissioner wrote to Mrs Roberts on 1 December 2015 and initiated a risk review, resulting in the tax credits being denied retrospectively on 2 May 2016. Mrs Robert’s was expected to repay the tax credits claimed between 2011 and 2015. The Commissioner claimed that forgiving debt could not qualify as a ‘charitable or other public benefit gift’.
When considering the merit of the Commissioner’s claim, Justice Cull in the Wellington High Court reviewed the definition of a ‘charitable or other public benefit gift’ in the Income Tax Act 2007 (“the Act”). Anyone who makes a charitable gift can claim a tax credit of 33⅓% of the gift. Mrs Robert’s claimed that each time she forgave debt, this was a charitable gift. The applicable definition in the Act states that a ‘charitable or other public benefit gift’ means:
…a monetary gift of $5 or more that is paid to a society, institution, association, organisation, trust, or fund…
Money has a ‘notoriously variable and flexible meaning’ according to Tipping J in Commissioner of Inland Revenue v Thomas Cook (New Zealand) Ltd  2 NZLR 296 (CA) at . The idea of a monetary gift is expected to be equally flexible and variable in nature. To this end, Cull J stated:
There is no discernible difference between the kind of debt and credit relationship that occurs when dealing with a bank account, whether by internet banking or by cheque, and the similar kind of debt and credit relationship between a debtor and creditor. In both cases, the content of the gift is denominated in terms of money. The value of the gift is the monetary figure that is credited to the recipient.
In presenting this finding, Cull J clearly stated that she did not agree with the Commissioner’s assertion that ‘monetary’ must refer to cash or an actual transfer of money. Forgiving debt was still a transfer of ‘monetary value’. As a result, Cull J found in favour of Mrs Roberts and the tax credits were restored.