The Church of Jesus Christ of Latter-day Saints v CIR [2019] NZHC 52

The High Court has ruled that some donations to the Church of Latter Day Saints do not qualify for a tax credit under s LD 1 of the Income Tax Act 2007, as a gift to a charity, if a personal benefit motivates the donation (See The Church of Jesus Christ of Latter-day Saints v Commissioner of Inland Revenue [2019] NZHC 52). Arguably the High Court has been persuaded to stray from legal principle and if the decision stands, it could have a far-reaching impact on the charitable sector. An appeal is to be heard in the Court of Appeal in March 2020.

The case involves the New Zealand based congregation of the Church of Jesus Christ of Latter-day Saints (“the Church”). Young members of the Church congregation apply to become missionaries overseas. These members commit to raising a ‘standard amount’ which goes to the Ward Missionary Fund (WMF), which is used by the local Church to fund missionaries from overseas visiting New Zealand. New Zealand congregation members on overseas missions are funded by the local congregation that they visit. The donations to the WMF in this country are applied entirely at the Church’s discretion and do not fund the missionary’s work of New Zealand congregation members.

The International congregation of the Church of Jesus Christ of Latter-day Saints has approximately 70,000 missionaries worldwide in 2019. About 450 are in New Zealand, and 300 from New Zealand congregations are on mission trips outside this country.

The relationship of the donor to the missionary, and its impact on the tax deductibility of the payments to the WM, were at issue. A young missionary was trying to raise the ‘standard amount’ with the assistance of her family and friends. Justice Hinton considered that the deductibility of gifts would depend on the relationship between a donor and the done and the benefit that could be expected to arise to the donor because of that relationship. Her Honour considered the following classes of donors:

  1. the missionary;
  2. a parent or legal guardian of the missionary;
  3. grandparents of the missionary;
  4. siblings of the missionary;
  5. a more distant relative of the missionary, such as a cousin, uncle or aunt; and
  6. a church member unrelated to the missionary, such as a friend of a missionary or a member of the missionary’s local ward.

Both Counsel referred to the Court of Appeal decision in Mills v Dowdall [1983] NZLR 154 which defined a gift. In Dowdall, Cooke J stated that a gift was something truly gratuitous - there should be no consideration for, or expectation of, personal benefit from the gift. Counsel for both parties therefore contended that it is the substance and reality of the transaction that must be considered. However, the characterisation of the substance saw Counsel part ways.

The Commissioner submitted that the substance of the arrangement was that the payments made to the WMF were usually required by the Church before the missionary had a chance of being chosen, and these indirectly covered the missionary’s costs.

The Plaintiff asserted that the donations to the Church in New Zealand were going to a general fund, and were therefore equivalent to school donations, for which taxpayers receive a donation rebate. Justice Hinton did not accept that these were analogous circumstances, as she considered the right to free education created the presumption that monies paid by parents were donations. Other donations which may be analogous are not mentioned in the judgment.

Justice Hinton set out the following framework for determining deductibility of a gift:

  • A gift is a voluntary transfer of property owned by the donor to the donee.
  • A transfer will not be a gift if the “donor” anticipates or receives a material benefit because of it (although a minor or purely moral benefit is acceptable).
  • A contractual obligation to make a payment disqualifies a payment as being a gift, however a lack of a contractual obligation does not qualify a payment as a gift.
  • The benefit to the donor must be directly related to the gift.
  • A benefit to the donor can be indirect, though more than purely moral, such as ensuring the education of a child.

Applying this framework, Justice Hinton noted that the payments were, at least in the first instance, voluntary. However, The Judge broke the question of benefit into two components:

  1. Is there a sufficient link between the standard payments and the payment of a missionary’s essential expenses overseas?
  2. If so, is there a benefit to the different categories of donor as a result of payment of those expenses?

Justice Hinton took care to note that the scheme was not a sham. Instead, she characterised the payments as being required before the missionary could gain the overseas experience they and their families wanted. She then went on to note that ‘the benefit of having travel, accommodation, food and other personal expenses paid [while overseas] is not nominal’. On that basis, Her Honour found that payments to the WMF fund by a prospective missionary’s close family were not gifts. The anticipated benefit to the family lay in facilitating the missionary to carry out their mission, despite there being no overt link between the expenses related to that and the payments made to the WMF.

Justice Hinton considered payments by the parents or grandparents of the missionary to the fund were not gifts. She found that they benefit by ‘seeing their “child”, who while no longer a child is still engaged in life education, being able to travel, live overseas, and experience being a missionary abroad.’ Grandparents and parents were too closely invested in the missionary’s success, and stood to personally benefit as a result. By contrast, payments by other relatives and friends are gifts, because the benefit to them was not more than the acceptable de minimis – it was a “pure moral benefit”.


Several aspects of this judgment are perplexing and, with respect, this author considers it has been wrongly decided. The chief concern is that an analysis of the strict legal relationships between the relevant parties has been set aside in favour of factual conclusions argaubly not adequately supported by the evidence. The requirement for there to be no consideration or expectation of personal gain should be determined having regard to the legal rights and obligations of the parties. If this was not a sham, as the Judge held, then the parents of a prospective missionary had no right to expect their child to be nominated to serve. Moreover, the legal limits on the application of funds donated by them to the Church in New Zealand meant that there was no link between what was paid in New Zealand and what was received by a missionary from this country who was supported overseas. Yet Her Honour found that there was a benefit received in return for the payments to the Church in NZ.

The case can be contrasted with the 1990 US Supreme Court decision in Davis v United States in which a unanimous Bench held that gifts directly to missionaries of the Latter Day Saints were not charitable gifts to the church and, to be so, they had to be made to the church body itself or to a foundation that allowed the funds to be applied to the needs of the church. In short, the purpose of supporting an individual missionary, especially if related to the donor, did not make that support a gift to the Church, even though the donor was motivated by wanting to support the Church is a general way. The converse seems to have been exactly what was happening in the instant case and no doubt the Church response here reflected the lessons of Davis.

The decision by Justice Hinton seems to be based on what motivates a payment, not the purpose for which the payment is made. If the purpose of the payment, correctly construed, is to support the Church, then the payment ought to be treated as a charitable gift. It ought not to matter that there are personal motivations for the payment, no matter how telling they may be.

Once the legal purpose for a donation is carefully considered, some of the very difficult issues this judgment could raise recede. If the legal purpose for which money was donated by a family was not, and could not be, to procure appointment of their relative as a missionary, to support that relative in missionary work overseas or to relieve the family of having to support the missionary at home, but was to aid the general support of missionaries in New Zealand by the Church, that ought to have been the end of it.

Analysing motivation to identify any “strong expectation of a material reciprocal benefit” leads to very difficult and confusing line-drawing. Consider a donor to an art gallery. At a small level, say $100, the donor may receive nothing from the gallery, and qualify only for the usual tax credit. At a higher level, say $10,000, the gallery might offer to put the donors name on a wall and invite them to event launches. It might be well understood that this is the usual recognition when large donations are made. Would this disqualify the gift as a tax deduction? What about the philanthropist who kicks in a sizeable donation to the construction of a new gallery? If that philanthropist has a strong expectation that the gallery will bear his name one day, does that disqualify the donation for tax deduction purposes or force an artificial alternative of business sponsorship if that is available?

While Justice Hinton noted that this is a highly fact specific case, the decision could have wide-reaching impacts on the charitable sector. Encouraging donation through some level of personal benefit is incredibly common – from a daffodil pin on Daffodil day, through to the renaming of a building. But the motivation for a gift is not the basis on which the Courts should determine if a donor receives consideration or a benefit. The consideration or expectation of benefit must arise from the legal rights and obligations connected with the purported gift for it to be nullified as such.

The Court of Appeal has confirmed that the appeal in this case will be heard on the 17th and 18th March 2020. It is hoped that the Court reverts to an analysis of purpose and not an analysis of motive.

© G D Clews, 2019


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