Hester v The Commissioner of Inland Revenue
[2004] NZCA 311
•14 December 2004
IN THE COURT OF APPEAL OF NEW ZEALAND
CA6/04
BETWEENJAROD PETER HESTER, PAUL COWARD, IAN SIDNEY ARDERN, RENWICK KALEI DECAIRES, DAVID THOMAS LEONARD WALMSLEY AND DAVID TE MAO ONEKAWA
Appellants
ANDTHE COMMISSIONER OF INLAND REVENUE
Respondent
Hearing:21 July and 1 September 2004
Court:Hammond, William Young and Chambers JJ
Counsel:W Akel and L M Kelly for Appellants
B A Corbett and B J R Keith and T J Hutchison for Respondent
Judgment:14 December 2004
JUDGMENT OF THE COURT
The appeal is dismissed. The Commissioner of Inland Revenue is awarded costs of $6,000 together with disbursements (including travelling and accommodation expenses if any) to be agreed and, in default of agreement, to be fixed by the Registrar.
REASONS
Hammond J [1]
William Young and Chambers JJ [15]
HAMMOND J
[1] I agree with William Young and Chambers JJ that this appeal should be dismissed.
[2] However, given the importance of the case to the practical affairs of churches in New Zealand I wish to add a few comments as to where the line, generally, is to be drawn in relation to what could, for convenience, be termed charitable trusts for “vicars”.
[3] The general issues raised by this case have to be seen, I think, not just in a pure taxation context (although that is how the case has arisen).
[4] The place to start is by recollecting that the thesis that lay behind the Statute of Charitable Uses (1601) Eng c4, from which so much of our charities law derives, is that an activity is charitable if it employs private funds in a way which relieves public funds.
[5] The only reference to religion in that statute was to “repairs” for churches. From that point, courts worked “outwards” by accepting that such things as the provision of church furnishings and vestments, the maintenance of churchyards, and like matters, were charitable. And, it did not take all that long for it to be accepted that it was not only gifts for the Established Church which were valid. Certainly by the 19th century, the cases were clear that religious toleration required that all religions were to be treated impartially.
[6] In that very appropriate recognition however lay the seeds of a contemporary dilemma: given the very considerable concessions made to charities, and given much contemporary agnosticism and even seeming indifference in many quarters to religion, what is it that today supports the concession in favour of religious charities, and more particularly, where are the edges of this head of charity to be drawn?
[7] The answer to this is one of considerable difficulty, and presently turns on an element of faith of its own kind. As an English Judge put it, “As between different religions the law stands neutral, but it assumes that any religion is at least likely to be better than none” (Neville Estates v Madden [1962] Ch 832 at 853 per Cross J).
[8] I make these points here simply to indicate that any endeavour to distinctly extend the bounds of the concessions afforded by the law to “religious” charitable trusts today raises very real issues both of doctrine, and public policy.
[9] Against this background I think the present case can be shortly disposed of. The position in the United Kingdom, Canada, Australia and this country has, for many years now, been that gifts on trust for the support of active, and also retired, ministers of religion are charitable. And the privilege of charity was not confined solely to the direct support of the clergy - if the gift helps, even indirectly, to support the clergy that was enough. (See Picarda, the Law and Practice Relating to Charities (1977) at 61, and the authorities there cited.)
[10] Where things began to get much more difficult was when the modern notion of pension funds - which may well have contributory elements, collateral private benefits, and distinct taxation consequences - started to come into being. For instance, by early last century, in Jones v St Stephen’s Church (1910) 4 NB Eq 316 Barker CJ had begun to express some reservations in this subject area. The Chief Justice had in front of him a legacy relating to “the Aged and Infirm Ministers’ Fund” of a particular Canadian Presbyterian Church. His Lordship observed that the scheme of the Presbyterian Church of Canada “serves the same purpose for the Ministers of the Presbyterian Church that the Civil Service Superannuation Act does for the civil service officials and similar organisations maintained in connection with the larger banking institutions of the present day do for their officers and clerks” (at 323). The particular pension scheme was contributory on the part of ministers; the offerings of the faithful were added to that fund. As it transpired, the Chief Justice found that the particular fund did not take effect by way of trust. He did not therefore have to venture into the difficult area of the classification (as a charity) of pension type funds for ministers. But at some point the argument which was open in strict logic, that a superannuation fund operated for “employees” of this character can be a religious charity, was always going to rub up against the revenue statutes.
[11] I regard Presbyterian Church Fund of New Zealand v The Commissioner of Inland Revenue [1994] 3 NZLR 363, which is fully canvassed by my colleagues in this case, as being very much at the outermost limits of the existing doctrine. In the simplest terms, the New Zealand Presbyterian Church had created a Beneficiary Fund for the benefit of retired ministers of the church. Heron J held that benefiting the members of that fund, being retired ministers, was not merely an incidental purpose of the fund. It was a primary purpose, and that purpose, looked at in the overall context, was a charitable one. The Commissioner may well have thought that the case was on the cusp, so to speak, in electing not to carry that case on appeal to this Court at that time.
[12] For myself, in the context of the present development of the law of charities - and bearing in mind that that body of law is also being closely looked at at this time in Parliament, and possibly also by the Commissioner - I would not be minded to overrule that decision, even if it were procedurally appropriate to do so, by a side wind as it were.
[13] That said, it seems to me that what is important is to appreciate just how far beyond the Presbyterian Church case the instant case is. To put it shortly, the position taken by the appellants distinctly overreaches. To say, for instance, that gardeners, clerical workers or cafeteria workers who are also Temple Workers should come within this rubric (notwithstanding the sincerity of their personal beliefs, and their dedication in pursuing them) simply goes too far.
[14] It follows that, in my view, the scheme under consideration is well beyond the existing doctrine for an allowable religious charitable trust - it is too broadly conceived as to the persons who can come within it - and on that basis alone the present appeal should be dismissed.
WILLIAM YOUNG, CHAMBERS JJ
(Given by William Young J)
Table of Contents
Para No
Introduction [15]
The background [18]
The relevant legislation [36]
The issue [46]
The leading authorities [48]
The approach of O’Regan J in the High Court [66]
The case in this CourtThe arguments when the appeal was first heard [71]
Further submissions [74]
The application by the New Zealand Anglican [76]
Church Pension Board for leave to intervene
OUR APPROACH TO THE CASE [81]
Should we overrule the Presbyterian Church Fund case?
The merits of the Presbyterian Church Fund case [82]
The broader tax context [88]
Evaluation [93]
Was O’Regan J right to distinguish the Presbyterian
Church Fund case?
The argument for the appellants [94]
The arguments for the Commissioner [97]
Evaluation [98]
ARE THE PROVISIONS IN THE PLAN DEED AS TO EMPLOYEES
OF ASSOCIATED EMPLOYERS FATAL TO THE APPELLANTS’ CASE?The argument for the Commissioner [109]
The argument for the appellants [112]
Evaluation [114]
Result [117]
Introduction
[15] The appellants are the trustees of The Church of Jesus Christ of Latter-day Saints (“the Church”), Deseret Benefit Plan for New Zealand (“the Plan”). The Plan is a defined benefit and contributory superannuation scheme providing retirement income for employees of the Church. The appellants claim that the income of the Plan for the 2001 tax year is exempt from income tax on the ground that the Plan is a “trust for charitable purposes” within the meaning of s CB 4(1)(c) of the Income Tax Act 1994. The Commissioner of Inland Revenue (“the Commissioner”) does not accept that the Plan is a “trust for charitable purposes” and thus denies that its income is exempt from tax.
[16] In a judgment delivered on 25 November 2003, and now reported at (2003) 21 NZTC 18,182, O’Regan J found in favour of the Commissioner.
[17] The appellants now appeal.
The background
[18] We have taken the background to the case largely from the judgment of O’Regan J.
[19] The Church was first established in New Zealand about 150 years ago and presently has approximately 90,000 members.
[20] The Church does not have paid ministers. Rather, it has a system of “callings” under which members are called upon to perform certain roles, including ecclesiastical functions. Callings involve teaching, administration, clerical duties and leadership. In addition, the Church seeks to share the gospel with the wider community through missionary work.
[21] The Plan was established by a trust deed dated 24 October 1984. The deed establishing the Plan has been amended and currently the provisions of the Plan are set out in a deed dated 11 September 1997. That deed, as subsequently amended, is referred to in this judgment as the Plan Deed. The Plan Deed provides that the Corporation of the President of the Church of Latter-day Saints International Benefits Committee (IBC) has the power of appointment and removal of trustees, and must approve certain specified actions. This gives it considerable control over the Plan.
[22] The Plan presently covers those employed by the Church Trust Board and Church College. We will refer to employees of both as “Church employees”. In 2001, these two employers had a total of 196 employees who were eligible to join the Plan because they worked more than 30 hours per week. Of those, 153 or 78% were members of the Plan.
[23] The Plan Deed provides not only for contributions by employees under the defined benefit part of the Plan, but also for voluntary contributions by employees from their salaries on which interest can be earned. There is no limit on such contributions (ie theoretically 100% of salary could be contributed, although there is no evidence that anything like that happens). The employer is required to provide subsidies equal to two-thirds of the contributions. In the year ended 31 March 2001, total contributions were about $280,000 from salary (for the defined benefit part of the scheme) and about $247,000 from voluntary contributions.
[24] There is provision for the admission to the Plan of an “Associated Employer” but none has in fact been admitted.
[25] Church employees are, or have been, engaged in the following areas of activity:
(a)The Church’s Administration Centre at Takapuna;
(b)Church College, Hamilton; and
(c)Church Temple, Hamilton.
[26] The Church's Administration Centre at Takapuna was, at the relevant time, the centre of the overall administration of the Church’s operations in New Zealand, and had responsibilities which included:
(a)Administration of the development, design and construction of new chapels, building additions and renovations;
(b)Property management, including supervising the maintenance and cleaning of all chapels and church facilities and the purchasing of real estate sites to accommodate future growth;
(c)Accounting for all donations and the maintenance of membership records; and
(d)Temporal support for all church programmes.
[27] After the 2001 tax year, the Centre for Administration of the Church shifted to Australia, and the Administration Centre became responsible for the administration of the Church’s operation in various Pacific Island countries.
[28] Of the 60 staff members working in the Administration Centre who were eligible to join the Plan, 47 (78.3%) were members of the Plan. These included the regional manager for temporal affairs, the human resources administrator, architectural and draughting personnel, IT staff, secretarial and clerical staff, finance and accounting personnel, facilities management personnel, purchasing officers and fleet administration officers.
[29] Church College is a private secondary school, owned, run and financed by the Church. It has approximately 700 pupils of whom around 200 are boarders. Church College is a registered secondary school and eligible to receive the independent schools’ grant from the government, but it does not accept that grant which would yield about $1.6m.
[30] The school teaches the national curriculum and also provides religious education to its students. Religious studies is a compulsory subject and in addition, the school has a weekly devotional led by students, and a daily prayer before the first period of each day. The 200 boarders at the school worship in facilities on the College’s campus, and the staff provide ad hoc religious guidance and mentoring to students as required. A very high proportion of the male students who leave the College go on to do missionary work. Former pupils of the school are disproportionately represented in the senior office holders in the Church.
[31] All staff are members of the Church (apart from one who was hired some 30 years ago) and teachers are seen as role models for students and are requested to exemplify Church principles.
[32] During the 2001 tax year, 103 staff at the College were eligible to be members of the Plan. Of those, 84 (81.5%) were members. Non-members tend to be non-teachers who are not employed for long periods at the school, and most teaching staff join the Plan as soon as they join the school. The Plan provides financial security for the staff which means there is a disincentive for staff to leave and seek another job and, perhaps associated with this, there is a very low turnover rate among staff of the College.
[33] Many of the staff of the College who are members of the Plan are teachers, but so too are many other personnel, including co-ordinators, secretarial and administrative staff, catering staff, carpenters, an electrician, a nurse, security staff, the registrar, custodians, record officers, the laundry head, the librarian and the principal himself.
[34] The Temple is the most sacred place that the Church has in New Zealand. It was opened in 1958. In keeping with the sacred nature of the Temple, Church members who have obtained a “Temple recommend” and thereby shown themselves to be “Temple-worthy”, are allowed to enter all parts of the Temple. The Temple complex is substantial and includes apartments for those visiting the Temple, and a visitor centre. It receives some 70,000 visits per year. All of the Temple staff are required to be Church members and must be Temple-worthy.
[35] In 2001 the Temple had 33 employees eligible to join the Plan, of whom 22 or 66.6% were members. The Plan is seen as a “useful incentive” for those who are considering working at the Temple and committing themselves to working for the Church. The employees engaged at the Temple include an apartment manager and assistant manager, gardeners, security guards, clerical workers, custodians, engineers, clothing and cafeteria workers and the Temple recorder himself.
The relevant legislation
[36] Section CB 4(1)(c) of the Income Tax Act exempts from income tax:
Any amount derived by trustees in trust for charitable purposes or derived by any society or institution established exclusively for charitable purposes and not carried on for the private pecuniary profit of any individual, … .
[37] The term “charitable purpose” is defined in s OB 1 of the Act as follows:
In this Act, unless the context requires otherwise, “charitable purpose” includes every charitable purpose, whether it relates to the relief of poverty, the advancement of education or religion, or to any other matter beneficial to the community.
[38] Two possible construction issues arise out of the language of s CB 4(1)(c):
(a)Do the words “established exclusively for charitable purposes” apply to “trust for charitable purposes” as well as “any society or institution”?
(b)What is the significance of the words “and not carried on for the private pecuniary profit of any individual”?
[39] Both questions were addressed by Heron J in Presbyterian Church of New Zealand Beneficiary Fund v Commissioner of Inland Revenue [1994] 3 NZLR 363 (albeit in relation to s 61(25) of the Income Tax Act 1976, which corresponded to s CB 4(1)(c)). Later in this judgment, we will be making extensive reference to this case which was heavily relied upon by the appellants. For present purposes, it is sufficient to note that the case concerned the question whether a superannuation scheme for Presbyterian ministers was a trust for charitable purposes.
[40] Heron J addressed the first of the two questions at 368 of his judgment:
… A preliminary point … is whether in subs (25) the words “and not carried on for the private pecuniary profit of any individual” are words applicable to both categories of derived income referred to in the opening words of subs (25). Historically I was informed that the earlier sections contained a comma, which would put the point beyond any doubt, that comma coming after the word “purposes” where first used in subs (25). To apply the additional words pertaining to “private pecuniary profit” to the first situation creates a grammatical difficulty. The words would then read “income derived by trustees in trust for charitable purposes . . . and not carried on for the private pecuniary profit of any individual.” “Carried on” would appear to more happily pertain to the words “society or institution established” than to the words “in trust for charitable purposes”. In Auckland Medical Aid Trust v Commissioner of Inland Revenue [1979] 1 NZLR 382 Chilwell J in respect of an earlier like provision doubted that the private pecuniary profit words did apply. …
[41] We are of the view that the first of the questions should be answered in the negative; this both for the reasons referred to by Heron J and because of the double use of the word “derived”.
[42] The double use of the word “derived” also means that the words “and not carried on for the private pecuniary profit of any individual” do not apply to “trusts for charitable purposes” and are thus not directly relevant to the issues which arise in the case. We note, however, that these words were considered by Heron J in the Presbyterian Church Fund case. Because of the possible contextual significance, it is appropriate to refer to Heron J’s approach.
[43] At 368-369, Heron J said:
… The words “private pecuniary profit” have not I am told been the subject of judicial interpretation, although Chilwell J inclined to the view that the existence of a charitable purpose would of itself exclude any element of private or pecuniary profit. He said at p 385:
“It was conceded by Mr Bridger that there was no element of private pecuniary profit for any individual. Accordingly it is not necessary for me to decide whether the concluding words of each subsection apply to trusts as well as to societies and institutions. This issue was left undetermined by Wilson J in Calder Construction Co Ltd v Commissioner of Inland Revenue [1963] NZLR 921, 926.”
And at p 398:
“There is no element of private pecuniary profit in this case. If the closing words of s 86(1)(n) and s 86(1)(o) apply (and I doubt if they do) any requirement that the income or the business be held or carried on in trust for charitable purposes of itself excludes any element of private pecuniary profit. This exclusion does not mean that individuals may not benefit indirectly through the operations of a trust. Those who have commercial dealings with a trust or who are employed by it may benefit in a broad sense. ... To lose its charitable status the trust must have as one of its objects the benefit of individuals with surplus income and/or capital being applied for their benefit.” (Emphasis added.)
[44] Heron J returned to discuss the point later in his judgment (at 376):
… If one accepts the well-stated proposition that individuals may nonetheless benefit directly in the course of undertaking a charitable purpose, then it seems those words have to create something more than mere receipt of financial benefit or profit. “Private” in this context connotes personal without any overriding characteristic which is public. But I think a proper analysis of the reasons for the fund show its public benefit related to the advancement of religion. The cohesive quality of a retirement fund for persons undertaking a lifetime commitment in circumstances of financial sacrifice for the advancement of religion deprive this Fund of a predominantly private or individual nature. Pecuniary these retirement benefits must be. The word simply means pertaining to or of money. The word “profit” adds nothing because undoubtedly profit of a kind is the result of what is carried on here. The individual minister profits on receipt of the annuity by receiving more than he or she paid to the Fund.
I think Mr McKay is correct in saying that to give a proper interpretation to the words “charitable purposes” in s 61(25) an interpretation must be found which permits the endowment of an office or position (or more than one) without that endowment being held to be non-charitable. That can be achieved by ensuring the predominant purpose of the Fund is overall charitable and individual benefits a subsidiary part. I think the use of the word “private” underlines that approach and I consider that what has occurred with this Fund does not constitute a private pecuniary profit of any individual as those words are to be construed in the section. I think Mr McKay is correct in suggesting that the addition of those words was not designed to fundamentally affect the law as to charities. …
[45] Any application of funds by a charitable trust is likely to be for the private pecuniary profit of someone. For instance, an endowment intended to fund the erection of a building for a school is likely to produce a pecuniary profit for the builder. It is, nonetheless, charitable. Likewise, as Heron J pointed out, an endowment directed at the funding of a particular ecclesiastical position is necessarily for the pecuniary benefit (and in a sense profit) of the holder for the time being of that position. Yet such an endowment is nonetheless charitable.
The issue
[46] There is no dispute that the Church is an organisation which advances religion, and indeed, The Church of Jesus Christ of Latter-day Saints Trust Board, established under the Church of Jesus Christ of Latter-day Saints Board Empowering Act 1957 (the Church Trust Board), has the benefit of charitable status.
[47] The real issue on this appeal is whether the Plan can be regarded as being a trust for charitable purposes.
The leading authorities
[48] The authorities most closely on point are the decisions of MacDermott J in Baptist Union of Ireland (Northern) Corporation Ltd v Commissioners of Inland Revenue (1945) 26 TC 335 (High Court of Northern Ireland, King’s Bench Division) and Heron J in the Presbyterian Church Fund case.
[49] For reasons which we are going to discuss later, we consider that we should decide the present appeal in a way which closely follows existing precedents. For this reason, we propose to refer to and cite extensively from both decisions.
[50] The Baptist Union case concerned the Baptist Union of Ireland Annuity Fund, the object of which was to provide annuities for its members and their widows and orphans. The annuity fund was administered by a committee of the Union, and its income was derived partly from subscriptions of beneficiary members and partly from voluntary donations. Membership was open to members of the Union who were pastors of churches within the Union, evangelists under the direction and control of the Union, missionaries of the Irish Baptist Foreign Mission directly sent out by the Union, the secretary of the Union and full time principals or tutors of the Irish Baptist College. Any person who had been a member for three years was entitled to an annuity on relinquishing office, or after attaining 65 years of age, or on earlier permanent incapacity. The widow and children of a member were entitled to benefits immediately on the member’s death, irrespective of length of membership.
[51] The rules of the Fund made provision for subscriptions to be made by members but in fact only about 20% of the payments into the fund between 1902 and 1940 came in the form of members’ subscriptions. As well, as a result of the generosity of a Mr Alexander McCay, money was made available to pay subscriptions which would otherwise have been the responsibility of members.
[52] The statutory background to the law of charities in Ireland differs somewhat from that which is applicable to our law as there is a statute of Charles I which provides specifically that the maintenance of ministers is a charitable purpose. This was referred to by MacDermott J in a passage from his judgment which we are about to cite. We are satisfied, however, that such a purpose is also charitable under New Zealand law, see for instance Warburton and others, Tudor on Charities (9ed 2003) at [2-052] where gifts for “the benefit of the clergy” or to “the holders of religious office” are treated as being “for religious purposes”.
[53] At 347, MacDermott J identified two questions as requiring determination. The first was:
… [W]hether [the Fund’s] purposes were all prima facie charitable. …
The second was:
… [W]hether, if such were the case, the charitable complexion was effaced by the constitution of the Fund and, in particular, by what was called its mutual benefit character. …
[54] On the first question, we see the following passages from the judgment of MacDermott J (which appear at 348-350) as relevant:
First, then, as to the benefits payable to members of the Fund. They belong to a class consisting of those who, whether as pastors, missionaries, teachers or office-bearers, all endeavour to advance the cause of the Christian religion in accordance with the basis of doctrine adopted by the Baptist Union. Had the purpose of the Fund been to supplement the stipend of such persons during their active ministry there could not, in my opinion, be any question as to its charitable nature. It would come within that part of the Statute of Charles which speaks of “the maintenance of any Minister and Preacher of the Word of God”; and apart from this, the maintenance of ministers and teachers of religion as such, has, I think, always been regarded as charitable since the word acquired a legal meaning.
… The main argument of the Appellants … urged that provision for the superannuation of retired or disabled ministers of religion promoted the advancement of religion in that it (a) removed a natural anxiety from the minds of those on active duty, thus enabling them to devote the whole of their time and their full energies to the work of the church; (b) tended to encourage recruitment, and (c) made for a more effectual ministry by facilitating retirement when the weight of years or physical infirmity made efficient service no longer possible.
Now in weighing an argument of this sort one must be alert not to reckon consequences which, however worthy, are remote or merely incidental – see Attorney-General v. Haberdaskers’ Co., 1 My. & K.420, at page 427, per Lord Brougham, L.C. But on the other hand it has, I think, to be borne in mind that the charitable purpose of a trust is often, and perhaps more often than not, to be found in the natural and probable consequences of the trust rather than in its immediate and expressed objects. Thus, a gift to augment the stipend paid by a congregation is charitable, not because it meets the material needs of its minister for the time being, but because by providing for his maintenance it enables him to perform his clerical office and advance religion among the members of his congregation; and similarly with the repair of a church or the building of a school. On the cases it is permissible to look some distance beyond the expressed objects for the purpose of seeing where they lead. The trouble, as ever, is to draw the line in the right place and distinguish between what is and what is not too remote. Having given the best consideration I can to the authorities I have come to the conclusion that the contention of the Appellants on this point cannot be rejected without ignoring the definite trend of judicial decision.
…
… I am asked to apply the argument already considered in respect of members and to say that the provision which the Fund makes for their widows is, on similar if not identical reasoning, for the advancement of religion. There was not cited nor have I succeeded in finding any authority offering direct guidance on this point. It is one of some difficulty; but if I am right in the view I have formed regarding the benefits conferred on members, I think it is hard to put the benefits conferred on their widows in a different category. The existence of such benefits may well encourage recruitment for the Baptist ministry ... . In addition, it seems to me impossible to ignore the probable effect of such provision on married members during the period of their active work in the furtherance of religion. Not only will it “ease the minds of those actively engaged in the ministry” … but it will assist in easing their pockets of the full monetary burden which the discharge of what is, after all, an elementary moral obligation would otherwise entail, thereby enabling them to devote their time and resources more completely to their clerical duties. I think the provision made by the Fund for the benefit of widows falls within the spirit of the statutes, and I therefore hold that this purpose of the Fund is prima facie charitable as well.
On the same ground, and also because the “education and preferment of orphans” is within the Statute of Elizabeth, I hold that the purposes of the Fund in so far as they benefit the orphans of members are prima facie charitable. …
I therefore reach the conclusion that the purposes of the Fund, i.e., the provision of annuities for its members, their widows and orphans, are all prima facie charitable. I may add that while this view cannot be vouched by reference to authority covering all the three aspects it embraces, I have not found reason to think that it conflicts with judicial or professional opinion on the subject. …
[55] MacDermott J started his consideration of the second question at 351:
I now turn to the second aspect of the question. Is the nature of the Fund such as to rob its purposes of this prima facie character so that, in point of law, they are not charitable? Counsel for the Respondents contended vigorously that this question should be answered in the affirmative. … Their submissions were directed to what was described as the commercial nature of the Fund. They said that in substance it was all a matter of mutual benefit which savoured of bargain rather than bounty; and they emphasised that the rules evidenced a business-like contract binding the members, and that the payments thereunder were payments “as of right” so far as the moneys available permitted. …
Mr. Curran for the Respondents … put his submission in the form of a general proposition which was expressed thus: “Where a body of persons pay subscriptions to a fund and obtain benefits therefrom under a contract which entitles them to such benefits as of right, then, in law, and irrespective of whether or not the fund is augmented by voluntary donations or the benefits considered by themselves are charitable in nature, such a body of persons are not established for charitable purposes only and the fund is not applicable to charitable purposes only.”
[56] MacDermott J then referred to a series of cases dealing with the charitable status of friendly or mutual societies: Re Clark’s Trust (1875) 1 Ch D 497, Spiller v Maude (1881) 32 Ch D 158, Pease v Pattinson (1885) 32 Ch D 154, Cunnack v Edwards [1896] 2 Ch 679, Re Buck, Bruty v Mackey [1896] 2 Ch 727, Re Lacy, Royal General Theatrical Fund Association v Kydd [1899] 2 Ch 149, Braithwaite v Attorney‑General [1909] 1 Ch 510, Grand‑Lodge of Masons of Scotland v Commissioners of Inland Revenue (1912) 6 TC 117 and Commissioners of Inland Revenue v The Society for the Relief of Widows and Orphans of Medical Men (1926) 11 TC 1. These cases dealt with mutual benefit funds where those who stood to benefit also contributed. Sometimes this was seen as inconsistent with charitable status (see for instance Cunnack v Edwards) but the drift of the cases as a whole is that such features of a scheme can be consistent with charitable status.
[57] Having referred to these cases, MacDermott J asked, at 356:
… What, then, is the element in these cases of mutual or contractual benefit which will serve to distinguish the real from the pseudo charity?
[58] He answered that question in this way (at 356-357):
To ask whether the “charity” is public or private will not give the answer, save in instances where the two questions [ie those identified in [53] above], which are quite different, overlap. Then there are the dicta suggesting “bargain or bounty” as a test. That, however, is not a very precise test, as I think the cases show that the existence of a contractual or bargaining element between the management of a fund and its beneficiaries will not necessarily prevent the purposes of the fund from being truly charitable. Again, it has been suggested that if a beneficiary’s contract secures him a benefit “as of right” instead of what someone else may think fit to give him, the fund providing the benefit cannot be charitable. This “as of right” element may be a useful circumstance in ascertaining the legal position in given cases, but I cannot regard it as conclusive test of general applicability. I find it difficult to see any distinction between (i) a contract whereby A in certain events is entitled to receive an annuity of a specified amount if funds permit, and (ii) a contract whereby A is entitled to receive such sum as B in the bona fide exercise of a discretion shall think proper, which is sufficiently fundamental to rank as more than a matter to be taken into account. I think the authorities support that view, and I think they also show that the existence of an element of voluntary bounty in the composition of the trust fund is not in itself necessarily conclusive.
I doubt if there is any single factor which can invariably settle the matter. I think what one has to do in these cases is to regard all the relevant facts, relationships and characteristics which the trust exhibits or implies and then to see whether or not, when duly marshalled and weighed, they reveal the presence of whatever is the mark of the truly charitable purpose. Thus, in cases such as this, it will be material to consider such matters as, for example, the terms of the contract binding the beneficiaries; the composition of the fund from which benefits are payable; whether the benefits are “as of right” or discretionary, and whether the beneficiaries control the fund or are merely attached contractually to a management in which they play no effective part. A survey of this sort, however, will not take one very far unless whatever marks the genuine charity can be identified. In searching for this in cases of the type under discussion – the so-called mutual benefit cases – it is unnecessary to explore all the attributes of a legal charity, as one is dealing with what is prima facie charitable. What one wants to find is how far the promotion of the personal interests of contributors to the trust fund can go without destroying the apparently charitable nature of its objects. The authorities present no yard-stick or formula for the purpose, and in the nature of things such could not be expected. But help can, I think, be found in the judgment of FitzGibbon, L.J., In re Cranston, Webb v. Oldfield, [1898] 1 I.R. 431, the case in which the Court of Appeal in Ireland held that vegetarian societies were charitable. In his well-known analysis of the nature of a legal charity, FitzGibbon, L.J., at page 446 of the report; says that one of its essential attributes is that “it shall be unselfish – i.e., for the benefit of other persons “than the donor”. I do not think this means that those who want to found or support a charity must exclude themselves from all benefit under it. I do not think authority supports such a narrow meaning and the words used do not require it. But reading them as I have no doubt they were intended to be read, and regarding them in conjunction with the cases to which I have referred, I am of opinion that the mark or test of what is truly charitable, in the limited field I have described, is that it should be substantially, not necessarily absolutely, altruistic in character. That, I think, is the element for which one must seek. And when the facts are found the conclusion whether or not they manifest that element is a matter of law – Royal Choral Society v. Commissioners of Inland Revenue, 25 T.C. 263.
[59] He concluded by saying (at 357):
… I find myself unable to accept the general proposition enunciated by Mr. Curran. And coming to the circumstances of the Fund itself, I am unable, after considering the rules which state its objects and govern its administration, to find its purposes any less charitable than those of the funds which were the subject of decisions in Spiller v. Maude and In re Lacy, Royal General Theatrical Fund Association v. Kydd. It is true, as I have said, that the charitable purpose here lies in a different category from that of the Royal General Theatrical Fund Association. One is for the advancement of religion, the other for the relief of distress. In my opinion, however, this does not justify a different view of the present case, which, on applying the test I have endeavoured to describe, appears to me to warrant the conclusion that the purposes of this Fund - managed, as it is, by the Baptist Union of Ireland to the exclusion of its membership, supported, as it is, in substantial measure by voluntary donations and aimed, as it is, at the advancement of religion through the benefits it confers on the Baptist ministry – are sufficiently altruistic in character to retain their prima facie nature and so remain charitable and only charitable, in point of law. On principle, then, and on authority I hold, on this branch of the case, that the income of the Fund investments is applicable to charitable purposes only.
[60] The Presbyterian Church Fund case dealt with a superannuation scheme which was primarily for the benefit of retired ministers of the Presbyterian Church and their dependents. The main benefits were annuities to ministers retiring on attaining the age of 60, but there were incidental benefits including lump sum capitalisations, sickness benefits and widows benefits (including children’s and orphans’ allowances). There was also an entitlement to make special grants where members or dependants were deserving of special consideration.
[61] Heron J accepted the importance of the ministry to the operation of the Presbyterian Church. He noted that the ministry is for life, and upon retirement from the parish, pastoral life within the Church does not cease because ministers become “ministers emeritus” and are expected to continue work as ministers but without direct responsibility to a parish. He accepted that the calling to the ministry in the Church was a lifelong commitment. He saw the beneficiary fund as a form of reciprocation of this lifelong commitment because it implied lifelong support to the minister from the Presbyterian Church, which was a matter of great importance to candidates for the ministry.
[62] Referring to the trust deed, Heron J, at 370, said:
… I think the document goes far enough on its face to demonstrate its charitable purposes. The Fund is controlled by a committee appointed by the governing body of a Church. It is manifestly aimed at a group who belong to the Church. I would have thought that on its face its charitable purposes can be derived. On the authority of Baptist Union of Ireland (Northern) Corporation Ltd v Commissioners of Inland Revenue (1945) 26 TC 335 referred to later in any event one is entitled to look at the purposes in terms of the natural and probable consequences rather than its immediate and expressed objects. Once the nature of the controlling body of the Fund and the identity of the members in it are revealed as a Church or members of it advancement of religion as a purpose is prima facie demonstrated.
[63] The Commissioner’s argument to Heron J focused very much on the private nature of the benefits provided for under the superannuation scheme. At 375, Heron J responded in this way:
In my view the Fund is for the benefit of retired ministers and their widows and certain other specific but rarely exercised categories of beneficiary. I have already indicated that in my view, as supported by authority, a fund of this kind which goes to the long-term security of ministers of religion, providing them with appropriate moneys in their retirement, is in the hands of trustees appointed by a mainstream Church undoubtedly charitable as going to the advancement of religion.
Mrs Corbett would distinguish Baptist Union on the basis that the fund there was contributed to by voluntary donations. Ignoring the employer’s contributions which were solely funded by congregations she said they were to be regarded as employer's contributions irrespective of their source. The evidence was that the funds as well as paying the stipend pay the employer contributions and are almost entirely funded by parishioners. Directly or indirectly all contributions to the Fund derive from voluntary donations. Mrs Corbett has isolated direct donations to the Fund in making that submission but that would be to ignore the substance of what has occurred. The fact that the donated funds are directed to employer contributions does not change the essential nature of them as donated funds.
Gallen J applied the principles in Baptist Union in an educational charity case, Educational Fees Protection Society Inc v Commissioner of Inland Revenue [1992] 2 NZLR 115. Counsel were unable to refer me to any case where the authority of the Baptist Church case had been challenged. Funds directed to clergy or retired clergy have been regarded as for charitable purposes so Baptist Union does not stand alone. ... It has been cited with approval in the following cases: Lord Nuffield as Ordinary Trustee of the Nuffield Foundation v Commissioners of Inland Revenue (1946) 28 TC 479; IRCs v Royal Naval and Royal Marine Officers’ Association; Re Stuart’s Will Trusts [1983] NI 283; Educational Fees Protection Society Inc v CIR.
I think it is indistinguishable in any real sense from the facts in this case and I consider it should be applied to the circumstances here.
If I am correct that largely takes care of the commercial character of the Fund which might "efface", to use MacDermottt J's phrase, the charitable purpose. I have already emphasised that it takes its format from a desire to comply with a relevant Act and regulations which are not directed to its liability for tax. None of that robs it of its truly altruistic origins and purposes.
[64] The Commissioner did not appeal against this judgment.
[65] We note, as did Heron J, that in Educational Fees Society v Commissioner of Inland Revenue [1992] 2 NZLR 115, Gallen J held to be charitable a society which was funded by three private schools for the purpose of providing for the ongoing payment of school fees in cases where a parent had died. In reaching this conclusion, Gallen J referred to and followed the Baptist Union case and dismissed the contention that the scheme was analogous to life insurance. The Baptist Union case has continued to be applied in the United Kingdom in determining the charitable status of mutual fund schemes, see Commissioners of Inland Revenue v Royal Naval and Royal Marine Officers’s Association (1955) 36 TC 187.
The approach of O’Regan J in the High Court
[66] In his judgment, O’Regan J described the key difference between the present case and the Presbyterian Church Fund case in this way:
[45] It is clear that the present case is not on all fours with the Presbyterian Church Fund case, because the members of the Plan are not clergy. That is because there are no paid clergy in the Church. It is part of the Church’s theology that ministers of God should not work for hire. It is for this reason that all those employed by the Church undertake non‑ecclesiastical roles in the course of their employment.
[67] He clearly saw the issue as having shades of grey character:
[59] … I accept Mr Willox's submission that it was a feature of both the Presbyterian Church Fund case and the Baptist Union case that members made a lifelong commitment to the Church (even though some of them did not meet that commitment). I also accept the aspect of those cases strengthened the argument that the contribution of members of the relevant schemes were integral to the operation of the Churches and the advancement of religion by the Churches.
[60] Mr Akel argued there was a similar lifelong commitment by employees of the Church in this case. While I accept the dedication of Church employees to the Church involves considerable commitment on their part, I do not believe this can be equated with the situation in the Presbyterian Church Fund case where members were ministers who had undertaken specialised training for the ministry which qualified them only for that role. Many Church employees in this case undertake tasks which involve generalised, secular training, meaning they have transportable skills to non-Church employment.
[68] O’Regan J was not impressed with a technical argument advanced by the Commissioner as to the possibility of employees of Associated Employers becoming members of the Plan:
[56] Mr Willox argued that the trust deed provided for “associated employers” to join the Plan, and said these employers could be purely commercial in nature. While the plaintiffs’ case would be adversely affected by the existence of any such associated employer, the evidence established there were no such associated employers.
[69] He was likewise unimpressed by an argument that the Commissioner had acted in a discriminatory way:
[65] Mr Akel also argued that the assessment was discriminatory because it treated the Plan in a way which was inconsistent with the treatment of the Presbyterian Church Fund. Initially, the issue of discrimination was raised as a separate cause of action. That was abandoned, but Mr Akel said it was still relevant to the assessment question.
[66] I do not accept that submission. The Commissioner is required to make assessments based on the application of the appropriate legal principles to a particular taxpayer. The fact the Commissioner has determined that the characteristics of another taxpayer lead him to a different conclusion in respect of that taxpayer does not mean he is behaving in a discriminatory way. Rather, it means he is recognising what he perceives to be differences between the taxpayer that lead to a different outcome in respect of each of them. If the Commissioner is wrong in that regard, then that is a matter to be dealt with in challenge proceedings brought before the Taxation Review Authority or this Court. The mere fact the Commissioner has made a different assessment because he considers one taxpayer differs from another, does not amount to discrimination and does not affect the assessment.
[70] He concluded by saying:
[68] There are a number of differences between the Plan and the Presbyterian Church Fund which lead me to conclude that the result in this case should differ from that in the Presbyterian Church Fund case. That is an exceptional case, and should not be seen as authority for the proposition that any superannuation scheme controlled by a Church, and established for the benefit of employees of the Church, is charitable. To the extent that the Presbyterian Church Fund case can be said to extend to the income of superannuation schemes relating to Church employees other than ministers who have made a lifelong commitment to the Church, and who undertake an ecclesiastical role in the course of their employment, I would respectively decline to follow it.
[69] In the present case, I am not satisfied there is a sufficient nexus between the benefits provided to the employees of the Church by the Plan and the charitable activities of the Church. In particular:
a)In many cases the activities of the employees could be carried out by contracted staff or employees who were not Temple worthy. In that regard the activities of the employees cannot be said to be essential to the operation of the Church;
b)Although employees do, as part of the callings they undertake, perform key ecclesiastical roles within the Church, that is not done in the course of their employment, and such roles are equally performed by non-employees;
c)The roles undertaken by employees are more transportable to other employment than the role undertaken by specially trained ministers. This means the lifelong commitment referred to in the Presbyterian Church Fund case is less obvious in the present case, because employees retain option to obtain employment elsewhere (notwithstanding the evidence that there may be a mild disadvantage to employees seeking employment in commercial operations outside the Church).
[70] Because of that I conclude that it is not appropriate to equate the charitable purposes of the Church with the purposes of the Plan when applying the “natural and probable consequences” test from the Presbyterian Church Fund and the Baptist Union cases. The purpose of the Plan is to benefit the employees of the Church, and that is a private benefit not consistent with the charitable purpose claimed by the trustees of the Plan.
The case in this Court
The arguments when the appeal was first heard
[71] The argument for the appellants as presented when the case was first argued was comparatively narrow. Essentially Mr Akel contended that O’Regan J had been wrong to distinguish the Presbyterian Church Fund case. He maintained that the nexus between the benefits provided to the employees of the Church by the Plan and the Church’s charitable activities was so great that the purposes of the Plan should be regarded as charitable. Further he argued that ss 15 and 19 of the New Zealand Bill of Rights Act 1990 required an interpretative approach which did not distinguish between religious denominations so as to favour those which operate via paid clergy.
[72] The Commissioner resisted the appeal largely on the basis that the judgment of O’Regan J was right and in part on perhaps technical arguments associated with the ability of the trustees of the Plan to apply income for the benefit of employees of Associated Employers. Mrs Corbett, for the Commissioner, did not seek to challenge the correctness of the Presbyterian Church Fund case.
[73] In effect, the parties presented the same arguments to us as were addressed by O’Regan J in the High Court.
Further submissions
[74] In the course of argument, the members of the Court became concerned whether the Presbyterian Church Fund case had been correctly decided and we invited further submissions on this point.
[75] In response to this invitation, we received further submissions from Mrs Corbett in which she asserted that the Presbyterian Church Fund case was not correctly decided and submissions in reply from Mr Akel who maintained that the case was correctly decided.
The application by the New Zealand Anglican Church Pension Board for leave to intervene
[76] As a consequence of our invitation for submissions as to whether the Presbyterian Church Fund was correctly decided, the New Zealand Anglican Church Pension Board sought leave to intervene.
[77] We heard this application on 1 September.
[78] The material which we received for the purposes of this hearing included the submissions and evidence which the New Zealand Anglican Church Pension Board wished to place before us on the substantive issue as to the correctness of the Presbyterian Church Fund case.
[79] The parties immediately affected by the appeal (that is the appellants and the Commissioner) were content for us to have regard to the submissions put forward by the New Zealand Anglican Church Pension Board as being adopted by Mr Akel as part of his case. We gave the Commissioner the opportunity of filing further submissions in response to those of the Board.
[80] We declined the application for leave to intervene by the New Zealand Anglican Church Pension Board. Given that we were going to consider its submissions anyway, there was no point in leave being granted. Further, had leave been granted it would have had the potential to throw up awkward down-stream estoppel issues. It is right, however, that we acknowledge the quality of the submissions which were put before us and the assistance which we have derived from them.
Our approach to the case
[81] In the balance of this judgment, we will address the case under the following headings:
(a) Should we overrule the Presbyterian Church Fund case?
(b) Was O’Regan J right to distinguish the Presbyterian Church Fund case?
(c)Are the provisions in the Plan Deed as to employees of Associated employers fatal to the appellants’ case?
Should we overrule the Presbyterian Church Fund case?
The merits of the Presbyterian Church Fund case
[82] In her challenge to the correctness of the Presbyterian Church Fund case, Mrs Corbett maintained that:
(a)Heron J (and MacDermott J before him) were wrong to focus on “natural and probable consequences”. Rather, the focus of the inquiry should be on the immediate and expressed objects of the trust. In the Presbyterian Church Fund case, the immediate and expressed objects of the trust were the beneficiaries.
(b)The benefits of the scheme in the Presbyterian Church Fund case were insufficiently public. She noted that a superannuation scheme for teachers would not be for charitable purposes even though trusts for the advancement of education are charitable, cf R v Income Tax Special Commissioners; ex parte Headmasters Conference (1925) 10 TC 73 (KBD).
(c)The cases in which gifts for the benefit of clergy have been held to be charitable have involved outside bounty. In the Baptist Union case the vast bulk of the funds of the Society came from outside donations. In contradistinction, in the Presbyterian Church Fund case, a very significant proportion of the funds of the superannuation scheme came from members. In relation to that proportion, the members were in effect investing their own funds for their own benefit.
(d)On this last aspect of the case, Heron J was wrong to treat contractually required employer contributions made by the Presbyterian Church as being, in substance, donations.
[83] We have no difficulty with the charitable status of a trust intended to meet stipends or other remuneration for ministers of religion. By parity of reasoning, we see provision of superannuation-style benefits for ministers of religion and their families as also being a charitable purpose, cf Re Amelia Bullock-Webster [1936] NZLR 814 (SC). We do not think it matters whether this is because the natural and probable consequences of such provision is the advancement of religion (which was the approach of MacDermott and Heron JJ) or rather on the basis that the support of ministers of religion is itself an established subset of the purposes which are recognised as charitable as relating to the advancement of religion. It is well‑established that unless the contrary is shown, public benefit is to be assumed in cases of trusts for the advancement of religion, see Tudor at [1‑008]. Likewise the element of private benefit for ministers which is often the corollary of trusts for such purposes is obviously not inconsistent with charitable status. So the first two of the points referred to in [82] (which essentially correspond to the first of the questions identified by MacDermott J (see [53] above)) do not concern us. The other two points are, however, more difficult.
[84] If we were to approach the case purely as a matter of principle, we would be inclined to see the Baptist Union case as defensible primarily on the basis that the fund overwhelmingly came from donations. If those donations had been made directly to the Church, invested by it, and then distributed, the investment return derived by the Church pending distribution would have been exempt from tax. In that context it might seem hard to treat the fund as subject to tax merely because of the form of the legal structures which were adopted.
[85] On the other hand, in the Presbyterian Church Fund case, an appreciable portion of the funds held by the scheme came from contributions made by members. As well, “employer” contributions made by the Church essentially as a matter of contract and as part of what could loosely be described as the “employment package” offered to ministers are not easily equated with the donations and bequests which were in issue in the Baptist Union case; this notwithstanding that the stipends paid to ministers were paid from funds which were originally donated. It is hard to see the Presbyterian Church Fund as having the “altruistic” features which in the end moved MacDermott J to hold that the Baptist Union Fund was a trust for charitable purposes.
[86] On that basis, it is well open to question whether the decision of Heron J in the Presbyterian Church Fund was correctly decided.
[87] Before deciding whether we should overrule the decision, it is necessarily to consider the broader tax context.
The broader tax context
[88] For many years, superannuation schemes were exempt from tax. “Lump sum” schemes lost their exemption in 1982 (subject to grandfathering provisions in relation to existing funds). Then, by the Income Tax Amendment Act 1989, there was a radical overhaul of the legislation associated with superannuation schemes. The detail of this is not material for present purposes other than that income generated by superannuation schemes was no longer exempt from tax, pensions became exempt from tax and superannuation schemes were provided with the opportunity to reduce benefits.
[89] In 1989, there were a number of superannuation schemes which were operated for the benefit of ministers of religion. We know about the Presbyterian scheme which was the subject of the judgment of Heron J and have received information as to a similar scheme run by the New Zealand Anglican Pension Board. It appears there were other schemes operated by the Baptist and Methodist Churches.
[90] Prior to 1989, the charitable (or otherwise) status of such superannuation schemes was material for general tax purposes despite the exemption from income tax. We were told that long before the Presbyterian Church Fund case was decided, the New Zealand Anglican Church Pension Board was accepted by the Commissioner of Inland Revenue as being a trust for charitable purposes. It seems likely that the same was true of the similar schemes run by other churches with paid ministers (in particular the Baptist and Methodist Churches).
[91] It is also likely that the attitude of the Commissioner and the stance taken by superannuation schemes associated with churches were very much influenced by the Baptist Union case.
[92] The Presbyterian Church Fund case was, in effect, a test case and its results were treated as being applicable to the New Zealand Anglican Church Pension Board. The submissions indicate that there are a number of respects in which that body has acted on the basis that its income is exempt from tax, most particularly in relation to decisions taken as to benefits, investments policies and the way in which donated funds are dealt with. It is likely enough that the trustees of the schemes associated with other churches have likewise made decisions based on the reasonable assumption that their charitable status was established by the unappealed judgment of Heron J in the Presbyterian Church Fund case.
Evaluation
[93] Given the history to which we have referred, the fact that the Commissioner did not appeal the Presbyterian Church Fund case and the extent to which it has been acted on in ways which would now be hard to unpick, we think it would be wrong to overrule the decision, cf the analogous considerations referred to in Re Manson, Public Trustee v Commissioner of Inland Revenue [1964] NZLR 257 (CA) at 271 and Smout v Commissioner of Inland Revenue [1982] 1 NZLR 154 (CA) at 157.
Was O’Regan J right to distinguish the Presbyterian Church Fund case?
The argument for the appellants
[94] Mr Akel’s fundamental argument was that the benefits provided to employees under the Plan are as closely associated with the advancement of religion under the auspices of the Church as the benefits in Presbyterian Church Fund case were to the advancement of religion under the auspices of the Presbyterian Church. The employees of the Church are essential to its charitable activities. The Plan offers an important recruitment incentive for Church employees providing them with peace of mind which enables them to commit to the work that they do. In those circumstances, the natural and probable consequence of the Plan is the advancement of religion.
[95] He took us through the evidence which pointed to the significance of Temple-worthy employees and he suggested that O’Regan J was wrong to assume that in “many cases” activities of employees could be carried out by contracted staff. He gave examples of activities which could not be carried out by such staff, in particular the performance of functions involving religious teaching, entry into the Temple and the understanding of Church requirements, hierarchies and issues. He noted that all employees must be Temple-worthy and virtually all undertake time consuming callings for the Church. All pay tithes (as opposed to 20-45% of the adult members of the Church).
[96] Relying on ss 15 and 19 of the New Zealand Bill of Rights Act and s 21 of the Human Rights Act 1993, he argued that s CB 4(1)(c) of the Income Tax Act should be construed so as to avoid discrimination. In particular he maintained that according tax benefits for churches with paid clergy discriminated against a church such as the Church which does not operate through paid clergy.
The arguments for the Commissioner
[97] In her submissions, Mrs Corbett referred to the many factual grounds of distinction between employees covered by the Plan in the present case and the ministers covered by the scheme in the Presbyterian Church Fund case. She noted that some of the considerations relied upon by Mr Akel (for instance tithing and the performance of callings) did not only affect employees covered by the Plan. She maintained that there were many activities carried out by employees covered by the Plan which could equally well be carried out by non-Temple-worthy contractors. She denied, as well, that there was any element of discrimination in the approach of the Commissioner or implicit in the legal principles she contended for.
Evaluation
[98] Section 15 of the New Zealand Bill of Rights Act provides:
15 Manifestation of religion and belief
Every person has the right to manifest that person's religion or belief in worship, observance, practice, or teaching, either individually or in community with others, and either in public or in private.
[99] Section 21 of the Human Rights Act provides:
21 Prohibited grounds of discrimination
(1) For the purposes of this Act, the prohibited grounds of discrimination are—
…
(c) Religious belief:
(d) Ethical belief, which means the lack of a religious belief, whether in respect of a particular religion or religions or all religions:
[100] Section 19 of the New Zealand Bill of Rights Act provides:
19 Freedom from discrimination
(1) Everyone has the right to freedom from discrimination on the grounds of discrimination in the Human Rights Act 1993.
… .
[101] Trusts for the advancement of religion are accorded a preferential status denied to trusts for purposes which are not charitable, a status which necessarily involves discrimination of the same general kind as Mr Akel complains about. So it is not possible to avoid discrimination on religious grounds when implementing those aspects of the law of charities which relate to the advancement of religion.
[102] Mr Akel’s submissions addressed to discrimination considerations, however, did have some force. There are a number of references in Heron J’s judgment in the Presbyterian Church Fund case to “mainstream churches”, a description which might or might not be thought to apply to the Church. Obviously it would not be right for the tax system to operate in a way which provides preferences for “mainstream churches” and not for other churches. In that context, we have given anxious consideration to whether it is possible to maintain the distinction drawn by O’Regan J between the circumstances affecting the Plan and those which applied in the Presbyterian Church Fund case.
[103] The Baptist Union case follows on from decisions associated with the charitable status of gifts for the benefit of clergy. The Presbyterian Church Fund decision was closely based on the Baptist Union case and both cases involved schemes which were primarily addressed to providing benefits for retired ministers. In saying this we recognise that in the Baptist Union case and perhaps in the Presbyterian Church Fund case, the possible beneficiaries were not confined to ministers. It is, however, perfectly clear that the dominant purpose of each of the schemes was to provide superannuation style benefits for clergy and, at least in the Baptist Union case, other possible beneficiaries were in a sense analogous to clergy.
[104] The appellants are thus inviting us to extend the underlying principle so as to apply it to trusts for church employees generally. As far as we are aware, there are no cases in which charitable status has been accorded in such circumstances.
[105] Our discussion of the merits of the Presbyterian Church Fund case provides a context which, from the point of view of the appellants, is inauspicious for consideration of the proposed extension.
[106] If the Plan is accorded charitable status, the implications are likely to be serious. Amongst the employees covered by the Plan are teachers employed by Church College. If the provision of superannuation benefits for them by means of a contributory scheme is charitable because they are working for the Church, similar plans for school teachers employed by other church schools would also be charitable. Indeed, given that the advancement of education is a charitable purpose, presumably plans for the benefit of anyone working in the education field would likewise be entitled to charitable status. Arguably the same would apply to plans for doctors and nurses and ancillary staff (whose work is addressed to relief for the “impotent”) and for social workers (who work with “the poor”). Similar status would be likely to be claimed for plans associated with the many other occupations associated with public service. In that context, allowing the appeal is likely to start a ball rolling which, unchecked, would have the potential to dent the income tax system severely.
[107] Although we consider that the Presbyterian Church Fund case is to be followed in relation to church-based superannuation schemes established for the dominant purpose of providing benefits for ministers of religion and their dependents, we see it as anomalous and not to be extended. The factors relied on by O’Regan J amply justified him distinguishing the Presbyterian Church Fund case.
[108] Accordingly, on what was the primary issue in the case, we find for the Commissioner.
Are the provisions in the Plan Deed as to employees of Associated Employers fatal to the appellants’ case?
The argument for the Commissioner
[109] In her submissions Mrs Corbett drew particular attention to the position under the Plan Deed of those employed by an “Associated Employer”. An Associated Employer is defined as:
Any employer which is or becomes directly or indirectly associated in business with or which is or becomes directly or indirectly controlled by the Trust Board or the Church College or such other employer or bodies the Trust Board or the Church College may decide.
[110] Relying on Latimer v Commissioner of Inland Revenue [2004] 3 NZLR 157 (PC), she maintained that a trust which permits the application of income for purposes which are not charitable cannot, itself, be charitable. Building on that, she argued that the ability of the trustees of the Plan to apply income to employees of an Associated Employer is fatal to the Plan having charitable status. She noted that Associated Employers may not be associated with the advancement of religion or the charitable activities of the Church and could perhaps be a business enterprise that supplies goods or services to the Church, such as a local fruit shop or stationery supplier.
[111] She maintained that it was irrelevant that there were no Associated Employers in the income tax year in question.
The argument for the appellants
[112] Mr Akel maintained that the fact that there were no Associated Employers meant that this line of argument was irrelevant.
[113] In terms of the situation as it was in the relevant tax year, and assuming the success of his other submissions, the purposes for which the funds of the Plan were applied were exclusively charitable.
Evaluation
[114] In the context of this case, the point made by Mrs Corbett might seem technical. We are, however, inclined to the view that it may be sound.
[115] It is not entirely unknown for trusts to be set up for what ostensibly are charitable purposes, but for other purposes (or beneficiaries) to be able to be introduced at the will of a person associated with the trust. It would be unsatisfactory if such a trust was able to operate with the benefit of charitable status associated with the charitable purposes ostensibly provided for but then for the purposes and beneficiaries to be changed to permit distribution to or for a non-charitable purpose or beneficiary.
[116] Given that we are against the appellant on the primary issue in the case there is no need for us to make a definitive finding on this issue.
Result
[117] For the reasons given the appeal is dismissed. The Commissioner of Inland Revenue is awarded costs of $6,000 together with disbursements (including travelling and accommodation expenses if any) to be agreed and, in default of agreement, to be fixed by the Registrar.
Solicitors:
Simpson Grierson, Auckland for Appellants
Crown Law Office, Wellington
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