Latimer v Commissioner of Inland Revenue HC Wellington CP No. 127/99 & CP No. 221/99
[2001] NZHC 715
•7 August 2001
IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRY CP No. 127/99 & CP No. 221/99
IN THE MATTER of the Tax Administration Act 1994
BETWEEN SIR GRAHAM STANLEY LATIMER, LOU HUNARA RANGAERE, WHATARANGI WINIATA, RICHARD GILBERT BETTLE, GRAHAM UDALL FRANCE, and PAUL STEPHEN CARPINTER as Trustees for the CROWN FORESTRY RENTAL TRUST
Plaintiffs
AND COMMISSIONER OF INLAND REVENUE
Defendant
Hearing: 18, 19 and 20 June 2001
Counsel: L McKay and K S Feint for Plaintiffs
BWF Brown QC and R J Scott for Defendant
Judgment: 7 August 2001
JUDGMENT OF O’REGAN J
Solicitors:
Buddle Findlay, Wellington for Plaintiffs
Crown Law Office, Wellington for Defendant
Table of contents
Issue for Determination
The Trust
The Trust Deed
The scope of the Trust’s activities
Section 138G
What sources are available to determine the purpose of the Trust?
Does s 61(25) apply to income or to the Trust?
Does the Trust have one purpose or two?
Is the stakeholder purpose an ancillary purpose?
Is the stakeholder purpose a charitable purpose?
Conclusion: Two purposes
Is the purpose of assisting the defined class of Maori claimants charitable?
Benefit to the community
Are the benefits arising from the Trust’s ‘assistance’ activities charitable in character? Are the benefits arising from the Trust’s ‘assistance’ activities private, not public?
Conclusion: ‘Assistance’ purpose is charitable
Delay by the Trust in claiming charitable status
Section 138G revisited
Decision
Costs
Issue for Determination
[1] This case concerns a single issue, the outcome of which will determine the income tax liability of the trustees of the Crown Forestry Rental Trust (“the Trust”) for the 1994-1996 income years. There were initially two sets of proceedings dealing with different income years but these have been consolidated by consent.
[2] The issue which I am required to determine is whether the Trust is entitled to the benefit of the income tax exemption set out in s 61(25) of the Income Tax Act 1976 (the Act) or its equivalent provision, s CB4(1)(c) of the Income Tax Act 1994. As the two provisions are identical, I will refer throughout this judgment to s 61(25) but such references should be taken as including references to s CB4(1)(c) in relation to the income years to which the latter section is relevant.
[3] Section 61 sets out a list of categories of income that is exempt from tax under the Act. Included in that list is s 61(25) which says:
“Income 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, except where that income so derived is income to which paragraph (27) of this section applies.”
[4] It was common ground that s 61(27) did not apply in the present case and that the Trust is not a society or institution referred to in s 61(25). Accordingly, the issue for determination is whether the income derived by the Trust in the relevant income years is derived by trustees in trust for charitable purposes.
The term “charitable purpose” is defined in s 2 of the Act as follows:
““Charitable purpose” includes every charitable purpose, whether it relates to the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community.”
Again, an identical provision appears in s OB1 of the Income Tax Act 1994 and references to the earlier provision should be taken to include the latter for the income years to which it applies. It was common ground that the “charitable purpose” definition effectively imports into the Act the common law treatment of charities. Its wording closely follows the definition of “charity” put forward by Lord Macnaghten in The Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531 at 583.
The Trust
[6] The Trust was established by a trust deed dated 30 April 1990 (the “Trust Deed”).
[7] Somewhat enigmatically, two quite different copies of the Trust Deed were signed. Both are dated 30 April 1990 and the signatories and witnesses are the same. Copies of both were included in the agreed bundle. Their layout and typeface differ considerably, and there are some minor differences of wording, though none of these is material in the context of this case.
[8] The settlors of the trust were the Minister of Finance and the Minister of State Owned Enterprises, acting pursuant to s 34 of the Crown Forest Assets Act 1989. The background to the establishment of the Trust was well summarised in the opening submissions of counsel for the Trust in terms with which the Commissioner’s counsel took no issue and I therefore set out the relevant paragraphs of those submissions to provide the historical context to the establishment of the Trust.
“Background to Establishment of the Trust - Overview
6. In its 1987 landmark decision in New Zealand Maori Council v Attorney-General [1987] 1 NZLR 641, the Court of Appeal held that s 9 of the State-Owned Enterprises Act 1986 precluded the Crown from effecting transfers of Crown assets until it first complied with the principles of the Treaty of Waitangi. Compliance with these principles required consideration to be given to future Treaty of Waitangi claims by Maori and the ability of the Crown to provide redress in respect of those claims, particularly if that redress was in the form of a transfer of land.
7. The Court of Appeal identified the need for safeguards to be put in place to ensure that redress capacity. Following discussion between the Crown and Maori, a system of safeguards was subsequently implemented by the Treaty of Waitangi (State Enterprises) Act 1988 which provided inter alia that all land transferred from the Crown to State-Owned Enterprises would carry a memorial recording that the land was subject to compulsory resumption for the settlement of Treaty of Waitangi claims.
8. Subsequently, the Crown resolved to sell to private purchasers the Crown’s commercial forestry assets other than the land on which the forest assets were located. The Crown was of the view that because the ownership of land was excluded from the proposed sales, the disposition fell outside the scope of the Court of appeal’s findings or directions in the 1987 New Zealand Maori Council decision.
9. The Court of Appeal in the New Zealand Maori Council decision had reserved to the parties leave to apply to the Court “purely as a precaution, in case anything unforeseen should arise”.
10. The New Zealand Maori Council exercised the leave reserved by the Court, seeking a declaration that the Crown’s proposal with reference to commercial forestry assets was inconsistent with the Court of Appeal’s 1987 decision. By proceeding reported as New Zealand Maori Council v Attorney-General [1989] 2 NZLR 142 the Court determined that the Crown’s forestry sales policy fell within the scope of the leave reserved and that the Court would hear the New Zealand Maori Council’s application.
11. Following this determination, discussions ensued between the Crown and the New Zealand Maori Council and the Federation of Maori Authorities Inc. Accord was reached. The resulting agreement dated 20 July 1989 was executed by the Ministers of Finance and State-Owned Enterprises, and the New Zealand Maori Council and the Federation of Maori Authorities Incorporated.
20 July 1989 Agreement
12. In essence, the Agreement provided for the terms and conditions upon which the Crown would sell the existing tree crop on Crown forestry land to third party commercial purchasers, together with a right to the purchaser to use the land on an ongoing basis until that licence was terminated. The period of notice of termination was to be sufficiently long to permit the maturing and harvesting of tree crops on the purchaser’s land. Purchasers were to make payment of an initial capital sum to the Crown, and an annual, market-based, rental for the use of the land. The Agreement provided for the circumstances in which the Waitangi Tribunal did, and did not, recommend the return of the land to Maori ownership.
13. The annual rental payment payable by each purchaser was to be set aside in a fund administered by a Rental Trust.
14. The interest earned by the investment of the rental proceeds was to be made available to assist Maori in the preparation, presentation and negotiation of claims before the Waitangi Tribunal which claims involved, or could involve, lands covered by the Agreement.
15. In circumstances where a particular area of Crown forestry land was recommended for resumption by the Waitangi Tribunal, the accumulated rental proceeds held by the Rental Trust in respect of that area of land would be paid to the successful claimant. In the event that the Waitangi Tribunal recommended that the land was no longer subject to resumption, the accumulated rental proceeds relating to that area of land were to be paid to the Crown.
Crown Forest Assets Act 1989
16. The agreement was given legislative force in the Crown Forest Assets Act 1989. The Long Title to that Act sets out that the purpose of the Act is to provide for:
(a) The management of the Crown’s forest assets:
(b) The transfer of those assets while at the same time protecting the claims of Maori under the Treaty of Waitangi Act 1977:
(c) In the case of successful claims by Maori under that Act the transfer of Crown Forest Land to Maori ownership and for the payment by the Crown to Maori of compensation: . . .
17. Section 34 of the Crown Forest Assets Act 1989 provides:
(1) The responsible Ministers shall, on behalf of the Crown establish by Deed a Forestry Rental Trust.
(2) All licence fees payable under the Crown forestry licences shall, until such time as the Waitangi Tribunal makes a recommendation in relation to the land . . . be collected by the Crown and shall be paid into an account held in the name of the Forestry Rental Trust . . .”
The Trust Deed
[9] Clause 2.1 of the Trust Deed says:
“A trust is hereby established under this Deed to be a Forestry Rental Trust referred to in a 34 of the Crown Forest Assets Act 1989, to be known as the “CROWN FORESTRY RENTAL TRUST”. The Trust is established to:
(a) Receive the Rental Proceeds from the Licences;
(b) Make the interest, earned from investment of those Rental Proceeds, available to assist Maori in the preparation, presentation and negotiation of claims before the Waitangi Tribunal which involve, or could involve, Licensed Land.”
The importance of this provision is that, although it does not specifically use the term “purpose” it appears to be intended to describe the purposes for which the Trust was established.
[10] The Trustees of the Trust are appointed under clause 6. There are six Trustees, three of whom are appointed by the Crown and three by Maori. The latter power of appointment is exercised by the New Zealand Maori Council and the Federation of Maori Authorities Inc.
[11] The regime established by the Trust involves the Crown collecting licence fees (rent) from licensees of Licensed Land (that is Crown Forest Land which is subject to a licence) and paying this amount to the Trust after deduction of GST. The Trust receives those “Rental Proceeds” and, under clause 9.1, those rental proceeds are the capital of the Trust. The Trust then invests that capital and the interest that it earns can be applied by the Trustees to pay the expenses etc of the Trust, including tax (the Commissioner attributes some importance to the fact that the Trust Deed contemplates the possibility of tax being payable) and also to “assist any Claimant in the preparation, presentation and negotiation of claims before the Waitangi Tribunal which involve, or could involve, Licensed Land”. Clause 10 sets out the criteria that the Trustees must apply to determine who qualifies as a Claimant for this purpose. Clause 9.4 provides that any surplus income remaining at the time of the winding up of the Trust must be paid to the Crown free from the Trust.
[12] The role of the Trustees in relation to the Capital (that is the accumulated Rental Proceeds) is set out in clause 11. In brief, the accumulated Rental Proceeds in respect of any Licensed Land are to be held until the Waitangi Tribunal makes a recommendation under s 8HB(1) of the Treaty of Waitangi Act 1975. If that recommendation is that the Licensed Land be returned to Maori ownership, then the relevant Maori owners become the “Confirmed Beneficiaries” and the Trust must pay all of the rental proceeds in respect of the Licensed Land affected by the recommendation to the successful Maori claimants. If, on the other hand, the Tribunal recommends that the particular Licensed Land is not liable to being returned to Maori ownership, then the Crown becomes the Confirmed Beneficiary and the accumulated Rental Proceeds must be paid to the Crown.
[13] The Trust has no power to deal with the capital of the Trust in any other way. As pointed out by Mr Brown in argument, this means that the essential role of the Trust in relation to its capital (i.e. the accumulated Rental Proceeds) is that of a stakeholder awaiting instruction from an outside party (the Waitangi Tribunal) as to the action it must take in relation to that capital.
[14] Clause 4 of the Trust Deed provides that the Trust will continue, unless earlier terminated, until the expiration of 80 years from the date of the Trust Deed less one day, being the perpetuity period in s 6 of the Perpetuities Act 1964. Both counsel attributed some significance to this provision. Mr Brown, for the Commissioner, indicated that it supported the contention that the Trust was not charitable, since the law against perpetuities does not apply to charitable trusts. Mr McKay, for the Trust, argued that it indicated that there was no expectation on the part of the Crown that the Trust would be a short term arrangement as had been suggested by one of the Crown witnesses, Mr McEwen. Clause 4 is a standard provision in trust deeds and I doubt that the drafter of the trust deed had either of these factors in mind. I do not attribute to the provision support for either party’s proposition.
[15] Clause 12 deals with the winding up of the Trust, which will occur when the Confirmed Beneficiaries of all Licensed Land have been identified. The trustees are required to pay all capital to the Confirmed Beneficiaries (presumably this will already have been done) and to pay any other money after expenses etc. to the Crown. This means that if any of the income of the Trust has not been used to pay the Trust’s expenses or to fund claimants for the preparation, presentation and negotiation of Waitangi Tribunal claims, that income will, upon winding up, be payable to the Crown.
The scope of the Trust’s activities
[16] The evidence given by the Secretary of the Trust, Ms Waterreus, was that the approach that the Trust has adopted to assist claimants has changed over time. In brief, the Trust initially focussed on assisting specific claimant groups with claims involving Licensed Land with research and the like. As the claimant groups increased in number the Trust decided to focus assistance on claimant groups whose claims were close to hearing and then further refined its approach by selecting the claimant groups to which it would provide assistance by reference to the Waitangi Tribunal’s hearing programme. It also decided that claimant funding would extend beyond the hearing at the Waitangi Tribunal until determination as to ownership of the relevant Licensed Land was made. Later, the Trust changed to a “district by district” approach in line with the Waitangi Tribunal’s focus on all claims in a particular district. The trust commissioned research that was not necessarily specific to any one claim but was available to any claimant groups in the relevant district to use in their individual claims.
[17] The scope of the activities of the Trust was an issue in this case for reasons that I will deal with later. In essence, the Commissioner challenged the Trust’s approach of providing funding to claimant groups that do not have a specific claim relating to a particular forest that is Licensed Land. The approach of the Trust, as outlined by Ms Waterreus, was initially to assist claimant groups to establish “strong connections with particular licensed forests”. This changed over time to a broader focus. Ms Waterreus’ evidence was that:
“. . . the distinctions that the Trust had been drawing between claimants who had a ‘clear claim’ to particular Licenced Land, and others whose claim to that land was less clear, were in many instances artificial distinctions. On closer examination it seemed likely that most groups of Maori in all districts would have a connection of some kind to licenced land within their district. . . the Waitangi Tribunal has indicated its willingness to grant interests in an asset that remains within Crown control to a range of groups who have lost assets that cannot now be restored. This could involve a potentially large number of groups being awarded shares in Licenced Land, in circumstances where the claims of some other groups may not have related to the land directly at all. This means that virtually any claimant before the Waitangi Tribunal has a claim that in terms of the Trust’s trust deed ‘could involve’ licenced forestry land.”
[18] The reference to indications from the Waitangi Tribunal was amplified by the Trust’s counsel in his submissions. He referred me to the decision of the Waitangi Tribunal in the Turangi Township Remedies Report (WAI 84) and the Waitangi Tribunal’s Determination of Preliminary Issues in relation to the Muriwhenua claims (WAI 45) of 13 May 1998.
[19] In the Turangi case the Tribunal was concerned with SOE land which was subject to memorials under s 27B of the State Owned Enterprises Act 1986 and therefore subject to the possibility of a binding recommendation being made by the Waitangi Tribunal under s 8A of the Treaty of Waitangi Act 1975. The Tribunal rejected the Crown’s contention that a binding recommendation could be made only in relation to land where there was a direct relationship between the historical wrong and the memorialised land.
[20] In the Muriwhenua case, a similar conclusion was reached with detailed reasoning being set out in Appendix A to the report. The Tribunal’s conclusion in relation to memorialised land (ie SOE land) was the same as in the Turangi case. However, the Tribunal also indicated that it considered that the approach which applied to SOE land would also apply to Licensed Land which could be subject to a binding recommendation under s 8HB of the Treaty of Waitangi Act 1975. The effect of that finding is that memorialised land and Licensed Land are to be treated in the same way. The Tribunal referred to ss 8A of the Treaty of Waitangi Act (which relates to memorialised land) and 8HB (which relates to Licensed Land), as being “sufficiently the same in terms for only one to be cited”.
[21] In this case, the Commissioner’s counsel took issue with this and highlighted the fact that s 8A(2) uses the words “a claim . . . relates in whole or in part to land or an interest in land to which this section applies [i.e. memorialised land]” whereas s 8HB refers to “a claim . . . relates to Licensed Land”. Mr Brown argued that the omission of the words “in whole or in part” from s 8HB justified a more restrictive approach to Licensed Land.
[22] In the context of these proceedings, the matter is not directly in issue. Parties who would be affected by the Waitangi Tribunal’s ruling are not parties to these proceedings. The Waitangi Tribunal has made a decision that determines how it intends to approach claims in the future. In those circumstances it seems to me that unless the Waitangi Tribunal modifies that approach, the Trust is justified in adopting an approach to the allocation of funding which is consistent with the Waitangi Tribunal approach. The Trust should not be criticised for adopting an approach which is consistent with the Waitangi Tribunal’s decision.
[23] However, the decisions of the Waitangi Tribunal in the Turangi case and the Muriwhenua case relate to land claims, and the Commissioner also argued that the approach adopted by the Trust appears to be broader than that. Counsel for the Commissioner particularly highlighted the reference in the Trust’s Strategy Statement and Business Plan 1 April 2000 - 31 March 2001 to Trust funding for an information project “A History of Maori Health 1940 - 2000”, a learning project called “Maori Development in a Global Society” and a conference called “Building the Constitution”. He also highlighted the references in the Trust’s Report to Appointors 1996/97 to research projects into Maori health services and flora and fauna.
[24] In cross-examination Ms Waterreus justified the broad view adopted by the Trust as exemplified by those matters on the basis that the Trust assisted claimants to tell their “full story” to the Waitangi Tribunal because it was necessary to deal with all aspects of a claim in order for the forestry aspect to be dealt with. She said that the Trust’s role of assisting claimants with claims that involved or could involve Licensed Land required the Trust to provide assistance to the claimants to deal with all their claims, so that resolution would be reached which would, as part of a comprehensive settlement of all claims, deal with the Licensed Land.
[25] On the face of it, that approach appears to be somewhat broader than the approach outlined by the Waitangi Tribunal (referred to above) which was focused on land claims. There was reference in the evidence before me to advice received by the Trust justifying this approach and, privilege having been previously waived, a copy of the opinion was included in the agreed bundle. On a close reading, the opinion appears to be somewhat narrower than the broad proposition for which it is used as support, in that it specifically says that the Trust may not assist in connection with claims other than those which involve or could involve Licensed Land, eg claims for types of land other than Licensed Land, rivers, fish, radio-waves etc.
[26] The only significance of this point in the context of the current proceedings is the impact it has on the number of beneficiaries of the Trust’s activities, in that there may be some difference in the number of Maori who could claim assistance on the broad approach adopted by the Trustees, as opposed to those who could claim assistance on the very narrow approach proposed by the Commissioner. The approach suggested in the Muriwhenua and Turangi decisions of the Waitangi Tribunal falls somewhere between, though it is more likely to be closer to the “broad” end of the spectrum.
[27] In assessing the number of beneficiaries, I find that the correct approach is to include land claimants whose claims could involve Licensed Land following the approach suggested in the Turangi and Muriwhenua decisions, but not claimants whose claims involve no land at all or land in areas where Licensed Land is not available as a potential redress. I should emphasise, however, that I am not making any finding about the appropriateness or otherwise of the way the Trust operates. That is not an issue before me.
Section 138G
[28] Both parties placed some reliance on s 138G of the Tax Administration Act 1994 in support of submissions that points made by the other should be excluded from consideration because they had not been raised at an earlier stage of the proceedings. Section 138G says:
“138G Effect of disclosure notice: exclusion of evidence
(1) Unless subsection (2) applies, if the Commissioner issues a disclosure notice to a disputant, and the disputant challenges the disputable decision, the Commissioner and the disputant may raise in the challenge only—
(a) The facts and evidence, and the issues arising from them; and
(b) The propositions of law,—
that are disclosed in the Commissioner’s statement of position and in the disputant’s statement of position.
(2) A hearing authority may, on application by a party to a challenge to a disputable decision, allow the applicant to raise in the challenge new facts and evidence, and new propositions of law, and new issues, if satisfied that—
(a) The applicant could not, at the time of delivery of the applicant’s statement of position, have, with due diligence, discovered those facts or evidence; or discerned those propositions of law or issues; and
(b) Having regard to the provisions of section 89A and the conduct of the parties, the hearing authority considers that the admission of those facts or evidence or the raising of those propositions of law or issues is necessary to avoid manifest injustice to the Commissioner or the disputant.
(3) For the purposes of subsection (1), a statement of position includes any additional information that the Commissioner and the disputant agree (under section 89M(13)) to add to the statement of position.”
[29] The section gives statutory force to the “all cards on the table” approach required in the resolution of disputes under the challenge procedures in Part 8A of the Tax Administration Act 1994. Subject to an over riding judicial discretion in s 138G(2), certain exceptions which are not relevant for present purposes, it requires that in a case such as the present case the Commissioner and the disputant (the Trust in this case) may raise in the challenge only the facts in evidence and the issues arising from them and the propositions of law that are disclosed in the Commissioner’s statement of position and in the disputant’s (Trust’s) statement of position. Both parties urged me to apply this provision with some rigour and both argued that it did not apply to their arguments. As a prudent back-up, both argued the merits of the points to which they alleged s 138G would apply.
[30] I accept that a strict approach to s 138G is required to give effect to the intention of the legislature that there should be “no surprises” when matters which have been through a full dispute resolution procedure between the Commissioner and the taxpayer reach the TRA or the Court. However, the present dispute will affect income years other than those which are the subject of these proceedings and will continue to do so into the future and the bases for the objections made under s 138G were, themselves, subject to real dispute. In view of those facts, it seems to me that the best approach is to consider the merits of the arguments raised in the first instance. If, having done so, it seems likely that the outcome in relation to those points is going to influence the outcome of the case, I will then determine whether s 138G properly applies and rules out the consideration of the particular point in relation to the income years to which these proceedings relate.
What sources are available to determine the purpose of the Trust?
[31] Counsel for the Trust submitted that, while the primary reference point for determining purpose is the Trust Deed, it was also appropriate for the Court to refer to the Crown Forest Assets Act under which the Trust Deed was entered into. Further, counsel for the Trust suggested that the “statutory setting” in which the Crown Forest Assets Act was enacted was also relevant. This includes the 20 July 1989 Agreement.
[32] Counsel for the Commissioner argued that the correct approach can be and should be derived from a consideration of the Trust Deed, applying normal principles relating to the construction of contractual documents, as set out in Boat Park Ltd v Hutchison [1992] 2 NZLR 74 and WEL Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] 2 NZLR 1. That approach involves recourse to surrounding circumstances in order to ascertain the intention of the parties to the contract, though of course in this case the Trust Deed itself is a document to which only the Crown is a party, so the approach has some degree of artificiality.
[33] I was referred to the statement by Richardson J in New Zealand Society of Accountants v CIR [1986] 1 NZLR 147 where he said (at p 148):
“The ascertainment of the purpose for which a statutory body is established is essentially a matter of construction of the relevant constituting legislation. In that analysis regard may be had to the circumstances in which the legislation was enacted, that is the statutory setting, but the motives of the founders are irrelevant.”
[34] The authority cited for that passage is Commissioner of Inland Revenue v New Zealand Council of Law Reporting [1981] 1 NZLR 682, where the same statement was made by Richardson J (at p 684). However, the situation facing me is the ascertainment of the purpose of a trust, which is not, itself, established by statute and is not therefore a statutory body of the kind referred to in the Society of Accountants case and the Council of Law Reporting case.
[35] In Institution of Professional Engineers of New Zealand Inc. v Commissioner of Inland Revenue [1992] 1 NZLR 570 (the IPENZ case), Tipping J said that the approach outlined in the Society of Accountants and the Council of Law Reporting cases also applied to bodies established by non-legislative means. However he went on to say, following the decision of the Court of Appeal in Molloy v Commissioner of Inland Revenue [1981] 1 NZLR 688, as follows (at p 572):
“. . .where the constituting documents do not indicate with clarity the main or dominant objects of the body, reference may be made not only to the objects expressed therein but also to the activities of the body in question.”
[36] The approach which I intend to take is to consider the terms of the Trust Deed itself as the most important indicator of purpose, but, recognising that this does not yield certainty, to refer to the “statutory setting” as Mr McKay would have it, relying on the Society of Accountants and the Council of Law Reporting case, or to surrounding circumstances as Mr Brown would have it, relying on the Boat Park and WEL Energy cases. Either approach appears to me to involve consideration of the Crown Forest Assets Act and the 20 July 1989 Agreement. I note that both of these are specifically referred to in the recitals to the Trust Deed. Neither party now seeks to broaden the enquiry beyond that.
[37] To the extent that there is any inconsistency between the outcomes derived by adopting the two approaches, I adopt the approach outlined in the Society of Accountants and the Council of Law Reporting cases. I believe it is appropriate in these circumstances, where the establishment of the Trust was specifically mandated by the Crown Forest Assets Act. While the Trust is not a statutory body in the normal sense, it is a body established under the authority of an Act of Parliament and for the purpose of giving effect to a provision in that Act.
[38] In argument, the Commissioner sought to place some reliance on statements of purpose set out in the Trust’s own documentation. Counsel argued that these were at odds with the position taken by the Trust in this case. There is a degree of inconsistency about seeking to rely on such statements, given the Commissioner’s stance that the purpose of the Trust should be ascertained only from the Trust Deed and any earlier material which is relevant to the interpretation of the Trust Deed, applying the Boat Park case. However I should deal with the point before moving on.
[39] Counsel for the Commissioner argued that the Commissioner was entitled to refer to the Trust documents for the purpose of assisting in the ascertainment of the purpose of the Trust. The Commissioner relied on the approach taken in the IPENZ case, where Tipping J said (at p 581):
“If in a case of doubt the activities of the institution concerned can be examined as being explanatory of its stated objects, then it seems to me that the institution’s official publications, which are themselves descriptive of its activities and what it is endeavouring to achieve, must be relevant. They are simply one cogent way of establishing what the activities of the institution are.”
[40] It is notable that the passages which the Commissioner relied on in this case were not “descriptive of its activities” but rather explicit statements of purpose. The first of these was a Trust publication entitled “Purpose of the Trust/Te Kaupapa a te Pouari Tiaki”. The English version of the statement in thus publication is:
“Purpose of the Trust
To enable the Crown to proceed with the disposal of certain exotic timber resources, in accordance with the agreement of 20 July 1989, between the Crown and New Zealand Maori Council and the Federation of Maori Authorities Inc., the Crown Forestry Rentals Trust was established on 30 April 1990. The Trust has the necessary powers and duties to facilitate the financing of Maori claims to Crown Forest Land.”
The document then goes on to describe the functions of the Trust as follows:
“Functions of the Trust
1. To invest the Rental Proceeds from Crown Forestry Licences, (ie the capital of the Trust) to earn interest which is to:
(i) Pay the expenses of the trustees and of the Trust; and
(ii) Assist any qualifying Maori applicant in the preparation, presentation and negotiation of claims before the Waitangi Tribunal which involve, or could involve the land on which the Crown carried out its exotic forestry operations.
2. To pay to Confirmed Beneficiaries from the capital of the Trust the Rental Proceeds in respect of Crown Forest Land which is the subject of a recommendation made by the Waitangi Tribunal under Section 8 HB (1)(a) of the Treaty of Waitangi Act 1975.”
It then sets out the criteria for prospective applicants to apply for assistance and gives contact details.
[41] The second document relied on by the Commissioner is a document called “The Crown Forestry Rental Trust - Nga Kaitiaki Reti Ngahere Karauna: Its Purpose and Functions” published in 1996. On p 9 of this document is a paragraph headed “Purpose of the Crown Forestry Rental Trust” which says:
“The Crown Forestry Rental Trust was established by Trust Deed on 10 April 1990. Its purpose is to
• receive the rental proceeds from the licences paid by forest owners (owners of the trees, not the land) on licensed forest land currently held by in trust [sic],
• invest the proceeds and hold them in trust until ownership is confirmed, and
• make the interest earned from investment of those rental proceeds available to assist Maori in the preparation, presentation and negotiation of claims to the Waitangi Tribunal which involve, or could involve licensed forest land. The Trust does not distribute funds for any other purpose.
The Trust can distribute to claimants only the interest on the rental proceeds.”
It then goes on to explain eligibility for assistance and how the assistance is provided.
[42] Mr McKay argued strongly that this material was irrelevant to the issue before me. He pointed to other trust publications which express purpose in terms helpful to the Trust’s argument, for example, the following statement from the Trust’s 1994-95 Report to Appointors:
“The Crown Forestry Rental Trust exists to help Maori claimants to prepare, present and negotiate their claims before the Waitangi Tribunal which involve, or could involve, Crown Forest Lands. With the Trust’s support, 10 of our clients now have their claims ready to proceed into hearings or negotiations, many have their claim preparation well advanced, and some are just starting out.”
[43] I accept Mr McKay’s submission that these statements are of little assistance to me in determining the issue at hand. While, in terms of the IPENZ case, they are relevant, the inconsistency between the statements, the different purposes for which the publications in which the statements appear are used, the different audiences to which those publications are directed and the non-technical nature of the discussion in the publications, means they do not assist me in determining the key legal issue in this case.
Does s 61(25) apply to income or to the Trust?
[44] The statements of position of both parties are directed primarily to the question of whether the Trust has charitable purposes. However, an alternative interpretation of s 61(25) is that the words “for charitable purposes” qualify the words “income derived” and that the appropriate inquiry therefore is whether the income is derived for charitable purposes rather than whether the Trust itself is established for charitable purposes. The Trust argued that I should adopt that interpretation. This is one of the arguments where there are allegations that s 138G should apply.
[45] The wording of s 61(25) is one of a long list of categories of income which are exempt. The focus of s 61 is on income and accordingly the focus of s 61(25) itself is also on income. In the absence of any contextual assistance the subsection appears to be capable of being read as referring to “income derived for charitable purposes by trustees in trust” which, in this case, would effectively eliminate the obstacle placed in the Trust’s path by the allegation that the Trust has two discrete purposes, one relating to income and the other to its capital.
[46] Counsel for the Commissioner argued that the reference to “trustees in trust for charitable purposes” must be seen as an indivisible phrase so that the Court must first determine whether the trust which is deriving the income is a trust established for charitable purposes before making a finding that the income is exempt. He supported this contention by a number of arguments, namely:
[a] The context of s 61(25) itself. It is clear from the later reference in s 61(25) to a “society or institution” that the term “for charitable purposes” describes the entity itself not the income, because the words used are “society or institution established exclusively for charitable purposes”. That indicates that the equivalent reference to a trust is intended to require that the trust itself is established for charitable purpose. Otherwise, the test for establishing charitable status of trusts would be materially different from the test applied to other entities;
[b] A reference to the overall context of s 61. The Commissioner relied particularly on s 61(27), to which reference is made in s 61(25). Section 61(27) refers to income derived directly or indirectly from any business carried on by, or on behalf of, or for the benefit of trustees in trust for charitable purposes within New Zealand. It is clear that in this context the words “for charitable purposes” refer to “trustees in trust” and not to “income” because the section refers to income which is derived from a business. It is hard to believe that the same term used only two subsections earlier in the same section of the same Act would have a different meaning;
[c] Commonsense: The focus of s 61 is on the party which derives income, rather than the purpose for which it is derived, as can be seen from the other subsections. In this case an interpretation which focused on the purpose of the income would be inconsistent with the other subsections and also lack commonsense, in that income is not derived for a charitable purpose but is derived by an entity which can then spend it for a charitable purpose. Mr McKay argued that where the only purpose for which income can be used (apart from ancillary matters such as paying the expenses of the trust), is a charitable purpose, it is not unreasonable to interpret the provision as applying to income which, once derived, will be spent for charitable purposes. I believe that such an interpretation requires stretching the words of the section too far.
[47] I accept the arguments made by counsel for the Commissioner that the correct interpretation of s 61(25) is that it applies to income which is derived by a trust established for charitable purposes. Accordingly, the focus of the inquiry as to the application of s 61(25) in this case is on the purposes of the Trust, not the purposes of the income derived by the Trust. That finding makes it unnecessary for me to consider whether the Trust would have been entitled to the income tax exemption under s 61(25) if the interpretation suggested by the Trust were accepted.
Does the Trust have one purpose or two?
[48] It was common ground that, although s 61(25) uses the words “trust for charitable purposes” and does not expressly use the word “exclusively”, the Trust’s case cannot succeed if the Trust is found to have more than one substantive purpose, where one of the purposes is not charitable. Accordingly, the Trust argued that the sole purpose of the Trust was to assist Maori in the preparation, presentation and negotiation of claims before the Waitangi Tribunal which involve, or could involve, Licensed Land, which the Trust contends is a charitable purpose.
[49] The Commissioner argued that the Trust has two purposes. The first which I have just mentioned, is of assisting the defined class of Maori claimants and refers to the income of the Trust, while the second is of receiving the rental proceeds from the Licences, holding them, investing them, and distributing them to the appropriate “Confirmed Beneficiary” following a decision in respect of any Licensed Land by the Waitangi Tribunal. The latter purpose relates to the capital of the Trust.
[50] That submission drew some support from the text of clause 2.1 of the Trust Deed (referred to in paragraph 9 above), which refers to the Trust being established to receive rental proceeds and to assist claimants, implying that these are two discrete purposes. The Commissioner did not, however, rely exclusively on clause 2.1, which refers only to receiving proceeds. Rather, counsel for the Commissioner referred to other provisions of the Trust Deed (particularly clauses 9 and 11), which make it clear that the Trust has a function as an independent stakeholder in respect of rental proceeds, being required to retain and invest them until their appropriate beneficial owner has been determined by the Waitangi Tribunal. Thus the Commissioner argued that the purpose is broader than simply receiving the proceeds. It is a purpose of acting as an independent stakeholder between the Crown on the one hand and the relevant Maori claimants on the other hand.
[51] The Trust argued that receiving and holding capital is something which every Trust, charitable or otherwise, must do and that it is therefore incorrect to characterise this as a purpose. Counsel for the Trust emphasised that purpose (the end which the Trust is intended to achieve) should not be confused with power or function. He argued that, if receiving and holding capital is characterised as a purpose, no trust could ever successfully claim charitable status because every trust, even a charitable trust, must receive and hold its capital.
[52] I accept that if the Commissioner was arguing that the mere receipt and holding of the capital of the trust was a non-charitable purpose depriving a trust of charitable status, that argument would fail. However, that was not the Commissioner’s argument. The Commissioner’s statement of position (para 7.12) referred to the purpose as being “holding rental proceeds until it has been determined who is entitled to them”. Similar language appears in the report of the Commissioner’s Adjudication Unit which refers to the purpose of “receiving and holding by the Trust of Rental Proceeds pending a decision by the Waitangi Tribunal”. The essence of the Commissioner’s argument is that the purpose in relation to capital is of acting as a stakeholder as between the Crown and Maori claimants.
[53] During argument, reference was made to the legal opinion received by the Trust, to which reference has already been made in paragraph 25 above. That opinion referred to the role of the Trust as stakeholder as not necessarily a trustee role at all. If that were correct, then that would leave only the purpose of assisting Maori claimants, that is the Trust’s argument that it has a sole purpose would succeed. Mr McKay understandably supported that proposition in argument before me, but it had not been the focus of earlier argument. Equally understandably the Commissioner argued that the comment should not be taken as establishing that the stakeholder role was not a “trustee role”.
[54] I accept the Commissioner’s argument in this regard. The Trust Deed indicates that the rental proceeds were to be held by the Trust on trust, pending the outcome of Waitangi Tribunal claims relating to the relevant Licensed Land, for a “Confirmed Beneficiary” (either a Maori claimant or the Crown). There is no logical basis on which the Trust Deed can be construed as creating some additional role for the Trustees which is not impressed with the characteristics of a trust.
[55] It is true that the Government could have, as the Trust argued, achieved its objective of protecting the contingent rights of both the Crown and Maori claimants to rental proceeds by appointing an independent stakeholder which did not have the role of a trustee, or by holding those proceeds itself with a covenant to pay them over to any successful Maori claimant in the event of a recommendation to that effect by the Waitangi Tribunal.
[56] However, that does not alter the fact that the course provided for in the 20 July 1989 Agreement involved the use of a trust mechanism. Clause II(i) of the 20 July 1989 Agreement refers to “a fund administered by a trust” and “the final beneficiaries of the Rental Trust”.
[57] The Trust Deed itself expressly provides that the stakeholder role will be performed by the Trust. The Trust Deed provides for the rental proceeds to be transferred to the Trust, and says that upon receipt by the Trust, those rental proceeds will constitute the Trust’s capital. Accordingly, I do not think there is any basis on which I can find that the stakeholder role is not performed by the Trust or is performed by the trustees of the Trust in a capacity other than as trustees of the Trust. It is an integral part of the scheme pursuant to which the Trust was established.
[58] Mr McKay argued that the reasons the Crown and Maori negotiators decided that a Trust mechanism was the appropriate way of arranging matters, does not make the stakeholder purpose a “purpose” in the technical sense. He pointed out that a settlor may have any number of reasons or motives for employing a Trust mechanism, and therefore reasons to impress a Trust corpus with “receiving and holding” obligations. He argued that these reasons or motives ceased to have any significance at the point at which the Trust mechanism was selected and the nature of the Trust was determined. He argued that if they are to be treated as the “purpose” of the Trust after its establishment, they jeopardise the capacity of any Trust, however charitable, with reference to income deductions, to qualify as charitable for the purposes of s 61(25).
[59] Mr Brown responded to this argument by saying that the Commissioner did not seek to make the argument in the way it was characterised by Mr McKay, rather the Commissioner argued that this is a Trust with unique characteristics, resulting from the outcome of the negotiations leading to the 20 July 1989 Agreement. It has a particular role to play, a component of which is the distribution of part of the Trust capital in accordance with a particular scheme. Thus differentiates it from other trusts where the “receive and hold” obligation is indeed a function rather than a specific purpose.
[60] The Trust’s argument was then refined to one which focused on the limited time span of the Trust, which will, of necessity, terminate when all claims relating to Licensed Land have been decided by the Waitangi Tribunal. At that point, the “Confirmed Beneficiary” in respect of each parcel of Licensed Land will have been identified and the appropriate rental proceeds will have been paid to that Confirmed Beneficiary. Mr McKay argued that the limited time frame of the Trust did not add any strength to the case for arguing that the “receipt and holding purpose” was, indeed, a purpose of the Trust.
[61] He referred me to In re Sir Robert Peel’s School at Tamworth ex parte the Charity Commissioners [1868] 3 Ch App 543 in which a trust established by Sir Robert Peel to support a school which he had founded, was found to be charitable notwithstanding the fact that a power was given in the trust deed to a person entitled to possession of his estates to revoke the trust and divert the fund to other purposes. The Court held that until the power of revocation was exercised the trust fund was devoted to charity and therefore the trust was a charitable trust, up until the time at which the power of revocation was exercised. A parallel was drawn between that situation and the present case where the term of the trust depends on the decisions of the Waitangi Tribunal as to the distribution of the capital. The trust will terminate at the time the capital has been fully distributed, but counsel for the Trust argued that until this event occurs, there is nothing to stop the Trust being found to be a charitable trust if that is its purpose.
[62] Mr McKay cited a number of other cases along the same lines, including In re Blunt’s Trusts [1904] 2 Ch 767, Gibson v South American Stores Ltd [1949] 2 All ER 985 and In re Randall [1887] 38 Ch D 213, all of which involve trusts which were found to be charitable. He also cited Presbyterian Church of New Zealand’s Beneficiary Fund v Commissioner of Inland Revenue (1994) 16 NZTC 11185, in which Heron J cited the Gibson, Randall, and Blunt’s Trusts cases as authority for the proposition that trusts for charitable purposes may exist for a limited period and not lose their charitable nature as a result of events which may bring the trust to an end.
[63] Again, the Commissioner’s response to this argument was that the stakeholder purpose, as the Commissioner’s counsel characterised it, is something broader than a mere receipt and holding purpose as the Trust’s counsel described it. The facts of this case are unusual and the argument the Commissioner made is not intended to be abstracted and applied in other situations.
[64] Considering the terms of the Trust Deed itself in the context of both the Crown Forest Assets Act and the 20 July 1989 agreement, I accept the Commissioner’s contention that the “stakeholder” purpose is indeed a purpose of the Trust sitting alongside the purpose of assisting the defined class of Maori claimants. I do not accept the Trust’s contention that this is either a mere function or that it is a manifestation of the motives of the parties to the 20 July 1989 Agreement rather than being a purpose of the Trust itself.
[65] I accept that a charitable trust which has a limited life is nevertheless charitable as established by the cases cited by the counsel for the Trust. I also accept that even if distributions from a trust may be made to individuals (or in this case claimant groups) that does not undermine the charitable nature of a trust if it is otherwise recognised as such — the decision of Heron J in The Presbyterian’s Church of New Zealand’s Beneficiary Fund case establishes that proposition. I understood counsel for the Commissioner to accept those propositions as well.
[66] However, the Commissioner answers that this case is not analogous with either of those two situations because of the unique nature of the stakeholder purpose. I agree with counsel for the Commissioner that this case can be distinguished and that, on a proper interpretation of the Trust Deed, in the context of the Crown Forest Assets Act and the 20 July 1989 Agreement, the stakeholder purpose is a separate stand alone purpose.
Is the stakeholder purpose an ancillary purpose?
[67] The Trust argued that if its role as a stakeholder is found to constitute a purpose, that purpose is merely ancillary to the principal (and charitable) purpose of assisting the defined class of Maori claimants out of the interest earned on the rental proceeds which constitute the capital of the Trust. Such a finding would leave open the possibility that the Trust could be found to have been established exclusively for charitable purposes, given the somewhat diluted meaning given to the term “exclusively” in other cases involving s 61(25).
[68] As I have already stated. the Trust conceded that a Court must find that it was established exclusively for charitable purposes in order for the s 61(25) exception to apply, even though the word “exclusively” is not used in the relevant part of s 61(25). However, the term “exclusively” has, in this context, been given a modified meaning by the Courts. The Trust argued that the term has now been effectively relegated to being a synonym of “mainly” or “principally”. Accordingly, the existence of a purpose which is only ancillary will not prevent a finding that a Trust is a charitable trust if the other purpose or purposes are charitable.
[69] The Trust relied on the following statement of Tipping J in the IPENZ case (at p 573):
“It is therefore clearly established that if a body is established with a main purpose which is clearly charitable but having certain subordinate or incidental purposes which are non-charitable, the latter will not prevent a conclusion that the body was established exclusively for charitable purposes.”
Tipping J cited in support of that proposition a statement to similar effect by Richardson J in the Council of Law Reporting case at p 683.
[70] It is clear, therefore, that an ancillary or subordinate purpose of a noncharitable nature will not prevent a trust which has a principal purpose that is charitable, from obtaining the status of a trust established for charitable purposes for the purposes of s 61(25).
[71] The Trust argued that the stakeholder purpose in this case is only of an ancillary or subsidiary status. In support of this it referred to the cases on charitable trusts which exist for a limited or finite period, to which reference has already been made. It also argued that the determinative purpose for which capital is passed to trustees is obviously the purpose for which income derived from that capital can be applied, namely the purpose of assisting the defined class of Maori claimants in relation to Licensed Land.
[72] The Trust drew support for that argument from the decision of the Court of Appeal in Commissioner of Inland Revenue v Medical Council of New Zealand [1997] 2 NZLR 297. In particular, I was referred to the analysis of Thomas J at p318 where he said:
“Thus, to my mind, in the context of determining whether a statutory body is established exclusively for charitable purposes, it is almost perverse to look at the immediate functions of that body in order to determine its purpose. As I have already indicated, the statutory functions and powers may be purely administrative functions and powers designed to achieve an end which is wholly charitable in character. The fact, for example, that the direct function of a body established to collect funds and distribute moneys for welfare, education or religious purposes, is the administrative task of soliciting, collecting and distributing moneys, should not render its purposes uncharitable. In all cases the correct approach is to stand back . . . and ask what is the true purpose for which the body in question has been established?”
[73] Applying that analogy to the present circumstances, the Trust argued that the function of receiving funds from the Crown and holding them until directed by a decision of the Waitangi Tribunal as to the appropriate “Confirmed Beneficiary” is the “administrative task”, to use the words of Thomas J, while the “true purpose” is the assistance of the defined class of Maori claimants.
[74] The Trust also submitted that its contention that the purpose in relation to the receipt and holding of rental proceeds is only administrative, is supported by the observation of the Commissioner’s adjudication unit where it said, at p 44 of its report:
“This purpose [ie the receipt and holding/stakeholder purpose] seems to be of a generally administrative nature. The holding of property on trust pending the resolution of what could be regarded as essentially a civil dispute is not a purpose which the Courts would generally regard as being charitable. The Crown could equally have simply separately accounted for the Rental Proceeds and achieved the same result.”
[75] The Commissioner argued that the context of the Medical Council case was so different that the extracts relied upon by the Trust confused, rather than assisted, the analysis in the present case. In particular counsel for the Commissioner pointed out that the comments made by Thomas J were in relation to an Act of Parliament (not a trust deed), where Thomas J found that there was no statement of purpose at all, so that the real purpose Parliament had in mind in enacting the legislation needed to be determined by the Court itself. The Commissioner argued that this is quite different from the current case where the purpose can be identified from the Trust Deed, and so the wider inquiry undertaken in the Medical Council case is simply unnecessary here.
[76] I do not accept the Trust’s contention that this case is analogous with the situation described by Thomas J in the Medical Council case. In this case, the role of the Trust in relation to the rental proceeds which, once received. become the Trust’s capital, is a substantial role independent of the “assistance” function relating to income. It is not a case of a Trust established for one. purpose (or ‘end’) and having to collect money to achieve it. Rather it is a Trust set up for two distinct purposes, one of which relates specifically to capital, and the other to the interest earned from the investment in that capital.
Is the stakeholder purpose a charitable purpose?
[77] A further alternative argument made by the Trust was that, if the receipt and holding/stakeholder function is an independent (not ancillary) purpose, then it is also a charitable purpose. This was an argument to which the Commissioner objected because of the possible application of s 138G.
[78] The essence of the argument is that, assuming that the purpose of assisting the defined class of Maori claimants is charitable, then the receipt and holding/stakeholder function must also be charitable because the two functions are inextricably linked: the “assistance” function cannot be discharged except through the receipt and holding of the Trust capital.
[79] Counsel for the Commissioner accepted there was some link between the two but that this did not convert a purpose which had no charitable characteristic (particularly bearing in mind that one outcome of the stakeholder purpose is a payment of rental proceeds back to the Crown) into a charitable purpose. I accept that submission. The Trust’s argument understates the nature of the stakeholder role which the Trust has, and which, in my view, is a quite independent purpose of the Trust. The assistance purpose requires the Trust to have capital to derive income which funds the assistance given to Maori claimants. But that does not mean that the holding of the capital as stakeholder cannot be a quite unrelated purpose.
Conclusion: Two purposes
[80] For the reasons given above, I conclude that the Trust has two distinct purposes, and that neither is ancillary or subordinate to the other. I also find that the receive and hold/stakeholder purpose is not a charitable purpose. The Trust does not therefore fall within s 61(25). While that resolves the matter, I am conscious that the significance of the case for both parties is such that there may well be an appeal from this decision. In view of that possibility, I will consider, and give my views on, the issue of whether the purpose of assisting the defined class of Maori claimants is a charitable purpose.
Is the purpose of assisting the defined class of Maori claimants charitable?
[81] The Trust submits that the purpose of assisting Maori claimants in the preparation, presentation and negotiation of claims before the Waitangi Tribunal which involve, or could involve Licensed Land is a charitable purpose in terms of the definition in s 2 of the Act. The Trust relies on the last category in that definition, ie “any other matter beneficial to the community”.
[82] The Trust’s argument was in two parts. The first was that the “assistance” purpose provided a public benefit (benefit to the community) and the second was that the benefit was charitable in character. I will deal with the argument in the same way.
Benefit to the community
[83] Counsel for the Trust introduced his argument with three broad propositions, namely:
[a] There is no need for any proof of public benefit if, to use the phrase of Lord Wilberforce in Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation (1968) AC 138 at 156, “the facts speak for themselves”. The Medical Council case is an example of the application of this approach in practice in a New Zealand case — there was no direct evidence before the Court that a benefit to the public arose from the maintenance of a Register of Medical Practitioners;
[b] Parliament’s involvement in, or regulation of, an activity may provide a guide as to whether the promotion of an activity is for a public benefit - again the Scottish Burial Reform and Cremation Society case illustrates this;
[c] On rare occasions evidence of direct benefit to the public may be required.
The facts speak for themselves
[84] The Trust argued that the first of these approaches was all that was needed to establish public benefit in this case, but relied on the second and third principles to strengthen its case.
Involvement of Parliament
[85] In relation to the second principle, ie the principle that Parliament’s involvement in or regulation of an activity may assist in determining whether there is a public benefit, the Trust relied on the decision of Chilwell J in Auckland Medical Aid Trust v CIR [1979] 1 NZLR 382 at 386. I accept that legislative involvement can assist in this regard.
[86] The Trust pointed to a number of ways in which Parliament had been involved in the resolution and redressing of grievances arising under the Treaty of Waitangi particularly:
[a] The establishment of the Waitangi Tribunal under the Treaty of Waitangi Act 1975;
[b] The extension of the jurisdiction of the Tribunal in respect of historical claims by virtue of the Treaty of Waitangi Amendment Act 1985;
[c] The further amendment of the Treaty of Waitangi Act by the Treaty of Waitangi (State Enterprises) Act 1988 which provided for the mechanism to protect the potential interest of Maori in land being transferred to State Owned Enterprises by the Crown;
[d] The legislation mandating individual Treaty of Waitangi settlements such as the Waikato Raupatu Claims Settlement Act 1995 and the Ngai Tahu Claims Settlement Act 1997;
[e] The recognition of the significance of the principles of the Treaty of Waitangi in numerous Acts of Parliament, notably the Conservation Act 1987 (section 4), the Crown Minerals Act 1991, (section 4), the Resource Management Act 1991 (section s 8), and the Historic Places Act 1993 (section 115(2));
[f] The Crown Forest Assets Act 1989 itself.
[87] The Trust argued that this legislation demonstrated the common perception of successive Governments that the principles of the Treaty of Waitangi are of core constitutional significance and that the Crown has a positive obligation to adhere to those principles, including the correction of past breaches of those principles.
Accordingly it argued that it can be inferred from this legislative involvement that adherence to the Treaty of Waitangi and correction of past breaches of the principles of the Treaty are public benefits.
[88] The Trust’s counsel acknowledged that Parliamentary involvement does not inexorably lead to this conclusion, as demonstrated by the Society of Accountants case, but said that here such an inference was rightly drawn. Counsel for the Commissioner did not contest that point and I accept that it is correct. He did, however, contest the proposition that the purpose of the Trust can be linked to those public benefits in the way counsel for the Trust argued, and I will come back to that point.
Direct evidence
[89] The direct evidence referred to by counsel for the Trust was:
[a] The evidence given by the Director of the Waitangi Tribunal. Mr Love, that the activities of the Trust contribute materially to the operations of the Tribunal. That evidence was also confirmed by Mr Dawson, an experienced practitioner advising claimants in negotiations with the Crown relating to Treaty of Waitangi grievances;
[b] The evidence derived from numerous Government publications to the effect that the Government recognises the benefits of the dispute resolution process relating to Treaty of Waitangi grievances as demonstrated in relation to the Parliamentary debates on legislation giving effect to Treaty of Waitangi settlements, Government publications such as “Healing the Past, Building a Future” distributed by the Office of Treaty Settlements in October 1999, the acknowledgements made by the Crown in relation to individual settlements in the text of the Deeds of Settlement and the legislation giving effect to the settlements, and reports of the Waitangi Tribunal.
[c] The evidence given by Mr David Caygill, a Minister at the time of the signing of the 20 July 1989 Agreement indicating the significance which the Crown attributed at that time to the correcting of historical grievances and advancing race relations.
[90] The Trust argued that, giving due consideration to the direct evidence, the Parliamentary influence and the self-evident benefits, the Court must reach the conclusion that the Trust’s activities operated for a public benefit.
[91] In its statement of position the Inland Revenue Department argued that there was not a public benefit, but rather a private benefit to claimants. It concluded as follows:
“In summary, the purposes of the Trust are not concerned with the public benefit, they are concerned with benefit to claimants before the Waitangi Tribunal and benefit to the parties in whose favour the Tribunal makes a determination. That is not a sufficient section of the community to give the Trust a public character. Furthermore, while a public benefit to the public may or may not result from the carrying out of the purposes of the Trust, such benefit cannot be demonstrated necessarily to result or to be an object of the Trust. The Trust is therefore not beneficial in a way the law recognises as charitable.”
[92] In support of that conclusion, the Department had pointed out that any success of claimants before the Tribunal would be at the expense of other members of the public, or the New Zealand public as represented by the Crown.
[93] Counsel for the Trust argued that the Commissioner’s position appeared to indicate a view by the Commissioner (and implicitly the Crown), that compliance with the Treaty of Waitangi, settlement of historical grievances under the Treaty of Waitangi and the benefits which the Trust argued resulted from such settlements did not constitute a benefit to the public. Counsel for the Trust said that this was “disappointing”.
[94] In the course of the hearing I asked the Commissioner’s counsel, Mr Brown whether the Commissioner accepted that as the Trust argued, there were benefits to the public from:
[a] the Crown’s honouring its Treaty of Waitangi obligations and settling historical grievances;
[b] the operations of the Waitangi Tribunal as a facilitator of such settlements;
[c] the promotion of racial harmony, and;
[d] the provision of a mechanism for the resolution of historical grievances through a constitutional process.
He confirmed the Commissioner did, in fact, accept, those benefits.
[95] That being the case, I do not need to discuss the arguments made by counsel for the Trust in relation to them in any detail. I accept that the evidence before me established the public benefit nature of the Crown’s compliance with its Treaty of Waitangi obligations, the resolution of Treaty of Waitangi disputes and settlement of historical grievances arising under the Treaty as a public benefit. I refer particularly to the documentary evidence recording the view of successive Governments that the process of Treaty of settlements is for the benefit of the New Zealand public generally, and the evidence of the influence of Parliament in establishing the Waitangi Tribunal to provide a forum for resolution of disputes and in mandating individual settlements of Treaty of Waitangi grievances.
[96] The Trust argued that its role in providing assistance to the defined class of Maori claimants is an integral part of the achievement of that public benefit because it provides the resources which allow Maori to pursue their claims through the Waitangi Tribunal process and to negotiate settlements with the Crown. Given the lack of other sources of funding for that purpose, the achievement of the public benefit would not be possible but for the funding and assistance provided by the Trust to Maori claimants.
[97] Thus was illustrated by the evidence of the Director of the Waitangi Tribunal, Mr Love, to the effect that the operation of the Waitangi Tribunal was substantially influenced and assisted by the operations of the Trust in providing the necessary resources for high quality research to be undertaken on behalf of the claimants. He said in view of this influence, the successes of the Tribunal were in large part also successes of the Trust.
[98] Similarly the evidence of the Trust’s witnesses was that the benefit of providing a forum for resolution of disputes in the form of the Waitangi Tribunal would be insufficient if the parties seeking to have that access were unable, through lack of financial resources, to pursue their claims, particularly where that lack is, at least in part, referable to the very grievances for which recourse to the Waitangi Tribunal is sought.
[99] The Trust argued that assisting claimants to have meaningful access to the Waitangi Tribunal aids in achieving the public benefit resulting from the Tribunal’s work, and is therefore itself a public benefit. Counsel for the Trust drew an analogy to the provision of legal aid. He referred to the decision in R v Lord Chancellor, ex parte Witham [1998] QB 575 where it was found that increasing Court fees to an extent which denied access to the Courts was a breach of a citizen’s constitutional right to that access and argued that where the converse applied, (that is, resources were made available to provide for access to the appropriate judicial forum), a public benefit must necessarily arise.
[100] The Commissioner’s argument against those contentions was essentially that the current situation is similar to that in the Society of Accountants case. In that case, the Court of Appeal found that the benefit which arose from the fidelity funds of the Law Society and the Society of Accountants was for those having claims on those funds, rather than any public benefit. In this case the Commissioner argued that the potential beneficiaries of the Trust are claimant groups coming within the defined class and that this was analogous to the situation in the Society of Accountants case. In my view that position fails to recognise the broader public benefit identified by the Trust in its arguments and confirmed in the Government and Parliamentary publications referred to by counsel for the Trust in argument.
[101] I accept the argument made on behalf of the Trust that this wider benefit is to the public, not just a benefit to a category of Maori claimants. I also accept that the Trust’s purpose of providing assistance to the defined class of Maori claimants is a purpose aimed at achieving that wider public benefit. I reject the Inland Revenue Department’s position that public benefits may result from the Trust’s assistance activities, but that this is not the Trust’s purpose.
[102] I therefore find that the Trust’s purpose of providing assistance to the defined class of Maori claimants is a purpose of providing a public benefit. I now turn to the issue of whether that public benefit is charitable.
Are the benefits arising from the Trust’s “assistance” activities charitable in character?
[103] Counsel for the Trust acknowledged the fact that a Trust is established as being for a purpose beneficial to the community (ie, within the fourth category of charity referred to in Pemsel’s case) did not necessarily mean it qualified as being charitable. He pointed out there are two approaches to the method of determining whether a Trust qualifies as charitable. The first is by reference to the preamble to the Statute of Elizabeth I (the Charitable Uses Act 1601, 43 Eliz 1 c4). The second is to treat a Trust which is beneficial to the community as being charitable unless the contrary is shown.
[104] The issue of the correct approach to be adopted was considered by the Court of Appeal in the Medical Council case. In that case, McKay J said that the correct approach was that stated in Halsbury’s Laws of England, Vol 5(2), 4th ed at para 37. That paragraph says:
“Not all such purposes are charitable; to be so the purposes must fall within the ‘spirit and intendment’ of the preamble to the ancient Statute of Elizabeth I. Historically, in order to find whether a particular purpose came within that spirit and intendment, the Courts sought to find an analogy with the purposes mentioned in the preamble itself, or with purposes previously held to be within its spirit and intendment. It now appears that, even in the absence of such analogy, objects beneficial to the public, or of public utility are prima facie within the spirit and intendment of the preamble and, in the absence of any ground for holding that they are outside its spirit and intendment, are therefore charitable in law.”
[105] McKay J’s endorsement of this statement appears at p 310 of the report. He records that the passage was adopted by the Court of Appeal in Morgan v Wellington City Corporation [1975] 1 NZLR 416 at 419-420 and supported by a number of English cases, but that the position in Australia had been left open by the Privy Council in Brisbane City Council v Attorney General for Queensland [1979] AC 411 at 422. In the Medical Council case, Thomas J also adopted the statement in Halsbury which he said (at p 321):
“. . .makes it clear that, even if the objective is not analogous with purposes falling ‘within the spirit and intendment of the preamble’ to the Statute of Elizabeth I, objects beneficial to the public, or of public utility, are prima facie within that spirit and intendment and, in the absence of any ground for holding that they are outside its spirit and intendment, are therefore charitable in law.”
[106] Thomas J found that the purpose of safeguarding the health of the community, which he found was the purpose of the Medical Council, was a matter beneficial to the community, even if it was not analogous to the purposes mentioned in the preamble. Keith J agreed with the views of Thomas and McKay JJ. Richardson and Gault JJ dissented. In view of the decision of the Court of Appeal in the Medical Council case, I believe it is appropriate to take the second approach put forward by counsel, that is to accept that a purpose which is beneficial to the public is prima facie charitable, unless there is a reason put forward for holding that it is not. No such reasons were advanced by the Commissioner and accordingly I find that the purpose of the Trust in assisting the defined class of Maori claimants is charitable.
[107] In case I am wrong in applying the approach adopted by the majority in the Medical Council case, I also consider whether the purpose can be said to fall within the “spirit and intendment” of the preamble to the Statute of Elizabeth I in that regard. Counsel for the Trust referred me to a number of authorities in support of the proposition that it does. These were:
• In re Mathew, deceased; The Trustees Executors and Agency Co Ltd v Mathew [1951] VLR 226 where a trust “for the benefit of the Australian Aborigines” was found to be charitable because Aborigines were a class in need of protection and assistance which was analogous to the reference in the preamble to “The Aged, Impotent and Poor Peoples; support, aid and help of people decayed; education and preferment of orphans”.
• Flynn & Ors v Mamarika & Ors (1996) 130 FLR 218. In that case the Court found that aborigines in a specific area numbering about 1200 were a section of the public so that the public benefit rule was satisfied with reference to the Trust;
• Verge v Somerville [1924] AC 496, where a trust “for the benefit of New South Wales returned soldiers” was held to be charitable because it provided a benefit to a class of the community (returned servicemen of New South Wales), by restoring them to their native land and giving them a fresh start in life.
[108] The Trust also referred me to the 1983 report of the Charity Commissioners for England and Wales which records that the Commissioners considered that the promotion of racial harmony was a benefit to the public and that it was charitable because it was analogous with purposes which the Courts have held to be charitable, namely the preservation of public order, the mental and moral improvement of man on the basis that discrimination on grounds of colour is immoral and the promotion of equality of women with men.
[109] The Commissioner’s position on this issue was that the benefits to the public that result from the Trust’s activities are general and indirect benefits arising from those activities. The Commissioner argued that they were similar to the “peace of mind” which the taxpayer in the Society of Accountants case argued the general public received from the existence of the fidelity funds of the Society of Accountants and the Law Society. The Commissioner’s position was that the following statement of Richardson J in that case (at p 153) applies in this case:
“That peace of mind seems to me far too nebulous and remote to be regarded as a public benefit . . . The element of public benefit must arise if at all, from the application of the fund for the purposes of the fund and I cannot see any basis for enlarging the community benefit beyond those persons entitled to claim from the fund.”
[110] This is essentially an argument that the benefit is not a public benefit rather than an argument that, if it is a public benefit, it is not charitable. I will deal with the Commissioner’s argument that the benefit in this case is a private benefit in more detail later. For the present though, I find that, even if it is a requirement that the benefit be within the spirit and intendment of the Statute of Elizabeth I, this case is broadly analogous with the cases cited by the Trust and would therefore satisfy that test.
Are the benefits from the Trust “assistance” activities private, not public?
[111] The principal response of the Commissioner to the Trust’s contention that the assistance purpose is charitable is, as already indicated, that the benefits deriving from the Trust’s activity are private rather than public. In this regard the Trust relied on the Society of Accountants case, to which I have already referred, and argued that the public benefit in this case is only nebulous and remote.
[112] The Trust argued that the analogy is simply inappropriate. It pointed to the benefits derived by all members of the community from a robust and effective treaty settlement process, a view held by successive Governments as illustrated in the material placed in evidence before me and referred to earlier in this judgment. Counsel for the Trust pointed out that benefits such as the repair of spires, organs, bells, clocks, stained glass windows or monuments in a church, the provision of botanical gardens or observatories, the provision of musical instruments for a town band, the protection or benefit of animals including homes for lost dogs or forsaken cats and the maintenance of regimental offices, libraries and other similar objects, have been held to confer benefits to the public of a charitable character. I accept the submission of the Trust that the public benefit in this case is not nebulous or remote and that the Society of Accountants can therefore be distinguished in that regard.
[113] The Commissioner also argued that the class of beneficiaries was, as in the Society of Accountants, too narrow to constitute “the public or a section it”. In that case Richardson J referred to the three striking features of the fidelity fund which were:
[a] There was no selection among those who qualified for the payment — it was, as Somers J observed, a compulsory insurance scheme where the beneficiaries would be those entitled to cover and compensating those persons did not involve any substantial benefit to the public;
[b] The funding was a deductible cost of carrying on practice for accountants and lawyers — again this emphasised the commercial “insurance” nature of the fund;
[c] The claimants were entitled to benefit by reason of their relationship with a particular defaulting practitioner.
[114] In relation to the third characteristic, Richardson J said (at p 154):
“Where the claimant is a client, that relationship is in contract. In any other case where funds are trusted to the professional adviser there is a fiduciary relationship with the adviser founded on equitable principles. Those persons benefit as individuals and because of that relationship. But as Dixon J and Evert J observed in their judgment in Attorney General for NSW v Perpetual Trustee Co Ltd (1940) 63 CLR 209,222:
‘A charitable trust is a trust for a purpose, not for a person. The object of ordinary trusts are individuals, either named or answering a description whether presently or at some future time. To dispose of property for the fulfilment of ends considered beneficial to the community is an entirely different thing from creating equitable estates and interests and limiting them to beneficiaries.’
What those entitled to benefit from the particular fidelity fund have in common is that each has a fiduciary relationship with a criminally defaulting practitioner and each is entitled to be compensated from the fund for that part of his or her loss not recoverable from the practitioner. These trusts are for those persons and for their financial benefit and that nexus is not in my view sufficient to constitute the beneficiaries a section of the community for charitable purposes.”
[115] The Trust’s response to that argument was that the characterisation of the situation facing the Court in the Society of Accountants case is simply inapplicable in the present case for two broad reasons. The first is that, in this case, there are indirect public benefits arising from the effective operation of the Treaty of Waitangi claims settlement process to which reference has already been made. I accept that submission.
[116] The second is that, in this case, unlike the Society of Accountants the beneficiaries are a section of the public.
[117] In relation to that second point, reference was made to the decision of the House of Lords in Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297. In that case the House of Lords decided that beneficiaries of a trust which were defined by reference to an employment relationship were not a section of the community. Lord Simonds said at p 306:
“The quality which distinguishes [the beneficiaries] from other members of the community so that they form by themselves a section of it, must a quality which does not depend on their relationship to a particular individual.”
[118] Reference was also made to a number of other cases in the same vein. These were:
[a] ReCompton, Powell v Compton [1945] 1 All ER 198 where the English Court of Appeal held that a trust for the benefit of the descendants of named persons could not be regarded as a charitable trust;
[b] Re Trusts of Hobourn Aero Components Ltd’s Air-raid Distress Fund [1946] 1 All ER 501 where the English Court of Appeal found that a trust to assist employees or ex-employees with the Forces, who suffered the loss of their homes or contents by enemy action, was not charitable, following Compton, because the beneficiaries were limited to employees of a particular entity and the trust therefore lacked the necessary public element.
[c] Davies v Perpetual Trustee Co (Ltd) [1959] 2 All ER 128, where the Privy Council held that a trust for the benefit of the Presbyterians, “the descendants of those settled in [New South Wales] hailing from or born in the north of Ireland . . . for the purpose of establishing a college for the education and tuition of their youth” was not charitable because the class of beneficiaries was “a fluctuating body of private individuals”.
[d] Arawa Maori Trust Board v CIR (1961) 10 MCD 391 in which the Magistrates Court held that the Arawa Tribe was a “fluctuating body of private individuals” because the members of the Arawa Tribe were those tracing their ancestry to a person living in a defined area prior to 1840. This case led to the passing of s 24B of the Maori Trust Boards Act 1955, which allowed charitable status to certain trusts established by Maori Trust Boards.
[119] Counsel for the Trust pointed out that the approach adopted in Oppenheim and followed in the cases cited by the Commissioner, was the subject of significant criticism by Lord McDermott in his dissenting judgment in the Oppenheim case. In his judgment, Lord McDermott noted that the class of potential beneficiaries in that case exceeded 110,000 people. Since this was a class of people of significant size and importance, he said it manifested an intention to advance the interests of those people as a class rather than a collection of particular individuals. A similar view was taken by Lord Cross in Dingle v Turner [1972] AC 601.
[120] Counsel for the Trust argued that, even on the basis outlined in the majority judgments in the Oppenheim case the Trust qualifies as public rather than private, because the nexus which joins the beneficiaries of the Trust is impersonal and unrelated to a relationship with any named individuals, an employment relationship with a particular entity or a contractual relationship. He relied on the decisions in the Mathew and Flynn cases as supporting this contention.
[121] In Dingle v Turner Lord Cross said at p 624:
“In truth, the question whether or not the potential beneficiaries of a Trust can fairly be said to constitute a section of the public is a question of degree and cannot be by itself decisive on the question whether the trust is a charity. Much must depend on the purpose of the trust. It may well be that, on the one hand, a trust promotes some purpose, prima facie charitable, will constitute a charity even though the class of potential beneficiaries might fairly be called a private class and that, on the other hand, a trust to promote another purpose, also prima facie charitable, will not constitute a charity even though the class of potential beneficiaries might seem to some people fairly describable as a section of the public.”
[122] The views of Lord Cross in Dingle v Turner, which were approved by the other members of the House of Lords, were considered in the Society of Accountants case by both Richardson J (at p 152) and Somers J at (p 156). The same issue was considered by Gallen J in Educational Fees Protection Society Inc v Commissioner of Inland Revenue (1991) 13 NZTC 8,203. He commented as follows (at p 8,211):
“Following the comments of Lord Cross in Dangle v Turner however, the distinction between personal and impersonal relationships may no longer be totally acceptable as a test and the decision in Oppenheim’s case may no longer represent unquestioned law. Further, following on the decision of Dingle v Turner, the ultimate conclusion will be at least influenced by the purpose of the trust. As I understand him in using that term, Lord Cross is not referring to the general class of purpose as defined in The Commrs for Special Purposes of IT v Pemsel (supra), but in a much more particular sense, considering the aims and objects of the trust under consideration . . . In New Zealand the most recent authority and one which binds me is the decision of the Court of Appeal in New Zealand Society of Accountants v C of IR (supra). In that case, the difference in the tests contemplated by Oppenheim and Dingle v Turner is recognised but neither is in terms preferred. When the case is read as a whole I think it can reasonably be said that the approach of the Court indicates that in determining whether or not a particular purpose is to be regarded as charitable, where for example it falls to be considered if at all under the fourth class in Pemsel’s case, the question of public benefit will be of significance in determining whether or not the purposes are to be classified as charitable. It will also be important in the particular sense under which the concept of public benefit must be met before a purpose generally classified as charitable, can be classified as such for legal purposes. The nature of the charitable purpose may itself be a factor in determining whether or not the requirement of public benefit has been met.”
[123] In the Educational Fees Protection Society case, Gallen J found that a Society which operated a scheme to ensure that the education of a child at a school entering into an agreement with the Society could continue unaffected by the death of a parent. Gallen J found that the purpose of the Trust was to ensure that the education of the children was not interrupted by the loss of a parent, that this was charitable (being for the advancement of education), and that it was directed to the public benefit even though the parents in the school may also have gained an advantage.
[124] In the present case, the position of the Trust is that it satisfied both the Oppenheim test and the Dingle v Turner test, while the Commissioner’s position is that the Trust fails the test regardless of which approach is applied.
[125] The Trust argued that there are a significant number of potential beneficiaries of the Trust’s activity and that the nexus which joins them is not related to any individual or employment or contractual relationship, unlike the position in Oppenheim and in the Society of Accountants case. The Commissioner argued that the position is similar to that of the Society of Accountants case.
[126] The Commissioner argued that, where rental proceeds are used to help claimants who are then successful in the Waitangi Tribunal, it can be said that those claimants are using money which was due to them in any event. On the other hand, if the Tribunal recommends that Licensed Land not be returned to Maori ownership, then (but only then) it could be said that the Crown has given away money in an altruistic manner. I do not accept this argument. The benefit is the assistance to bring the claim and have it properly considered and ruled on. That benefit arises regardless of the eventual outcome. If the land in question is awarded to a particular claimant group, that has no impact on the Trust’s previous expenditure of income in assisting the claimants to achieve the result. The two are not linked in that way.
[127] The Commissioner also argued the fact that the Crown is a potential beneficiary (because any unspent income at the time of determination of the Trust must be paid to the Crown), compromises the charitable status argument. The Trust argued that the position of the Crown is irrelevant because any unclaimed money on the termination of the Trust would revert to the Crown under normal Trust principles and the law of bona vacantia in any event. I agree that the potential for the Crown to receive some income at the termination of a trust is irrelevant to the present issues, particularly given my earlier findings about trusts for a particular term and the clear law that such trusts can be charitable, notwithstanding the fact that they may be terminated at the end of a particular period of time. The provision requiring payment of any outstanding money at the termination of the trust to the Crown is essentially a declaration of what would occur anyway, even if the explicit provision to that effect was not included n the Trust Deed.
[128] I also accept the Trust’s argument that the Trust has a public character in this case. The evidence of Ms Waterreus was that over 500,000 New Zealanders identify themselves as Maori, and all Maori are potential beneficiaries of the Trust. As I have already said in paragraph 27 above, I believe that that contention is open to challenge, and I prefer the approach I outlined in that paragraph, which is to consider as potential beneficiaries claimants whose claims could involve Licensed Land, following the approach suggested in the Turangi and Muriwhenua decisions of the Waitangi Tribunal.
[129] The evidence of Ms Waterreus was that the potential beneficiaries assessed on that basis would include approximately 300,000 Maori and she indicated that approximately 70,000 Maori have already benefited through Crown forest Licensed Land being vested in groups to which they are affiliated. Those are obviously significant numbers which were not challenged by the Commissioner (although the scope of the Trust’s activities were challenged).
[130] Having considered both the Oppenheim and Dingle v Turner approaches as applied in the Society of Accountants and the Educational Fees Protection Society cases, I am satisfied that, whichever approach is adopted, the benefits from the Trust activities are public, not private.
Conclusion: “Assistance” purpose is charitable
[131] In view of those findings I conclude that the Trust’s purpose of assisting the defined class of Maori claimants is a charitable purpose, and that if the “assistance” purpose had been the Trust’s exclusive purpose, the Trust would have been entitled to the income tax exemption under s 61(25).
Delay by the Trust in claiming charitable status
[132] Evidence was given by Mr Mulcahy, a senior investigator with the Inland Revenue Department, that it was not until 21 April 1997 that the solicitors then acting for the Trust advised the IRD that the Trust considered it may be exempt from income tax as a charity. Although counsel for the Commissioner did not press the point, the inference which the Commissioner appeared to be asking me to draw was that, if the Trust really was charitable, the Trust’s advisers would have raised the issue much earlier with the Department.
[133] Mr McKay acknowledged that the claim for charitable status was made only in 1997. However, he pointed out that the Trust’s tax position was governed by a ruling given by the Department which allowed the Trust to deduct expenditure on assisting claimants. The effect of that ruling was that the Trust effectively had a nil tax position. This ruling was withdrawn in early 1997 and the Trust’s first reference to the possibility of its having charitable status was raised about a month later.
[134] Mr McKay argued that the Trust simply had no need to raise the charitable status point before then, given that its net tax position under the earlier ruling given by the Department was essentially the same as what it would have had as a charity. I accept that submission.
[135] The fact that charitable status was not claimed immediately after the formation of the Trust may indicate that the possible application of s 61(25) was simply not considered by those involved with the process at that time. That the issue was not subsequently raised is explicable by the fact that achieving charitable status would have had no significant practical effect on the Trust’s tax position, given the earlier ruling. In any event, delay in raising an issue does not create any form of estoppel and the Commissioner did not argue that it did. Accordingly, I find that the delay issue is neutral and does not effect the outcome one way or the other.
Section 138G revisited
[136] I now revert to the arguments made in respect of s 138G, as foreshadowed in paragraph 29 above. I will assess whether any of the arguments in respect of which a s 138G challenge was made has been accepted and if it has, whether consideration of that argument ought to have been ruled out under s 138G and, if so, what impact that has on my decision.
[137] The Trust argued that the Commissioner’s challenge to the scope of the Trust’s activities was caught by s 138G. Counsel for the Trust said that the challenge was not foreshadowed in the Commissioner’s statement of position. In view of my findings about the scope of the Trust and my findings that, taking the approach outlined in paragraph 26, the benefit of the Trust’s “assistance” activities is public, not private, the Commissioner’s argument has had no material impact on the outcome. I therefore do not need to consider the s 138G argument. The Trust also raised a preliminary objection to the evidence of Mr McEwen, but this was not pursued.
[138] The Commissioner argued that s 138G applied to:
[a] The Trust’s argument that s 61(25) referred to income derived for charitable purposes rather than income derived by a trust for charitable purposes. That argument failed so the s 138G argument does not need further consideration;
[b] The Trust’s argument that the Trust’s “receive and hold” purpose or “stakeholder” purpose is itself charitable — again this argument was not successful so the question of s 138G applies and need not be considered further.
[139] The Commissioner also indicated that an objection under s 138G could have been made to the Trust’s evidence relating to the scope of the Trust’s activities, but
[140] Since none of the matters to which objections under s 138G were made have influenced the decision in any way, I do not need to look further to see whether the objections made under s 138G can be sustained. For the same reason, I do not need to consider whether it would have been appropriate to allow the arguments to be raised anyway, in accordance with s 138G(2). I note that in all cases the objections were strongly contested and the party against which the objection was made pointed to various references in the statements of position to support its opposition to the objection, so that the application of s 138G in each case was far from certain.
Decision
[141] In view of my finding that the Trust has more than one purpose and that one of those is not charitable, I find that the Trust is not entitled to the benefit of the income tax exemption set out in s 61(25) of the Act, for the 1994-1996 income years.
Costs
I did not hear from counsel on the subject of costs and therefore reserve the position. If the parties are unable to agree, then any application for costs should be made within 21 days after the date of this judgment, and any response to that application should be filed within 21 days after the date of the application.
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