June 2013 139
The History of Charitable Purpose Tax Concessions in
New Zealand: Part 1*
Michael Gousmett, FCIS PhD BCom(Hons) BBS DipTchg DipCM, is an independent Charities and Third
Sector Researcher, and Founding Trustee of The New Zealand Third Sector Educational Trust CC47402.
Just as taxpayers are required to meet their fiscal obligations or else face penalties, so too should those
organisations with charitable purposes that benefit from fiscal privileges be required to demonstrate precisely
how it is that they have benefitted the community through their activities, being activities that are both directly
and indirectly subsidised by the taxpayer. Once charitable status has been granted, we need to go beyond the
presumption of charitability to ensure that positive outcomes are being achieved as a consequence of the fiscal
privileges available to charities. The nexus between charitable status and fiscal privilege is clear, for without
the one the other does not follow. This is the first of a two-part article examining the history of the charitable
purposes concession in New Zealand.
In 1767, in Jones v Williams the Lord Chancellor defined charity as “a gift to general public use, which
extends to the poor as well as to the rich.” 1 Tudor restated Jones in explaining that the Court of Chancery
established “that a trust, in order to be charitable, must be of [a] public character, that is, it must be for the
benefit of the community or an appreciably important section of the community.”
2 Luxton suggests that the
concept of public benefit “has for centuries been inherent in the legal concept of charity, and indeed explains
equity’s particular tenderness for charitable trusts.”
3 Of the Statute of Elizabeth of 1601, 4 Jones stated that
“[p]ublic benefit was the key to the statute, and the relief of poverty its principle manifestation.” 5 Further,
Luxton states: 6
* Part 2 of this article is scheduled to appear in the September 2013 issue of the New Zealand Journal of Taxation Law and Policy.
1 Jones v Williams (1767) Amb 651 at 652.
2 Jean Warburton, Debra Morris and NF Riddle Tudor on Charities (Sweet & Maxwell, London, 2003) at 7; see also Gareth H Jones
History of the Law of Charity 1532-1827 (Cambridge University Press, London, 1969) at 22-52.
3 Peter Luxton “Public benefit and charities: The impact of the Charities Bill on independent schools and private hospitals” (1 March
2006) Lancaster University Law School
4 Charitable Uses Act 1601 (UK) 43 Eliz I c 4.
5 Jones, above n 2, at 27. See also Jones, above n 2, footnote 3 at 27: “So, in Fisher v Hill (1612), Duke, 82, it was held that ‘where no
use is mentioned or directed in a deed, it shall be decreed to the use of the poor’.”
6 Luxton, above n 3, at 6.
140 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
[t]he explanation for the dearth of explicit reference to public benefit before Pemsel 7 seems to be that, until the end of
the Victorian era, public benefit was implicit in the legal meaning of charity, so that a charitable purpose was
necessarily a purpose for the public benefit.
The concept of charity as a public use is not, according to Jones, “a novel idea.” 8 Sir Francis Moor(e), who, on
the title page of the 1676 edition of Duke’s The Law of Charitable Uses, is described as a Member of the
Parliament of 43 Elizabeth I, and “the penner” of the Statute of Elizabeth of 1601,
9 emphasised in his Reading
“that all charitable uses were ‘publique’ uses.” 10 In 1740, Lord Hardwicke “echo[ed] Moore’s view in Attorney-
General v Pearce, 11 [stating that] the epithet publick ‘was meant only by way of description’ of charity, ‘and not
by way of distinguishing one charity from another … It is the extensiveness which will constitute it a public
12 Then, “in 1767 Lord Camden 13 defined a charitable gift as ‘a gift to general public use which extends
to the poor as well as to the rich … .” Jones notes that “[i]t is true that the reports of eighteenth-century charity
cases are not, on the whole, characterised by comprehensiveness or lucidity; but the available evidence does
lead to a tentative conclusion that uses which benefited the public were ipso facto deemed charitable.”
However, in 1805 in Morice v Bishop of Durham, 15 Lord Eldon “enshrined the preamble [to the Statute of
Elizabeth of 1601] as the fons et origo of all charity, and the argument that ‘upon the authorities almost
everything, from which the public derive benefit, may be considered a charity,’
16 was conclusively rejected.” 17 It
was the concepts elucidated by Lord Eldon which Lord Macnaghten rested on in Pemsel in defining the “legal
sense” of charity as comprising:
four principal divisions … : trusts for the relief of poverty; trusts for the advancement of education; trusts for the
advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the
preceding heads. The trusts last referred to are not the less charitable in the eye of the law, because incidentally they
benefit the rich as well as the poor, as indeed, every charity that deserves the name must do either directly or indirectly.
In spite of the fact that Pemsel was also reported in Reports of Tax Cases 19 (and in more detail than the Appeal
Court report by including the interchanges between the parties) Lord Macnaghten had declared “[w]ith the
policy of taxing charities I have nothing to do.”
20 However, prior to Pemsel, the courts were concerned with the
7 Commissioners for Special Purposes of the Income Tax v Pemsel  AC 531.
8 Jones, above n 2, 121.
9 George Duke The Law of Charitable Uses, revised and much enlarged, with many cases in law both ancient and modern, whereunto is
now added the learned reading of Sr [sic] Francis Moor, Kt, methodically digested by George Duke, of the Inner Temple, Esq
10 Jones, above n 2, at 121 citing Duke, above n 9, unpaginated.
11 Attorney General v Pearce (1740) 2 Atk 87 at 88.
12 Jones, above n 2, at 121.
13 Jones v Williams (1767) Amb 651 at 652, cited in Jones, above n 2, at 122.
14 Jones, above n 2, at 122.
15 Morice v Bishop of Durham (1805) 10 Vesey Junior 522.
16 Morice v Bishop of Durham, above n 15 at 523.
17 Jones, above n 2, at 122. Per Lord Eldon at 532: “There are four objects, within one of which all charity … must fall: 1st, relief of the
indigent; in various ways: money: provisions: education: medical assistance; &c.: 2dly, the advancement of learning: 3dly, the
advancement of religion; and, 4thly, which is the most difficult, the advancement of objects of general public utility.”
18 Commissioners for Special Purposes of the Income Tax v Pemsel, above n 7, at 583.
19 Commissioners for Special Purposes of the Income Tax v Pemsel (1890-1898) 3 Reports of Tax Cases 53.
20 Commissioners for Special Purposes of the Income Tax v Pemsel, above n 7, at 591.
The History of Charitable Purpose Tax Concessions in New Zealand: Part 1
June 2013 141
fiscal impact of the exemption from income tax, as can be seen in The Incorporation of Tailors in Glasgow v
The Commissioners of Inland Revenue. 21 The introductory note to the case explained that:
[t]his was the third case decided under the new [Customs and Inland Revenue Act 1885], and is of importance, not only
because of the considerable amount of Revenue which was involved in the test issue, but also because an approach was
made for the first time within official record towards assigning a legal definition to the word “charitable” in connection
with any Act passed for the purpose of raising revenue.
While, following Pemsel, the judiciary may not consider that charity cases before them are tax cases, the
reality is that an entity that is adorned with the status of having charitable purposes automatically benefits from
fiscal privileges, the primary privileges being an exemption from income tax and, in New Zealand, donee
22 A rationale for such privileges is that the work of charitable organisations lessens the government of
burden.23 This concept is also found in parliamentary debate when, in 1885, Mr Holmes MP asked if the
Government intended exempting “the property of benefit associations from taxation under the Property Act?” 24
This question, he explained, was being asked: 25
at the request of the Independent Order of Odd Fellows, at Christchurch … [whose] sole object was to relieve the State
and local bodies of the burden of poverty and suffering caused by want of forethought and thrift. It seemed absurd that
these bodies, … should be taxed on the very means which enabled them to carry out their object.
Relieving the Government of burden also surfaced in 1962 in the debate concerning the donations rebate that
the National Government had proposed, when the Hon John Rae MP said that he believed that “if people are
given a little incentive great things will be done privately, and fewer demands will fall on the Government’s
26 Mr Rae also considered that “a great deal of good will be done by private donations for all these worthy
While indeed a great deal of good has been done, and continues to be done, through voluntary activity, the
author is not aware of any in-depth studies that have attempted to measure whether there is a positive financial
benefit to the government in that the cost of the fiscal privileges through income tax exemption and donee status
is outweighed by the financial returns to the community through the provision of fiscal privileges to charitable
However, attempts have been made in North America to quantify the exemption from income tax with respect
to “charitable” hospitals. A report in 1990 by the United States General Accounting Office (GAO) stated that:
21 The Incorporation of Tailors in Glasgow v The Commissioners of Inland Revenue (1883-1890) 2 Reports of Tax Cases 297.
22 Income Tax Act 2007, ss CW 41 and CW 42, sub-pt LD and sch 32.
23 See, for example, Robert Louthian and Amy Henchy “Lessening the Burdens of Government” in Internal Revenue Service Exempt
Organizations Continuing Professional Education Text (1993)
New Zealand (Oxford University Press, Melbourne, 2000) at 446-450.
24 (14 July 1885) 51 NZPD 583.
25 (14 July 1885) 51 NZPD 583. Mr Holmes was advised by Mr Stout MP that “the property was exempt now, and it was not proposed to
interfere with it at all.”
26 (11 July 1962) 330 NZPD 840.
27 (11 July 1962) 330 NZPD 840.
28 There may well be social benefits but this article focuses on the fiscal aspects of the concessions.
29 General Accounting Office (GAO) Nonprofit Hospitals: Better Standards Needed for Tax Exemption (Report to the Chairman, Select
Committee on Aging, House of Representatives, GAO/HRD-90-84, May 1990)
Michigan; New York; California; and Florida.
142 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
Hospitals whose potential tax liability exceeded their uncompensated care expenses had proportionately higher net
incomes than other hospitals in their state. Between 43 and 72 percent of the non-profit hospitals in [a review of] five
states provided less charity care than what the General Accounting Office estimated as the value of their tax exemption.
The GAO noted that “[t]he amount of tax revenue lost as a result of excluding or exempting certain income
from taxes can provide an indication of the relative cost of policies designed to achieve specified public
30 In order to estimate the forgone tax revenue, the GAO “applied the average effective tax rate of a
sample of for-profit hospital corporations to the non-profits’ net incomes,” 31 which provided an estimate of the
hospitals’ estimated tax exemption value that was then compared to the uncompensated care provided, being a
surrogate of the charitable activities of the hospitals. The GAO reported that:
In the five states [that were] reviewed, non-profit hospitals as a group provided more compensated care than the
estimated value of their income tax liability. [However, a]bout 15 percent of non-profit hospitals … provided
uncompensated care that was less than the estimated value of the [median] tax exemption.
The value of the uncompensated care costs of the 15 per cent of hospitals, 102 in all, was calculated at USD
79 million, while the value of the median income tax exemption was USD 131 million, a difference of USD 52
Such comparisons are not undertaken in New Zealand. In fact, there is an absurdity in that New Zealand’s
district health boards are levied a capital charge at a rate of eight per cent of the greater of its actual or budgeted
closing equity balance for the year.
34 The cash cost to the Canterbury District Health Board alone for the 2012
financial year was $18.926 million (2011: $15.428 million). 35 The operating surplus before the capital charge
was $15.012 million, which, after the capital charge expense of $15.055 million, produced a deficit before
impairment of property, plant and equipment (PPE) of $43,000.
36 The absurdity is that the private charity
hospital in Christchurch, St George’s Hospital, reported an operating surplus of $6.5 million before proceeds
from, and impairment expenses relating to, mediation, insurance and the Canterbury earthquakes of $66.5
million, generating a net income tax exempt surplus of $73 million.
37 Yet, St George’s Hospital provides no
evidence in its annual report with respect to one key element of its charitable objects, which states that: 38
The Society was established for medical, religious and charitable objects and purposes within New Zealand only.
Specifically, the Society was established:
to apply any profits accruing from the activities or work of the Society to the furtherance of its charitable objects,
especially the altruistic nursing of the sick or for such other purposes which accord with its charitable objects.
It is only since 2011 that the Hospital has been reporting “Payments to Philanthropic Causes” in its financial
statements, of $91,463 in 2012 (2011: $157,967), which is only 0.21 per cent of its total group income of $44
30 At 26.
31 At 26.
32 At 26.
33 At 27, Table 2.4.
34 Canterbury District Health Board Annual Report for the year ended 30 June 2012 (5 November 2012) Publications by Title
35 At 44.
36 At 41.
37 St George’s Hospital Incorporated Annual Report for the Year Ended 31 March 2012 (13 August 2012) Charities
38 St George’s Hospital “The Society of St George’s Hospital Inc” About St Georges Hospital
The History of Charitable Purpose Tax Concessions in New Zealand: Part 1
June 2013 143
million (2011: 0.39 per cent of $41 million). 39 No detail regarding the nature of such payments is provided in the
financial statements, such as whether the payments were to subsidise the cost of patient care, or were donations
to external causes.
The remainder of this Part 1 of the article is as follows. Section 2 briefly considers the evolution of charitable
purpose fiscal concessions in New Zealand, with section 3 examining the concession of exemption from income
tax. Section 4 then considers developments in the income tax legislation, with sections 5 and 6 analysing the
National Party’s philosophy of self-reliance and the rationale for the donations concession. Section 7 briefly
examines the reviews undertaken into the taxation of charities in New Zealand with section 8 concluding this
part of the article.
2.0 THE EVOLUTION OF CHARITABLE PURPOSE FISCAL CONCESSIONS IN NEW
There are arguably two ways in which legislation in New Zealand evolved: through the transfer of ideas about
taxation; and through the borrowing of ideas from other jurisdictions. This article does not allow for a detailed
examination of the arguments proposed by Heagney
40 and Finn, 41 whose doctoral theses suggest both forms of
Heagney notes that Daunton has suggested that “the colonies of the British Empire imported their tax systems
from home.” 42 Using the theory of transfer, Heagney develops this concept further in his thesis (of relevance to
this article), sch E to the British Income Tax Act 1842 and the Property Rate Ordinance 1844. 43 Heagney
concludes that: 44
From the research undertaken, the three core hypotheses of the chapter [observation, direct communication and
assimilation] are found to be highly plausible. First, there was a partial transfer to the colony of Schedule E of [the
British Income Tax Act 1842 in 1843]. Second, Schedule E brought with it the accumulated knowledge, up to that time,
on political economy. Third, this transference of political economy and public opinion laid the foundation for a uniquely
New Zealand approach to fiscal policy, and the formation of public attitudes in regard to taxation.
However, sch E itself has no further relevance to this article as sch E, which was promulgated as a Property
and Income Tax in the New Zealand Gazette on 27 September 1843, applied only to “New Zealand recipients of
39 St George’s Hospital Incorporated, above n 37, at 7. The amount for 2012 is for 11 months as the Hospital has changed its reporting
period from April to March “so as to be coterminous with the year end of its associates” (see Note 23 at 15).
40 Kevin John Heagney “The Genesis and Early Evolution of New Zealand Income Tax: An Examination of Governor Fitzroy’s
Experiments with Taxation, 1843-1845” (thesis presented in fulfilment of the requirements for the degree of Doctor of Philosophy in
Economics, Massey University, 2009).
41 Jeremy Nigel Finn “The Inter-Colonial Element in Colonial Statute Law: An Enquiry into Aspects of the Legislation of the British
Settlement Colonies 1790-1900” (thesis submitted in partial fulfilment of the requirements of the degree of Doctor of Philosophy in the
Faculty of Law in the University of Canterbury, 1995).
42 Kevin Heagney “Australasian Taxation Schedule E: A Precursor of New Zealand’s Institutional Framework?” (Discussion Paper 10.11,
School of Economics and Finance, Massey University, August 2010) School of Economics and Finance, Massey University
(Centre for Research in the Arts, Social Sciences and Humanities, Cambridge, 16-18 September 2005) at 3. The concept of the transfer
of ideas about taxation was first proposed by Martin Daunton in Trusting Leviathan: The Politics of Taxation in Britain 1799-1914
(Cambridge University Press, Cambridge, 2001).
43 Heagney, above n 40, at ii.
44 Heagney, above n 40, at 149.
144 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
income that was derived from public funds.” 45 Heagney’s discussion of sch E is nevertheless highly relevant
from the point of view of an example of the transfer of a taxation principle from Britain to New Zealand.
Finn’s thesis took a different approach in his study of colonial statute law than that of Heagney’s “transfer”
concepts, by considering “the [various factors] which shaped the development of the statute law of the British
Settlement colonies in the nineteenth century … especially those factors which encouraged colonies to look at
developments in other colonies as a source of inspiration or precedent for legislation.”
46 Finn argues that “a
statute may be considered derivative if it expresses a policy or procedure which is essentially similar to that
adopted by a different or foreign legislative body at some earlier time,”
47 and that (in the context of his thesis) “a
statute will be described as being the result of ‘borrowing’ from another colony if it is clear that significant
elements of the statute are in whole, or in substantial part, taken in form and substance from the legislation of
48 – or, may the author respectfully suggests, another jurisdiction. One method described by
Finn as a tool to identify borrowing is textual comparison, which: 49
if admitted to be a valid procedure, can also be useful in determining the course of transmission of a particular statute
from one colony [or jurisdiction] to another. … the presence or absence of amendments to the statute as first passed in
any particular colony can give indications as to which version of the statute was under review at the time of enactment
at later stages in other colonies [or jurisdictions].
Finn also observes that: 50
although direct evidence is scarce, it seems a fair inference that the inadequacy of some Attorneys-General encouraged
the use of legislation drawn from other colonies – on the basis that it was safer to adopt the text of a statute which had
been found to work well enough elsewhere than it was to try to draft an enactment from scratch.
3.0 CONCESSIONS IN NEW ZEALAND: EXEMPTION FROM INCOME TAX
The origin of concessions in legislation regarding the exemption from income tax provided to entities with
charitable purposes dates to William Pitt the Younger and his Duties upon Income Act 1799 39 Geo III c 13, of
which s 5 provided “[t]hat no corporation, fraternity, or society of persons established for charitable purposes
only, shall be chargeable under this Act, in respect of the income of such corporation, fraternity, or society.”
New Zealand, having been colonised by the English and annexed in 1840, 52 the year in which the Te Tiriti o
Waitangi was signed, 53 followed English legal and constitutional traditions and, in 1854, established a General
Assembly comprising the Governor, the Legislative Council and the House of Representatives, following the
45 Heagney, above n 40, at 115-117.
46 Finn, above n 41, at iv and 2.
47 Finn, above n 41, at 28.
48 Finn, above n 41, at 28.
49 Finn, above n 41, at 35.
50 Finn, above n 41, at 130.
51 For a full discussion on the history of the charitable purposes exemption from income tax, see Michael J Gousmett “The Charitable
Purposes Exemption from Income Tax: Pitt to Pemsel 1798-1891” (thesis submitted in partial fulfilment of the requirements for the
Degree of Doctor of Philosophy in the University of Canterbury, 2009).
52 WH Oliver (ed) and BR Williams The Oxford History of New Zealand (Oxford University Press, Wellington, 1981) at 58.
53 Robert Consedine and Joanna Consedine Healing our History The Challenge of the Treaty of Waitangi (Penguin Books, Auckland,
2001 and 2005) at app 2, 260.
The History of Charitable Purpose Tax Concessions in New Zealand: Part 1
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passing of the New Zealand Constitution Act by the British Parliament on 30 June 1852. 54 In 1878, the first
Land Tax Act was passed and, in that Act, concessions are to be found with respect to charitable activities. 55
3.1 Land Tax Act 1878
As with any form of taxation, the introduction of a land tax was not universally welcomed. Suggestions were
made that “an income tax would be unpopular, and justly so.” 56 “Country Settler”, the author of a letter to The
New Zealand Herald, concluded his letter with: “Therefore, I say, no Income Tax, no Property Tax, no Land
Tax, until such times that we, the people, have been consulted in a fair and constitutional manner.”
Faced with a “financial crisis,” the Premier, Mr Peter Ballance, announced on 18 January 1877 “that fresh
taxation would have to be faced up to next session. … [Mr Ballance’s] opinion was that a land tax would be one
of the fairest means of meeting the difficulty.”
58 However, “small proprietors should be exempt, as they were
already large contributors through the Customs to the revenue.” 59 The Land Tax Bill, as reported in the
newspapers of the day, provided for the exemption of certain lands from the tax, but there was no mention of a
clause in the Bill with respect to charitable institutions.
60 Early in the debate on the Land Tax Bill in 1878, the
Premier commented that: 61
[i]t is said that we should have an ‘all-round’ tax – that is to say, that we should submit to a taxation similar to that
which is in force in the United States, and that all our property … should come under the ken of the tax-gatherer. … I do
not think we, in this country, are prepared to adopt the system simply because it prevails in America. Honourable
members will own that a system which leads unnecessarily to fraud by placing the taxpayer in a position of being
constantly tempted to misrepresent the value of his property is not a system of taxation that we should adopt in this
It was not only to America that our early politicians turned for inspiration. The Premier also quoted the
“testimony of Mr Gladstone”, that: 62
[t]he machinery of the income tax, involving, as it necessarily does, to so large an extent the objectionable principle of
self-assessment, in my opinion can never be satisfactory to the country. First, because self-assessment leads to grievous
frauds upon the revenue, and renders the real inequality of the tax far greater than any of those among its inequalities
which immediately strike the public eye and feelings; and secondly, because of the tendency to immorality, which is, I
fear, essentially inherent in the nature of the operation.
On 3 September 1878, Robert Stout MP made some very interesting comments, which are all the more
surprising in that he did not comment on exemptions from income tax for charitable entities in New Zealand,
nor did he specifically refer to the charitable purpose income tax exemption contained in the Income Tax Act
54 John E Martin The House: New Zealand’s House of Representatives 1854-2004 (Dunmore Press Ltd, Palmerston North, 2004) at 11.
55 Land Tax Act 1878.
56 “Editorial” Hawkes Bay Herald vol XX, iss 3831 (25 January 1877) Papers Past
57 Country Settler “Income, Property, and Land Tax” The New Zealand Herald vol XIV, iss 4942 (18 September 1877) Papers Past
58 “Mr Ballance at Marton” The Wanganui Herald vol XI, iss 2829 (18 January 1877) Papers Past
59 Above n 58 (emphasis added).
60 “General Assembly” The New Zealand Herald vol XV, iss 5233 (24 August 1878) Papers Past
61 (30 August 1878) 28 NZPD 607.
62 At 607.
146 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
1842 (UK) 5 & 6 Vict c 35. 63 In discussing the exemptions from the proposed land tax for improvements and
realised personal property as contained in the Land Tax Bill, Mr Stout observed that: 64
Honourable members have said that the exemption is something new in taxation. They cannot have read much about
taxation, or they would have seen that is incorrect. There is an exemption in the income tax in England, and all through
the world exemptions are given.
Alfred Brandon MP objected to an exemption from the land tax for Māori, and asked: 65
If there is to be a land tax, is it right that there should be exemptions? Why should the largest landowners in the colony
– the Natives – be exempt? Their land is as much enhanced in value by civilization and by the construction of public
works as that of the Europeans; and this exemption is a double benefit to them, because they are relieved from the tax
upon sugar and flour, which they use largely. I hold that the Natives should be made to bear their fair share of the
burdens of the State. Then I would ask, where is the justice of the policy?
Edward McMinn MP objected to the exemption of land below the value of £500, exclaiming: 66
I cannot understand on what principle that exemption is founded. I voted against it, and wished it had been thrown out.
If there had been an income and property tax I could understand an exemption clause; but, with merely a land tax I
cannot see the slightest ground for the exemption, for the simple reason that a very wealthy man may not have more
than £500 invested in land, and he will thus be exempt from the tax. In Committee there was a debate on a clause
exempting land held by Maoris under Crown title. Under that clause the greater portion of land in the North Island will
be exempted from taxation. This could only be defended on the ground of expediency, and not on principles of equal
justice. It required the strong assurance of the honourable member for Waikato and several other very experienced
members to induce me to vote for that clause. … I believed that the justice of this House would lead to exemptions being
put on a fair, equitable basis. I am sorry to say that we have not seen anything of the kind. We still have the exemption
clauses left in the Bill; we still have the provisions regarding the rating of Maori land; and we have the unjust principle
on which it is proposed to tax leasehold property. I am sorry to say that the House has been tricked into this taxation.
Sir George Grey would have none of that. Comparing how religious orders had been badly treated in the past
in England, with their land and properties being taken and the nuns turned out being told, when they asked how,
having nothing, they could support themselves, “Go spin, ye jades; go spin”,
67 Grey told the House that “[i]n the
colony of New Zealand at the present moment there were living many Natives, and more now dead, who gave
away large tracts of land for charitable and educational purposes. That was their Christianity; that was their
The Rt Hon George Waterhouse considered the exemptions:
… to be utterly vicious in principle … if I have a hundred times more means than another man, it is right that I should
pay a hundred times more taxation: but it is not a sufficient reason for the other man to be exempt altogether from the
burden of taxation. … The exemption is vicious in another respect – that it has a demoralising tendency upon the
community. It is calculated to raise up a class in society whose interest and desire it will be to throw the burden of
taxation upon other shoulders, and to remove it entirely from themselves … For this reason I oppose entirely the
principle of exemptions contained in this Bill.
63 This is an Act for granting to Her Majesty duties on profits arising from property, professions, trades, and offices. See Gousmett, above
n 51, ch 6 for his discussion on Gladstone’s challenge to the charitable purposes exemption from income tax.
64 (3 September 1878) 29 NZPD 42.
65 (10 September 1878) 29 NZPD 66.
66 (3 October 1878) 29 NZPD 532 (emphasis added).
67 (3 October 1878) 29 NZPD 541.
68 (3 October 1878) 29 NZPD 541.
69 (14 October 1878) 30 NZPD 759 (emphasis added).
The History of Charitable Purpose Tax Concessions in New Zealand: Part 1
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However, Mr Waterhouse made no comment about an exemption for charitable purposes. When passed, the
Land Tax Act 1878 contained exemptions for certain persons or activities, beginning with Māori, by providing
No land owned and occupied by aboriginal natives only shall be liable to land tax; but if such land has been leased to
any person, or is occupied by any other person than the aboriginal owner, the tenant shall, for the purposes of this Act,
be deemed to be the owner thereof, and shall be liable to land tax accordingly.
“Further exemptions” from the land tax, which contain what today would be recognised as a mix of charitable,
philanthropic or benevolent activities, as well as being for the public good, were described as follows: 71
(1.) Land owned by any religious body as a site for a place of worship, and actually used as such;
(2.) Land used as a site of or for any public school established by any Education Board under “The Education Act,
1877,” or which is or may become subject to inspection by an Inspector appointed under that Act, or as a site for any
university or college or school incorporated by any Act or Ordinance;
(3.) Land used or occupied for the purposes of a public cemetery;
(4.) Land used and occupied as the site of a public library, athenaeum, or mechanics’ institute, or any public museum;
(5.) Land occupied and used by any agricultural society or friendly society as a place of meeting only, and not for any
(6.) Land occupied and used by any Municipal Council, County Council, Road Board, River Board, or Harbour Board
as a place of meeting only, and not for any other purpose;
(7.) Land occupied and used as a site for charitable institutions;
(8.) Lands reserved for public gardens, domains, or recreation, or other public reserves not occupied by a tenant.
The Land Tax Act 1878 did not use the phrase “charitable purposes”, unlike the Land Tax Act 1976 which
defined “charitable purpose” as including “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.”
72 The list of
exemptions for “certain classes of land” had also grown, from eight in 1878 to 13 in 1976, including at s 27(h): 73
(h) [l]and owned by or in trust for any society or institution established exclusively for charitable purposes, and not
carried on for the private pecuniary profit of any individual, if the land is used as a site for the purposes of that society
Evidence of how the Land and Income Tax Acts worked in New Zealand in the early 20th century can be seen
in Cunningham and Cumming’s Land and Income Tax Law and Practice, which stated that with respect to s
57(c) of the Land and Income Tax Act 1917, “[l]and owned by or in trust for a separate institution under The
Hospitals and Charitable Institutions Act 1909 were [sic] exempt.”
74 The institutions, defined as “separate
institutions” and named in the Second Schedule to the Hospitals and Charitable Institutions Act 1909, were:
Mercury Bay Hospital;
70 Land Tax Act 1878, s 6.
71 Land Tax Act 1878, s 7 (emphasis added). On the third reading of the Bill, the Act was passed by a majority of 42:19 on 3 October
72 Land Tax Act 1976, s 2.
73 Land Tax Act 1976, s 27.
74 HA Cunningham and EJR Cumming Land and Income Tax Law and Practice: An Exposition of the Law and Practice relating to Land
Tax and Income Tax in New Zealand (The Accountancy and Educational Publications Ltd, Wellington, 1946) at 24.
148 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
Wellington Convalescent Home;
Jubilee Institute for the Blind, Auckland;
Reefton Ladies’ Benevolent Society;
St Andrew’s Orphanage, Nelson;
Wellington Society for Relief of the Aged Needy;
Wellington Ladies’ Christian Association.
The naming of the separate institutions in the legislation continued the practice of the first Hospitals and
Charitable Institutions Act 1885 which, in its Second Schedule, listed 37 hospitals and 32 charitable institutions,
the charitable institutions being separate institutions as defined in the Act, that is, “an institution as herein
defined, which is separately incorporated under this Act, and has its own separate managers.”
75 An “institution”
was defined as: 76
Any hospital for the reception, relief, treatment, and cure of disease, and includes any public establishment instituted for
the reception or relief of orphans, aged, infirm, incurable, or destitute persons, or established for any one or more of
such objects, or the administration by any body or association of persons of charitable aid.
The incorporation of separate institutions was also governed by the Hospitals and Charitable Institutions Act
1885, which stated that: 77
any institution supported in whole or in part by the voluntary contributions of not less than one hundred persons, who
shall have signified their intention to contribute and have contributed [in yearly sums of not less than five shillings an
amount of not less than one hundred pounds to such institution, and who shall have paid one year’s subscription in
advance, or a donation in one sum of not less than ten pounds],
78 may be incorporated as hereinafter mentioned as a
separate institution under this Act.
3.2 Companies Income Duty Bill 1878
In 1878, an unsuccessful attempt was made to introduce a Companies Income Duty Bill. 79 The Bill contained
a clause that exempted the income of certain entities from the duty, as reported by The New Zealand Herald,
[n]o duty shall be payable under this Act in respect of the income of any company or association of a religious,
educational, or charitable nature, nor in respect of the income of any duly registered friendly society, trade union,
building society or any duly constituted savings bank.
3.3 Property Assessment Act 1879
The need for an income or property tax was first hinted at by the Premier, Sir George Grey, when, in January
1878, he was reported as having “given several broad hints as to the necessity of an income or property tax, but
75 Hospitals and Charitable Institutions Act 1885, s 4. The Hospitals and Charitable Institutions Act 1885 repealed numerous Acts of the
General Assembly, an Act of the Province of Wellington, and various Ordinances of the Provinces of Taranaki, Canterbury and Otago.
76 Hospitals and Charitable Institutions Act 1885, s 4.
77 Hospitals and Charitable Institutions Act 1885, s 42.
78 Hospitals and Charitable Institutions Act 1885, s 38.
79 “Companies’ Income Duty Bill” The New Zealand Herald vol XV, iss 5233 (24 August 1878) Papers Past
80 Above n 79. See also New Zealand Parliament, Bills Thrown Out, An Act to impose a Duty upon the net income of joint stock and
other companies (1878).
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[he] has not, so far, disclosed any definite decisions of the Cabinet regarding the subject.” 81 In February 1878,
the Colonial Treasurer, Major Atkinson, announced at a public meeting in New Plymouth that “the House had
passed a resolution last session directing the Government to introduce a property tax [in 1879].”
Discussion on a property tax was initiated in the House by the Colonial Treasurer, Major Atkinson, on 17
November 1879 when he declared, in presenting his Financial Statement that:
[n]o taxation is pleasant, and a new tax is especially unpalatable – the more so if direct in its form; but it will, I think, be
generally admitted that we have now reached a stage at which a property tax in some shape is unavoidable. The
principle of a land tax has already been affirmed by this House, and there is much to be said for the policy of specially
taxing unused land, held for speculative purposes. I shall therefore ask the House to impose a property tax [based] upon
the American model, excluding incomes, and thereby to affirm the principle that realised wealth, in whatever form, shall
bear its fair share of the burdens of the State. The Government, after careful consideration, have come to the conclusion
that an income tax is not applicable to the existing circumstances of the colony. It is inquisitorial, and unavoidably open
to great inequalities. The machinery, too, for levying such a tax must be elaborate and expensive, and far out of
proportion to the revenue to be derived from it.
Thus, with his reference to “the American model” there is clear evidence of “borrowing” as discussed by
Finn84 in the statement made by the Colonial Treasurer. 85 Major Atkinson also stated, again with reference to the
American model, that: 86
the Government will ask Parliament to merge the land tax in the property tax which we intend to introduce, thus
including land in the same category as all other property, making it equally but not specially liable to general taxation.
… The principle of the American property tax is to tax everything a man possesses, including his income, after
deducting all his outstanding liabilities.
If further evidence is required of borrowing, or transfer as proposed by Heagney, 87 then Mr Moss MP provides
that when he declared: 88
We are told we are to have an American system of taxation. I have taken considerable pains to understand that system.
It has always struck me as being worthy of study, because, while our English system of income tax was tried in America
and speedily abolished, they have adopted a system of property tax which has become the recognised and habitual
system throughout the States. … [W]hen forty-five or fifty millions of people of intelligence – certainly as great as we
have ourselves – when they deliberately adopt a system of taxation as the main system of the country, it is worth
enquiring into, and likely to have some good.
Two days later, on 19 November, Mr Gisborne MP asked the Colonial Treasurer, “[t]o what specific
American Act he referred, when in his Financial Statement he [had] asked the House to impose a property tax
upon the American model?”, to which Major Atkinson replied that “he referred to the New York Statute of
89 However, it appears that the reference to 1869 in the New Zealand Parliamentary Debates (NZPD) is
81 “Monthly Summary for the English Mail” The Timaru Herald vol XXVII, iss 1925 (1 January 1878) Papers Past
82 “Major Atkinson at New Plymouth” North Otago Times vol 1819, iss XXVI (22 February 1878) Papers Past
83 (17 November 1879) 33 NZPD 298.
84 Finn, above n 41.
85 (17 November 1879) 33 NZPD 298.
86 At 298 and 299.
87 Heagney, above n 42.
88 (17 November 1879) 33 NZPD 313.
89 At 298; (19 November 1879) 33 NZPD 344.
150 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
incorrect as there was no such statute of 1869, but there was one of 1859 – the New York Real Property Tax
Law, being a Revised Statute. 90 At Chapter XIII Property Liable to Taxation, § 5 [Sec. 4], the statute provided a
comprehensive class of exemptions including: 91
1. All property, real or personal, exempted from taxation by the constitution of this State, or under the Constitution of
the United States: …
4. Every poor house, alms house, house of industry … …
6. All stocks owned by the state, or by literary or charitable institutions; …
The Property Assessment Act 1879, which repealed the Land Tax Act 1878, 92 was introduced concurrently
with the Property Tax Act 1879 on 19 December 1879. The Property Tax Act 1879 provided for a property tax
to be levied, commencing on the first day of April 1880, of one penny for every twenty shillings of value on all
93 The Property Tax Act 1879 also charged a levy on all fire, marine and guarantee policies, of thirty
shillings for every one hundred pounds of premiums received by insurers. 94
The purpose of the Property Assessment Act 1879 was described as being “to regulate the assessment of real
and personal property for the purposes of taxation.”
95 Accordingly, s 26 of the Property Assessment Act 1879
provided exemptions for a range of various types of property (emphasis added):
26. The following property shall be exempt from taxation:-
(1.) All agricultural implements in actual use;
(2.) All property of the Crown, or of any local body, or of any company or society of persons not formed wholly or
mainly for the purpose of gain or profit divisible amongst the shareholders;
(3.) All churches and other places used exclusively for public worship;
(4.) All property of, or vested in, any body or persons for public charitable, or public educational purposes;
(5.) All property of, or vested in, any public body, society, or persons and used only for the purposes of public health, or
(6.) All public reserves of whatever nature made under any law granted to, or vested in, any body or persons;
(7.) All property of Maoris ;
(8.) All property owned in reversion, remainder, or expectancy of any kind, the owner thereof not having any present
beneficial interest therein at the time an assessment is made thereof;
(9.) All vessels of every kind;
(10.) All policies of life assurance, except as hereinafter mentioned.
A statement reportedly made by Major Atkinson during the General Assembly session on 1 September 1877 is
worthy of comment in that he indirectly referred to the concept of charitable activity as relieving the
Government of burden, when he said that the Government was considering:
90 John Christopher Schwab History of the New York Property Tax (Volume 5, Issue 5 of Publications of the American Economic
Association, 1890) at 431. Library of Congress The Revised Statutes of the State of New York (Revised Statutes) (5th ed, 1859) vol 1.
My thanks to Sue Johnston, Librarian, University of Canterbury Law School, and Luis Acosta, The Library of Congress, Washington
DC, for their invaluable assistance in tracking down a copy of the statute of 1859.
91 Revised Statutes, above n 90, at 906.
92 Property Assessment Act 1879, s 97.
93 Property Tax Act 1879, s 2.
94 Property Tax Act 1879, s 2.
95 Property Assessment Act 1879, Preamble.
The History of Charitable Purpose Tax Concessions in New Zealand: Part 1
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how all descriptions of property could best be made to contribute fairly to support the burdens of the community[;] also
how, if possible, necessaries of life could to some extent be relieved. Government held themselves, on full
consideration, at liberty to make such proposals in this direction as might be most desirable, and to propose such
exemptions as they might consider just.
The key exemption that was being considered was the exemption of “small proprietors” from the tax, who
should be exempted “because they were already large contributors through the Customs to the revenue,” 97 but
no mention was made of entities with charitable purposes being affected by the proposed property tax.
3.4 Land and Income Assessment Act 1891
While the Property Assessment Act 1879 “included personal property in its base, although a substantial
exemption of £500 applied,” 98 arguably the first true Act to tax income in New Zealand was the Land and
Income Assessment Act 1891.99 This Act also repealed the Property Assessment Act 1885 and the Property
Assessment Act 1885 Amendment Act 1886. 100
However, while the Land and Income Assessment Act 1891 exempted the land of “[p]ublic charitable
institutions constituted under The Hospitals and Charitable Institutions Act 1885, and charitable institutions not
carried on for gain or profit,” the Act did not provide for the income of public charitable institutions to be
101 This was observed by a Member of the House during the passage of the Land and Income
Assessment Bill who, on 30 July 1891, asked: 102
[w]hether [the Government would] amend section 16 of the Land and Income Assessment Bill so as to exempt from
taxation … all institutions that are purely charitable … there were a large number of institutions of a purely charitable
nature which … were not included in section 16 of the [Bill] … like the Magdalen Home in Christchurch, which was
under the control of the Roman Catholic Church, and the Rhodes Convalescent Home, which was under the
management of subscribers.
The Government assured the Member “that the Government would take the matter into consideration.” 103 The
Member replied that “as the public were admitted to these institutions free of cost, he considered they should be
exempted from taxation.”
104 However, it was not until the following year that the matter was resolved. The
Wanganui Herald of 21 September 1891 noted that “[o]ne of the defects of the [Land and Income Assessment
Act] 1891 was that friendly societies, savings banks, and charitable institutions came within reach of its
96 “The General Assembly” The Otago Witness iss 1344 (1 September 1877) Papers Past
97 “Mr Ballance at Marton” The Wanganui Herald vol XI, iss 2829 (18 January 1877) Papers Past
98 Jonathan Barrett and John Veal “Land taxation: a New Zealand perspective” (2012) 10 eJournal of Tax Research 573 at 577. With
respect to property liable to taxation, s 12 of the Property Assessment Act 1879 provided that “[a]ll property within the colony of which
any person is owner shall be liable to taxation in respect of so much of the value thereof as shall exceed five hundred pounds sterling,
but subject to the exemptions and to the deductions hereinafter provided.”
99 See Robert J Vosslamber “Taxing and Pleasing: The Rhetoric and Reality of Vertical Equity in the Development of the New Zealand
Income Tax on Employees, 1891 to 1984” (Thesis submitted in partial fulfilment of the requirements for the Degree of Doctor of
Philosophy, University of Canterbury, 2010) for an excellent discussion on the history of income tax in New Zealand.
100 Land and Income Assessment Act 1891, s 2.
101 Land and Income Assessment Act 1891, s 16(1)(g).
102 (30 July 1891) 72 NZPD 614. Ten days earlier, in London, on 20 July 1891, the judgment in Commissioners for Special Purposes of the
Income Tax v Pemsel  AC 531 was handed down. Coincidence, or was the Member aware of this seminal development?
103 Above n 102.
104 Above n 102.
152 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
operations. They will under the amending Act be exempted.” 105 The Government was true to its word and, in the
Land and Income Assessment Act Amendment Act 1892, provision was made for the “additional exemptions
from liability to tax” including:
[a]ll mortgages held, and all income received or derived, by or on behalf of any public charitable institution, whether
formed under “The Hospitals and Charitable Institutions Act, 1885,” or any other Act for the time being in force, or
howsoever formed, if carried on for any public charitable purpose, and not for any gain or profit.
As with William Pitt the Younger’s Duties upon Income Act 1799 39 Geo III c 13, there was no substantive
debate in the New Zealand General Assembly as to why charities should or should not be exempt from income
107 The exemption had historical precedence; therefore, it should continue. 108
3.5 Concessions in New Zealand: Donations
In 1962, for the first time in New Zealand tax history, a government provided concessions for donations made
by individuals in supporting worthy causes. Before discussing that development, a brief comment is warranted
on New Zealand’s political scene in the years preceding the General Election of 1960, as it was during that
election campaign that the National Party had announced its intention that, if elected, it would provide a
concession for charitable donations. A key element of the time was the Labour Government’s so-called Black
Budget of 1958,
109 with its increases in taxation and other sources of government revenue. 110 As reported in
2010 by DB Breweries Export, in 1958 the Labour Government had done “something stupid. They taxed the
price of beer out of the reach of kiwi men.”
111 As Homer Simpson would say, “never get between a man and his
beer.” 112 The Government did, and the Opposition could smell blood for they could see that the next Election
would be theirs to lose, as the Leader of the Opposition, the Rt Hon Keith Holyoake, considered it “as good as
113 Mr Holyoake commenced the Opposition’s contribution to the debate on Customs and Excise Duties
on 26 June 1958 by declaring that: 114
Sir, out of a very full and kind heart I offer my sincere sympathy to the members of the Government. They are a very
gloomy looking lot tonight. We have been informed that the members of the Government were told the contents of the
Budget only two hours ago, and I can well believe it.
“Labour,” writes Vosslamber, “was soundly defeated at the 1960 General Election.” 115 National won “with a
majority of 4 per cent of the vote and 12 seats.” 116
105 “Land and Income Tax Bill” The Wanganui Herald vol XXVI, iss 8004 (21 September 1892) Papers Past
106 (20 September 1892) 78 NZPD 232; Land and Income Assessment Act Amendment Act 1892, s 3(4).
107 See Gousmett, above n 51.
108 See Gousmett, above n 51, at ch 6.
109 “In 1930 J.G. Coates had called Ward’s budget ‘the Black Budget’.”: Keith Sinclair Walter Nash (Auckland University Press,
Auckland, 1976) at 309.
110 For a detailed analysis of Mr Nordmeyer’s “Black Budget”, see Rob Vosslamber “Narrating history: New Zealand’s ‘Black Budget’ of
1958” (2012) 17 Accounting History 481.
111 Vosslamber, above n 110, citing “Nordmeyer and the 1958 Black Budget” (2010) DB Breweries Export: History
112 Homer Simpson Rotating Eyes Wall Clock (2009) Foolish Gadgets
113 Vosslamber, above n 110, citing Barry Gustafson Kiwi Keith: a biography of Keith Holyoake (Auckland University Press, Auckland,
2007) at 110.
114 (26 June 1958) 316 NZPD 289.
115 Vosslamber, above n 110, at 491.
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3.6 The General Election of 1960
Chapman’s history of the 1960 General Election, 117 which was held on Saturday 26 November, is the only text
on the subject which makes a mention of the announcement of the charitable donations concession on 7 June
1960 when the Leader of the Opposition, Mr Holyoake, announced to the Dunedin electorate that, if elected, the
National Government would “progressively reduce the rates of both personal and indirect taxation … death
duties would be reduced, gift duties would be reviewed, and donations out of income to charitable, educational
and welfare organisations would be made deductible for tax purposes.”
118 However, the donations concession
appears to have been almost an after-thought, having been announced amid a raft of tax cuts promised by Mr
Holyoake in the National Party’s 1960 Election Manifesto. Gustafson noted that:
[d]uring the 1960 campaign both Holyoake and Marshal declined to be specific in the details of National’s policies –
although they did promise to reduce personal income tax, remove import controls, tackle inflation, rebuild New
Zealand’s overseas currency reserve, and abolish compulsory unionism. Their argument was ‘We are not buying
At the National Party’s annual Dominion Conference in Wellington, which was held on 25 and 26 July
1960, 120, after declaring that “[l]ast Thursday we listened to the third budget presented by Mr Nordmeyer,” of
which Mr Holyoake was “firmly convinced that it will be his last”, 121 under the heading in his notes “Tax Policy
2”, Mr Holyoake announced the National Party’s tax policy, including the donations concession. 122 Also on 26
July, the Party’s tax policies were announced in the House during the debate on the Financial Statements,
including the donations concession:
To encourage a greater degree of community self-help and initiative, donations within prescribed limits, made out of
income to approved charitable, educational and welfare institutions, will be deductible items for income tax purposes,
under the next National Government.
An examination of the archives of material relating to the introduction of the charitable donations concession
revealed very little on the concept. The author had assumed that the donations concession had, at some time in
the past, been introduced by a Labour Government, on the basis that it was those on the lower end of the social
spectrum who would benefit from donations made by wealthier persons to charitable organisations. However,
the author was unable to find any comment by Labour in the period leading up to the 1960 General Election on
this concept, but there is evidence that at some time Labour had given the idea consideration. Mr Nordmeyer
had said, with respect to “[the] proposed exemption of up to £25 for gifts to certain religious and charitable
objects [that] [w]e on this side of the House had a similar proposal in our 1960 programme, but we certainly
envisaged something more generous than what the Government proposes.”
116 Barry Gustafson The First 50 Years: A History of the National Party (Reed Methuen Publishers Ltd, Auckland, 1986) at 82. Gustafson
made no mention of the charitable donations concession.
117 Robert McDonald Chapman, William Keith Jackson and Austin Vernon Mitchell New Zealand Politics in Action: The 1960 General
Election (Oxford University Press, London, 1962).
118 At 92.
119 Gustafson, above n 116, at 82.
120 “National Party’s Tax Cut Promise: Lower Personal, Indirect Rates” The Dominion (8 June 1960) (unpaginated copy).
121 Keith Holyoake “Budget 1960” (25 [or] 26 July 1960) Speech Notes of Keith Holyoake, Sir Keith Holyoake Collection, MS Papers
1814 Folder 657.1, Alexander Turnbull Library, Wellington (copy seen by the author). The author thanks the librarians for the excellent
service provided during the author’s short visit.
122 Above n 121.
123 (26 July 1960) 322 NZPD 883.
124 (3 July 1962) 330 NZPD 583.
154 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
The announcement in Dunedin by Mr Holyoake on 7 June 1960 barely rated a mention in The Dominion of 8
June. While the headline blared “National Party’s Tax Cut Promise: Lower Personal, Indirect Rates,” there,
placed in the middle of the article, was one paragraph, apparently copied from the National Party Manifesto,
which stated that in order “[t]o encourage a greater degree of community self-help and initiative, donations
(within prescribed limits) made out of income to approved charitable, educational and welfare institutions will
be allowed as deductible items for income tax purposes.”
The newspaper made no further comment; whether Mr Holyoake had expanded on the new concession at any
length during his electioneering is so far unknown. What is known is that the donations concession was not a
National Party social policy initiative, as a set of Mr Holyoake’s speech notes has the donations concession
placed under the heading “Tax Policy.”
Mr Holyoake did not explain what he meant by “approved” institutions; neither did he mention this in the
House on 26 July 1960 when he announced that the National Government would be “go[ing] further” than
Labour in its fiscal initiatives.
127 However, it was not to be until 1962 that the promise of the National
Government concerning the donations concession would be fulfilled. Mr Nordmeyer, by then in Opposition, no
doubt took delight in noting that National (with the Hon Harry Lake as the Minister of Finance), in its Financial
Statement for 1961, had appeared to have overlooked its election promise regarding the concession for
donations. Mr Nordmeyer stated that he:
express[ed his] regret that the Minister has not seen fit to agree to some exemption from taxation for donations to
religious, charitable, or educational objects. I think that both political parties at the last election undertook to make this
provision. There will, or course, always be doubt as to the extent to which relief should be given, and obviously there
will have to be a limit set on these donations. Only a portion of them would, perhaps, qualify for the advantage, but I
had hoped, and I am sure many people had hoped, that the Minister would at least have made a start in this direction this
year. I personally express my regret that he has not seen fit to do so.
Mr Nordmeyer was responding to the announcement by Mr Lake, in the Financial Statement of 20 July 1961,
The Government has considered proposals for the exemption from taxation of donations made to approved charitable,
educational, and welfare organisations. It is felt, however, that the present time is inopportune for its introduction. The
cost cannot be assessed in advance, but it is evident that if the scheme were unduly availed of it would put further
pressure on the building industry. As soon as circumstances permit the matter will be reconsidered.
The Hon Mick Connelly MP, repeating Mr Lake’s words, responded with vigour: “By Jove, this Government
can conveniently find excuses when it suits it. It states it cannot permit donations to be allowed as tax
exceptions, when given for educational purposes because of pressure on the building industry!”
The comment by Mr Nordmeyer that Labour had also considered a concession for donations is interesting, as
no source could be found during the research for this article. For example, there were no such references in any
of Labour’s 1960 electioneering material. However, Labour (through Mr Nordmeyer) claimed that, regarding
125 “National Party’s Tax Cut Promise: Lower Personal, Indirect Rates”, above n 120 (emphasis added). Papers Past
(http://paperspast.natlib.govt.nz), while being an invaluable resource for research purposes, does not include material beyond 1945.
126 Holyoake, above n 121.
127 (26 July 1960) 322 NZPD 883.
128 (25 July 1961) 326 NZPD 791 (emphasis added).
129 (20 July 1961) 326 NZPD 741 (emphasis added).
130 (27 July 1961) 326 NZPD 904.
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the proposed donations concession of up to £25 a year, 131 “we … had a similar proposal in our 1960 programme,
but we certainly envisaged something more generous than what the Government proposes. … [O]n the surface it
does appear to be a very small amount,” to which Mr Lake replied, “[i]t is a start.”
132 It was indeed a start, as
those were to prove to be prophetic words for National, because in 2007 Labour removed the cap on private
donations which, at that time, was $1,890 with a rebate of a maximum of $630, and provided for a tax credit of
one-third on donations up to an individual’s taxable income. This was, in 2012, to become more than just a
headache for National.
There can be no doubt that the donations concession was intended to encourage philanthropy, as can be seen
in Mr Holyoake’s words, that “[t]he Government is now giving an incentive to people to think of what they can
give, not what they can get. This is an incentive to our people to give.”
133 But what was behind the incentive?
When Mr Holyoake says that the incentive “will encourage self-help, community help, and community welfare
134 was National’s underlying rationale that if we encourage greater community activity, then there will
be less of a call on government funds? Was this Government abdicating its responsibility for those less fortunate
based on its philosophy of individual responsibility, or a genuine desire to assist the community in helping
itself? Can the answer be found in National’s 1960 Election Manifesto? The author pondered on this thesis
during the research phase, and eventually found an answer provided by Mr Rae, who said that:
The exemption of the donation is £25, which can be deducted for income tax purposes. … I believe that this sum, which
starts off quite modestly, can grow. At the moment it is limited to individuals. It is denied to companies. We will see
how it goes and what it costs the country. I believe if people are given a little incentive great things will be done
privately, and fewer demands will fall on the Government’s plate. I look forward to this concession growing with time. I
believe that a great deal of good will be done by private donations for all these worthy objectives.
In other words, community activity will relieve the government of burden, by transferring the cost to
charitable entities which, in turn, would benefit from being exempt from income tax and donors would receive
concessions. The unasked and answered question, however, is whether the cost to the government would be at
least equal to or less than the tangible benefits provided by charitable entities to the community. Fortunately, the
cost of the donations concession was mentioned during the debate on the Financial Statement when Mr Lake
stated that “the estimate is that if two-thirds of the taxpayers take advantage of the concession the annual cost
will be about £1.5 million in taxation.”
136 This is equivalent to approximately $60 million today, 137 $40 million
short of the average annual claims for donations rebates before the rebate cap was lifted by Labour/United
138 As had been hoped, the incentive was indeed taken up by the donating public! The total of all
concessions that were announced in the 1962 Budget was £14 million, 139 making the donations concession at
£1.5 million about 11 per cent of the total taxation concessions.
131 See n 135.
132 (3 July 1962) 330 NZPD 583.
133 (3 July 1962) 330 NZPD 591 (emphasis added).
134 (3 July 1962) 330 NZPD 591.
135 (11 July 1962) 330 NZPD 840 (emphasis added).
136 (13 July 1962) 330 NZPD 937.
137 Using the Reserve Bank of New Zealand’s Inflation Calculator at www.rbnz.govt.nz.
138 See discussion at section 7.4: Greater Incentives for Charitable Donations.
139 (28 June 1962) 330 NZPD 535; HR Lake Budget 1962 Financial Statement (In Committee of Supply, B6, 28 June 1962) (RE Owen,
Government Printer, Wellington) at 23-24 in Appendix to the Journals, Session 1962 vol 1 (RE Owen, Government Printer, Wellington,
156 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
Frederick Hackett MP argued that, instead of a concession for donations of £1 or more (up to £25), the
concession should “cover all donations.” 140 Mr Hackett knew “of one person who usually gives from £1,000 to
£1,500 a year. If he deducts £25 from £1,000 he will still have to pay tax on £975.” 141 Mr Hackett also argued
the case for “the small people who donate amounts of 2s. 6d., 5s., or 10s.” 142 He also stated that “[m]any people
make regular contributions to organisations such as CORSO, [and] when the Minister brings down this
legislation, I sincerely hope [that the Minister] will include a greater variety of organisations, and also that he
will consider making provision for the amount of £25 to be any sum up to £25.”
Debate also ensued on the effect of the proposal, as pointed out by the Rt Hon Walter Nash:
If a person has a taxable balance of £100 he can deduct £25, which brings his taxable balance down to £75. On a taxable
balance of £100 he would pay £15 in income tax; on a taxable balance of £75 he will now pay £11 5s in income tax. So
he is gaining a concession of only £3 15s.
However, Mr Nash said, “[a] married man with three children earning £16 a week at present pays no income
tax, so he will receive no benefit, [even if he pays] 5s., 6s., or 10s a week so that his children can attend a church
Finally, on 28 June 1962, under the heading “Taxation Adjustments, Exemptions from income tax of certain
donations for charitable purposes”, Mr Lake declared:
In last year’s Budget I said that, as soon as circumstances permitted, [the] Government would re-examine the question
of exempting from taxation donations made to approved charitable, welfare, and educational organisations. It is
considered that a start can now be made with a modest scheme for individual taxpayers. The Government has, therefore,
decided to allow a deduction up to a maximum of £25 per annum for ordinary income tax purposes in respect of
donations made to institutions and societies whose funds are devoted wholly or principally to certain objects to be
defined in amending legislation. Donations to special funds established by religious and other organisations and devoted
to these objects will be included. Without necessarily being exhaustive the objects which will qualify for the proposed
(a) The care of aged [men – omitted from transcript], women, and children and orphans; the care of the infirm,
cripples, the blind, war veterans, and disabled persons; the care of spastics, the mentally retarded, discharged prisoners,
(b) Donations to public relief and disaster funds, health camps, free ambulances, the relief of distress, life saving,
and youth welfare.
140 (12 July 1962) 330 NZPD 888.
141 (12 July 1962) 330 NZPD 888.
142 (12 July 1962) 330 NZPD 888.
143 (12 July 1962) 330 NZPD 888. CORSO is an acronym for Council of Organisations for Relief Services Overseas.
144 (13 July 1962) 330 NZPD 934.
145 (13 July 1962) 330 NZPD 935.
146 (28 June 1962) 330 NZPD 535. In “Taxation Notes” (1962-63) 41 The Accountants’ Journal at 31, Simcock wrote that “[t]his year’s
budget contained new proposals in relation to donations, in fulfilment of a promise made in the election campaign two years ago. … It is
interesting to note that some countries already permit deductions for donations. In the United States, for example, donations to certain
organisations and bodies have been allowable deductions for many years. … An intriguing aspect of the United States position is that
apparently an impressive volume, approximately twice the thickness of a Wellington telephone directory and with comparable print, is
needed to record the names of all of those organisations to which deductible donations may be given. It is fruitless to compare New
Zealand with the United States, but with the recent announcement of the proposal to make certain donations deductible from income for
taxation purposes, one may wonder whether a similar volume may appear on the New Zealand scene.” For many years, the annual issue
of Staples Tax Guide contained the list of donee organisations, but the list is now discontinued as it is available on the Inland Revenue
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(c) Free kindergartens, nursery play centres, schools for the deaf, blind, and intellectually handicapped; the Maori
Education Foundation; educational and medical research; and donations to universities, libraries, art galleries, and
(d) Donations to building funds of private schools.
The scheme will cover donations made during the current income year and tax adjustments will be made after the end of
the year in respect of claims made in income tax returns. It will apply to individual donations of £1 or more, subject to
the production of receipts and subject also to the maximum overall deduction of £25 over annum already referred to.
3.7 Land and Income Tax Amendment Act (No 2) 1962
During the debate on the Land and Income Tax Amendment Bill, the Labour Opposition was critical of the
proposed concession, which they referred to as a “special exemption for income tax purposes.” 147 Because of the
way in which the concession was structured, with the wealthy benefiting more than those less well off, Labour
suggested that “[p]erhaps a fairer way would have been to give a flat rebate of £5 or £10, instead of this sliding
scale, with many getting nothing and a few getting a substantial benefit.”
On 14 December 1962, the National-led Government fulfilled its promise when the donations concession was
passed into law. When the concession finally appeared in the legislation, it was extensive, encompassing both
non-testamentary gifts of money and payment of school fees:
4. Special exemption in respect of gifts of money and payments of school fees
The principal Act is hereby further amended by inserting, after section 84A (as inserted by section 24 of the Land and
Income Tax Amendment Act (No. 2) 1958), the following section:
“84B. (1) For the purposes of this section, the term ‘gift’ includes a subscription paid to a society, institution,
association, organisation, trust, or fund, only if the Commissioner is satisfied that that subscription does not confer any
rights arising from membership in that or any other society, institution, association, organisation, trust, or fund.
“(2) For the purpose of assessing ordinary income tax, every taxpayer, other than an absentee or a company or a public
authority or a Maori Authority or an unincorporated body, shall, subject to the provisions of this section, be entitled to a
deduction by way of special exemption from his assessable income of the amount of any gift (not being a testamentary
gift) of money of the amount of one pound or more made by him in the income year to any of the following societies,
institutions, associations, organisations, trusts, or funds (being in each case a society, an institution, an association, an
organisation, a trust, or a fund in New Zealand), namely:
“(a) A society, institution, association, organisation, or trust which is not carried on for the private pecuniary profit of
any individual and the funds of which are, in the opinion of the Commissioner, applied wholly or principally to any
charitable, benevolent, philanthropic or cultural purposes within New Zealand:
“(b) A public institution maintained exclusively for any one or more of the purposes within New Zealand specified in
paragraph (a) of this subsection:
“(c) A fund established and maintained exclusively for the purpose of providing money for any one or more of the
purposes within New Zealand specified in paragraph (a) of this subsection, by a society, institution, association,
organisation, or trust which is not carried on for the private pecuniary profit of any individual:
“(d) A public fund established and maintained exclusively for the purpose of providing money for any one or more of
the purposes within New Zealand specified in paragraph (a) of this subsection:
“(e) The Council of Organisations for Relief Services Overseas (CORSO):
“(f) The Red Cross Society Incorporated:
147 (4 December 1962) 333 NZPD 3057.
148 Land and Income Tax Amendment Act (No 2) 1962, s 4 (emphasis added). From 1989 to 2007, the author was the General Manager of
the Pacific Leprosy Foundation, formerly the Lepers’ Trust Board on incorporation in 1942 until 1978 when the name was changed to
the Leprosy Trust Foundation, the use of the word “leper” being considered inappropriate by the World Health Organisation, and then
in 1991 the name was changed to its present name.
158 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
“(g) The Lepers Trust Board Incorporated:
“(h) The Mission to Lepers (New Zealand).
“(3) For the purpose of assessing ordinary income tax, every taxpayer, other than an absentee, shall, subject to the
provisions of this section, be entitled to a deduction by way of special exemption from his assessable income of the
amount of any fees paid by him in the income year in respect of the education of a person who is under the age of
eighteen years at the beginning of the income year, and is a child, stepchild, or foster-child of the taxpayer, at-
“(a) A private primary school or private secondary school registered under the Education Act 1914 and conducted by a
society, institution, association, organisation, or trust which is not carried on for the private pecuniary profit of any
“(b) A public school in New Zealand for the deaf, the dumb, the blind, the mentally defective, the intellectually
handicapped, the crippled, or the otherwise disabled or afflicted or handicapped; or any school in New Zealand for any
such persons conducted by a society, institution, association, organisation, or trust which is not carried on for the private
pecuniary profit of any individual.
“(4) The deductions by way of special exemption provided for in this section shall not, in the case of any taxpayer, in
any income year exceed in the aggregate the sum of twenty-five pounds.
“(5) No deduction by way of special exemption shall be allowed under this section in respect of any gift or, as the case
may be, any fees, unless the taxpayer furnishes to the Commissioner in support of his claim for the deduction a receipt
evidencing to the satisfaction of the Commissioner the making of the gift or, as the case may be, the payment of the fees
by the taxpayer.”
Staples clarified the meaning of this new provision in the 1963 edition of his tax guide, in which he classified
the categories of the special exemption as: 149
(a) Organisations in New Zealand
Payments to organisations in New Zealand not carried on for the private pecuniary profit of any individual, and the
funds of which are applied wholly or principally for charitable, benevolent, philanthropic or cultural purposes within
(b) Special Funds in New Zealand
Payments to special funds established in New Zealand by the class of organisation mentioned in (a), and public funds in
New Zealand devoted exclusively for the above purposes:
(c) Special Funds for purposes outside New Zealand
(ii) The Red Cross Society Inc.,
(iii) The Lepers’ Trust Board Inc.,
(iv) The Mission to Lepers (New Zealand),
(d) School Fees.
In order to clarify the meaning of the legislation with respect to charitable purpose, Staples provided specific
advice on church offerings: 150
The legislation refers to organisations whose funds are applied “wholly or principally for charitable … purposes within
New Zealand.” “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 (s 2 of the Principal Act). The
Commissioner has indicated that church offerings come within the spirit of the legislation. The receipt or
149 Charles A Staples A Guide to New Zealand Income Tax Practice 1962-63 (23rd ed, Sweet & Maxwell, Wellington, 1963) at 184.
150 At 185.
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acknowledgment need only be for the total amount donated during the coming year; and it is a matter for the
organisation itself to decide as to a method whereby a record of the parishioners’ regular donations is kept.
3.8 Special Funds for Purposes outside New Zealand
The list of special funds outside New Zealand grew slowly, with Volunteer Service Abroad added in 1965-66,
being the first of many that would follow. 151 However, the Government’s intention regarding “approved
charitable educational and welfare organisations”152 becomes clear in the 27th (1966-67) edition of Staples’s
Guide, which reported that “[t]he Commissioner announces that donations to the following causes will qualify
under [organisations and special funds in New Zealand]”:
Birthright Inc. (Subscriptions will be treated as donations.)
Greymouth Civic Centre Inc.
March of Medicine Appeal, by the Royal Australasian College of Physicians.
“Milk for Millions” Appeal.
New Zealand Council for Educational Research.
New Zealand Crippled Children’s Society.
New Zealand Journal of Educational Studies.
New Zealand Workers’ Educational Association Inc.
New Zealand Optometrical Association “Special Educational Fund”.
Payments to school committees of parent/teacher associations. (Activity fees not allowed.)
Yoga Institute of New Zealand. (Membership fees not allowed.)
Churchill Memorial Fund.
The maximum amount of the exemption was also being increased, to:
$50 for donations to charities;
$100 for gifts of money (as distinct from school fees) to non-profit private or handicapped children’s
$100 for gifts of money and school fees;
$100 for donations to charities, gifts of money and school fees, provided that the donations to charities do
not exceed $50.
151 Charles A Staples A Guide to New Zealand Income Tax Practice 1965-66 (26th ed, Sweet & Maxwell, Wellington, 1966) at 213.
152 See n 129.
153 Charles A Staples A Guide to New Zealand Income Tax Practice 1966-67 (27th ed, Sweet & Maxwell, Wellington, 1967) at 229.
154 At 230.
160 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
4.0 DEVELOPMENTS IN INCOME TAX LEGISLATION
During the fifty years following the introduction of the donations concession, numerous changes have been
made to New Zealand’s income tax legislation regarding the concession. 155 However, for our purposes it is of
interest to note the various relevant sections as contained in the Income Tax Act 2007 (ITA 2007) as reprinted at
31 December 2012, to see how extensive the changes have become:
Section DB 41 Charitable or other public benefit gifts by company: A company is allowed a deduction for
a charitable or other public benefit gift that it makes to a donee organisation, limited to the extent of the
company’s net taxable income.
Section DV 12 Maori authorities: donations: Māori authorities are allowed a deduction for donations to a
Maori association or for charitable or other public benefit gifts made to a donee organisation. Compare
with s 4 of the Land and Income Tax Act 1954 Amendment Act (No 2) 1962, which disallowed
deductions by way of the special exemption for donations made by Maori authorities.
Section LD 1 Tax credits for charitable or other public benefit gifts: Donors now receive a refundable tax
credit of 33.33 per cent of their total gifts, to the extent of their taxable income.
Section LD 3 Meaning of charitable or other public benefit gift: Gifts must be for $5 or more, excluding
testamentary gifts, paid to an entity as described in s LD 3(2) or sch 32.
Section LD 4 Tax credits for payroll donations: Donations paid through the payroll giving scheme also
qualify for tax credits, which have the effect of an immediate payment to the donor against their PAYE.
Schedule 32: Recipients of charitable or other public benefit gifts: The most significant change is in donee
organisations with overseas purposes, which are now listed in sch 32 to the ITA 2007. As at 31 December
2012, the list comprised 99 entities (an average of fewer than two entities a year), including the four first
listed in the Land and Income Tax [Act 1954] Amendment Act 1962, that is: CORSO (now CORSO Inc);
The Red Cross Society Inc; The Lepers’ Trust Board Inc (now The Pacific Leprosy Foundation); and The
Mission to Lepers (New Zealand) (now The Leprosy Mission New Zealand Inc).
5.0 THE NATIONAL PARTY’S PHILOSOPHY OF SELF-RELIANCE
It is clear from the National Party’s Election Manifesto that the National Party espoused a sense of social
responsibility as seen in the Party’s 1949 General Election Policy, with its reference to the provision of
“[f]inancial assistance by way of subsidies and loans … to churches and other organisations, providing
accommodation for the needs of people both young and old.”
156 However, their largesse was not intended to be
the “cradle to the grave” 157 philosophy of the Labour Party’s welfare system, as: 158
the Party believes that by ensuring full employment and by a nation-wide campaign to remove, or at least, reduce
greatly the causes of sickness and disability, it will be possible to lessen the need for people to apply for sickness,
medical and pharmaceutical benefits. Good health and productive employment are much better than medicines or sick
and relief payments.
155 This will be the subject of further in-depth research.
156 New Zealand National Party (NZNP) Policy, General Election 1949 at s 9 Social Security[:] Eventide and Other Homes. My thanks to
the staff of the Parliamentary and National Libraries for their assistance in accessing this material.
157 “Supporters of the scheme extolled a welfare system that now protected New Zealanders ‘from the cradle to the grave’.”: “Social
Security Act passed” New Zealand History online
158 NZNP, above n 156, at s 9 Social Security [Introduction] (emphasis added).
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The National Party’s 1954 General Election Policy noted that “the time is now ripe for the careful review of
existing policies and the fuller co-ordination of the resources of religious and charitable organisations, local
authorities and government.”
159 This theme is evident in the Party’s General Election policies in later years,
becoming more refined as time went by. It was firstly “the right and responsibility of the family to care for
[their] older members,” the Party declared in 1957.
160 If that was not possible, “then the community in which
they live, working through religious or welfare organisations, and with government assistance, is best qualified
to care for them.”
161 Failing that, “then the Government, working through Hospital Boards, will care for
Becoming increasingly more sophisticated, the National Party’s 1960 General Election Policy included a copy
of a pamphlet of the differences between National and Labour.
163 Whereas National encouraged “personal
initiative” and “the desire to venture and progress,” Labour, National claimed, “discourages individual
initiative” and their “applied Socialism breeds dependence on others, encourages uniformity, discounts
brilliance and leads to mediocrity.”
164 The Party’s 1960 Policy document, issued on 1 November 1960, included
the announcement that Mr Holyoake had made on 7 June 1960 that “[d]onations (within limits) out of income
for approved charitable, educational and other similar institutions will be deductible for income taxation.”
Further details were provided under “Taxation and Finance”: 166
To encourage a greater degree of community self-help and initiative, donations (within prescribed limits) made out of
income to approved charitable, educational and welfare organisations and medical research institutions will be allowed
as deductible items for income tax purposes.
Later in the 1960 General Election Policy, under the heading “Points of Interest to Women from 1960 Policy
Plans”, after restating the donations concession policy, the National Party declared that “[t]his will be a big help
to many organisations doing fine work for the welfare of women and children .”167
The author was unable to find any evidence that Labour had an interest in such a donations concession at that
time. On the contrary, the Labour Party’s report to their 1948 conference provides evidence of their desire for
the Government to be the provider of welfare, as the report contained a remit “[t]hat the Plunket Society be
taken over by the Government,” which was, however, rejected.
168 By 1966, the Labour Party’s attitude to
voluntary organisations had changed somewhat, as expressed in the Election Manifesto for that year, that “[t]he
work of voluntary organisations will be fostered and the organisations will be encouraged to maintain their
independence and voluntary character.”
159 NZNP A Record of Progress, Policy, General Election 1954, Health, The Care of the Aged at 3.
160 NZNP Policy, General Election 1957, Health, Care of the Aged at 2.
161 Above n 160.
162 Above n 160.
163 NZNP Policy, General Election 1960 (September 1960) Differences: Two Parties.
164 Above n 163, Differences: Two Parties.
165 Above n 163, 1960 Policy, Principal Points at 2A (b).
166 Above n 163, 1960 Policy, Full Details at 2B 9.
167 Above n 163, 1960 Policy, Points of Interest to Women at 28 .
168 New Zealand Labour Party (NZLP) Report of the Thirty-second Annual Conference (Dunedin, 3-7 May 1948) Report of Social Security
and Health Committee, Remit 1 (d).
169 NZLP 1966 Election Manifesto, Welfare and Social Justice, Voluntary Organisations at 3.
162 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
6.0 A RATIONALE FOR THE DONATIONS CONCESSION
Simcock has observed that “[t]he taxing Acts of both New Zealand and England have always granted
concessions to charities, and since 1962, in New Zealand, an exemption to donors to charities.” 170 Further, that,
“[i]n spite of the great cost to the Revenue each year, every recent Government-instituted committee or
commission of inquiry has supported the retention of such concessions.”
171 Simcock argued that charitable
donation tax concessions are necessary in order to: 172
Counter some of the effects of inflation and high taxes upon the financing of charities;
Spread the sources of their funds by attracting new donors; and
Procure the growing sums they will want for their increasing work.
Thus, Simcock argues:
[t]he New Zealand Government aids charities through the tax system by [granting] concessions to donors which act as
incentives to giving, and by exemptions [from income tax] to the charities themselves, enabling greater retention of
funds for expenditure on their charitable activities.
Simcock described the principal arguments in favour of donor concessions as being: 174
The notion of charity pertains more to the act of giving than receiving so that concessions to the subscriber
rather than the recipient should be favoured;
Such concessions have the result of increasing donations. The UK Advisory Group considered that they
“were convinced that the only sure way of attracting additional private funds is to give donors more
positive encouragement in the form of tax incentives, which cost the Government much less than the
services performed by charities that would otherwise be wholly at the expense of the state.”
However, Simcock observed that it was noted in the United Kingdom that “[t]he main argument against
income tax deductions for donors is that they offend the principle that the tax system does not in general take
account of the way in which the taxpayer spends his money.”
176 That aside, if there is a benefit to the
Government through the donations concession, then why did the National-led Government in 2012, fifty years
after introducing the concession, act to restrict access to this incentive due to fiscal concerns?
170 Donald Hugh Simcock The Charitable Tax Concessions (Unpublished Master of Laws thesis, Victoria University of Wellington, 1972)
171 At 40. Simcock was referring to: Taxation Review Committee (also known as the Ross Committee, New Zealand, 1967); Royal
Commission on Taxation (also known as the Carter Commission, Canada, 1966); Royal Commission on the Taxation of Profits and
Income (United Kingdom, 1955).
172 At 45.
173 At 45. See Gousmett, above n 51, ch 10 for discussion on the contemporary rationale on the charitable purposes exemption from income
174 At 45.
175 Report of Advisory Group on Charities and Taxation UK (1972) at 3, as cited by Simcock, above n 170, at 45.
176 Report of Advisory Group on Charities and Taxation UK (1972) at 3, as cited by Simcock, above n 170, at 47.
177 Jo Goodhew “No review of the Charities Act at this time” (media release, 16 November 2012).
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The 1967 Taxation Review Committee, also known as the Ross Committee, five years after the donations
concession was introduced into legislation in 1962, provides a five-year history of the donations concession,
which was classified as a “Special Exemption”:
Charitable Donations and School Fees: Income Derived
During Year Ended 31 March
For purposes of ordinary income tax exemption, up to an
overall limit of £25, was allowed to individuals for
certain charitable donations paid in money, and for
school tuition fees paid to registered private schools, or
special schools for handicapped children, not carried on
for private pecuniary profit, in respect of a child, step-
child, or foster child of the taxpayer.
1964 to 1967
The exemption was increased to an overall amount of
£50. No more than £25 may be claimed in respect of
charitable donations but an overall amount of £50 is
allowable for donations to the above schools, for tuition
fees paid to such schools even though carried on for
private profit, or for a combination of those charitable
donations, school donations, and tuition fees.
While most submissions to the Ross Committee on the question of exemptions and deductions argued that
“exemptions for education expenses and donations to charities should be increased,” one submitter, the Ross
Committee noted “[w]ith] interest … advocated the abolition of this type of exemption.”
179 The Ross Committee
also considered that “[t]he exemptions for charitable donations and school fees … are matters of Government
policy rather than tax problems.”
6.1 Precedent for the Donations Concession
There appears to have been a precedent for the donations concession of 1962, as there is evidence that such
thinking appeared between 1922 and 1952, and again in 1962.
6.1.1 1922: Donations to hospital boards
In 1922, a meeting of the Hospital Boards’ Association petitioned the Prime Minister, the Rt Hon William
Massey (Reform Party), requesting “[t]hat voluntary donations to hospital boards be allowed as deductions from
profits for the purpose of income tax.”
181 Mr Massey’s reply is worth reciting in full, for the quality of his
answer is very enlightening: 182
178 Taxation Review Committee Taxation in New Zealand: Report of the Taxation Review Committee (Government Printer, Wellington,
1967) at 473. The Committee was chaired by LN Ross, hence it is also known as the Ross Committee.
179 At 106.
180 At 107.
181 “A Vanishing Point: Taxation of Donations to Hospitals” Northern Advocate (20 September 1922) Papers Past
182 Above n 181. The Rt Hon William Massey (1856-1925) died in office; he held office from 10 July 1912 to 10 May 1925. See “Prime
Minister of New Zealand” Wikipedia
164 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
I have to advise you that a donation to a hospital board is a disposal of the assessable income after it is earned and not
necessary outgoing incurred in the earning of it. As the Act provides only for the deduction of expenditure incurred in
the earning of income, it would be necessary to legislate if donations such as the above are to be allowed as deductions
I cannot, under the circumstances, agree that this is done. The assessable income (which represents the net income of
taxpayers after allowing the deduction of expenses and outgoings incurred in earning it), liable for taxation for 1921-22
was approximately 40½ millions. The special exemptions already provided for in the Act whittled this amount down to
a taxable income of 28½ millions, and on this sum our income tax revenue was collected. To continue further in the
direction of special exemptions must inevitably lead to a diminished taxable quantity with a correspondingly high rate
of tax to get the required revenue.
The effect of this is to make it appear that the income tax in New Zealand is at a higher rate in the pound than in other
British Dominions, whereas the reason is that 12 millions out of 40 millions (and this represents the taxable people
only) escapes taxation altogether by reason of special exemptions, which, for various reasons, have been granted.
I do not think it wise to extend exemption practice. If the worthiness of the object is to be the reason of granting the
deduction, then it is difficult to draw a line of resistance in other cases, such as educational, religious, or patriotic
movements, and it is conceivable that the taxable income might reach vanishing point when every taxpayer has
dispersed his income on his own particular fads instead of recognising his first duty, which is to pay his just dues to the
state and thereby uphold the Empire to which he has the privilege of belonging.
6.1.2 1923: Maintenance of mental health patients
In another example of “borrowing” from other legislation, on 25 July 1923, George Witty MP (for Riccarton),
asked the Minister of Finance “[w]hether he will bring the Land and Income Tax Act into line with the English
Act, so as to exempt from income tax money paid for the maintenance of inmates of mental hospitals or other
institutions by their relatives?”
183 The Minister of Finance, Mr Massey, replied “[t]hat the matter referred to …
will have careful consideration.”184 The matter does not appear to have gained any traction as no special
exemption provision is contained in the Land and Income Tax Act 1923, which contained special exemptions
only for an individual taxpayer, a taxpayer’s dependent children, contributions towards support of a taxpayer’s
widowed mother, and in respect of a taxpayer’s life insurance premiums for the taxpayer “for the benefit of his
wife or children.”
185 However, by 1954, the Land and Income Tax Act included a special exemption for the
support of relatives without independent means. 186
6.1.3 1929: Donations to disaster relief funds
The concept of allowing tax relief on donations to funds for disaster relief in New Zealand is evident from an
item in The Evening Post of 27 June 1929, in response to the Murchison earthquake on 17 June 1929, 187 in
which it was reported that the Dunedin Chamber of Commerce recommended to the Prime Minister “that …
donations to the earthquake fund be free of income tax.”
188 It appears that at least the Amusement Tax was
waived, as can be seen in an advertisement for a fundraising concert by “Hinemoa” and an “‘All Maori’
183 (25 July 1923) 201 NZPD 191.
184 Above n 183. In 1923, “there were about 5,000 patients on the registers of … mental hospitals in New Zealand.”: “Appalling Figures”
The Evening Post vol CVI, iss 45 (22 August 1923) Papers Past
population in New Zealand of 1,271,664, with a further 13,209 persons living in the Cook Islands and other annexed Pacific Islands:
Census and Statistics Office The New Zealand Official Year–Book (Wellington, 1923) section V Population.
185 Land and Income Tax Act 1923, ss 74 to 77.
186 Land and Income Tax Act 1954, s 84.
187 “Murchison Earthquake” New Zealand Disasters
188 “Taxation Request” The Evening Post vol CVII, iss 149 (28 June 1929) Papers Past
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Programme”, “Book early, Reserves 3/-, no tax.” 189 Racing clubs were given “two extra permits for meetings in
aid of the earthquake appeal,” but it appears that calls by the clubs for the takings to be free of income tax went
unheeded by the Government.
190 By the middle of August, over £100,000 had been contributed to the Central
Relief Fund. 191
6.1.4 1940-1943: Patriotic war fund
The Evening Post of 20 February 1940 reported that the Mayor of Pahiatua, Mr SK Siddells, suggested at a
public meeting that the Government should give consideration to a suggestion that donors be given relief “by
allowing as a deduction against assessable income money donated to patriotic purposes.”
192 The Evening Post of
24 February 1940 published an untitled item, presumably issued by the Commissioner of Stamps who is
mentioned in the item, which advised the public that “[a]ll gifts to the patriotic funds are specifically exempt
from duty under the War Emergency Regulations.”
193 The issue appears to not have been resolved as two years
later, in 1942: 194
the Wellington Metropolitan Patriotic Committee … resolved to support the Provincial Patriotic Committee in its
approach to the Government for some relief from taxation on donations for patriotic purposes, either by the granting of
exemption from taxation or a Government subsidy on all funds raised for patriotic purposes.
The Committee also noted that the Wellington Patriotic Appeal had to date raised £58,000. 195 On 2 October
1942, the Commissioner of Taxes issued a Taxation Ruling which stated that: 196
donations made out of income could not be allowed as a deduction from assessable income for income tax. … It did not
matter whether the gift was made to patriotic funds or War Expenses Account, and all claims made under the heading of
donations would be disallowed in the taxpayer’s assessment.
This decision was met with strong opposition, and in the following year the debate continued, with Mr Bain
MP (Wanganui) claiming that “the Taxation Department, with its complete knowledge of the incidence of
taxation, should be the authority to devise some means by which patriotic gifts should be tax free.”
197 Then, on 5
August 1943, the Hon Mr Broadfoot asked the Minister of Finance: 198
[w]hether his attention has been drawn to the statement that the larger companies are being hampered in contributing to
patriotic funds for the care of sick and wounded soldiers by reason of the fact that the gift of £1 entails the payment of
£3 for taxation; and if so, whether he will take steps to exempt such gifts from income tax?
189 Advertisements, The Evening Post vol CVII, issue 6 (6 July 1929) Papers Past
190 “The Earthquake Relief Fund” The Auckland Star vol LX, iss 169 (19 July 1929) Papers Past
may be that the request was not favourably received. A review of Hansard may be warranted for the period June to December 1929 for
any reaction by the Government, but as a response does not appear to have been reported in the newspapers.
191 “The Central Fund” The Evening Post vol CVIII, iss 38 (13 August 1929) Papers Past
192 “Taxation Relief” The Evening Post vol CXXIX, iss 43 (20 February 1940) Papers Past
193 Untitled, The Evening Post vol CXXIX, iss 47 (24 February 1940) Papers Past
194 “Taxation Relief: Patriotic Donations” The Evening Post vol CXXXIV, iss 48 (25 August 1942) Papers Past
195 Above n 194.
196 “Taxation Ruling: Gifts Not Allowed as Deductions” The Evening Post vol CXXXIV, iss 81 (2 October 1942) Papers Past
197 “Taxation on Gifts: Patriotic Funds” The Evening Post vol CXXXVI, iss 25 (29 July 1943) Papers Past
198 (5 August 1943) 263 NZPD 559.
166 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
The Hon Mr Nash’s reply was unequivocal in that he considered that: 199
[n]o additional income tax is payable on that account and there is provision for exemption from gift duty. On the other
hand, the Government does not consider it necessary or desirable to introduce legislation providing for a reduction in
taxation normally payable because of donations to patriotic funds. Any such provision would amount to an indirect
subsidy on such donations.
6.1.5 1946: Voluntary donations
The issue of concessions for private donations continued when, in 1946, the question of income tax
concessions for donations was again raised, this time in respect of community facilities. Ernest Aderman MP
was interested to know if the Minister of Finance, Mr Nash, would inform the House:
whether any remission of income tax is conceded in respect of private donations for the planning, construction, and
maintenance of community centres, hospitals, libraries, or other amenities by local government authorities, and, if not,
whether he will consider remission of income tax on voluntary donations?
Immediately following the question by Mr Aderman, there is a note which has been inserted into the NZPD
that reads: “The payment of taxation on gift donations to humanitarian projects has been one of the factors
responsible for the decrease of private support.”
201 This suggests that because there is no tax relief on private
donations, donors were reluctant to support voluntary activity; therefore, a concession is necessary to encourage
such support. As well as referring to the question in the House in July 1943 about patriotic funds, the reply by
the Minister is very informative, as it justifies why such concessions were, in his opinion, inappropriate:
The position is that donations made out of profits or earnings of employers or employees to such humanitarian projects
are gifts of income, and gifts of this nature cannot be permitted as a deduction from the assessable income of the donor.
The same principle has always applied with respect to gifts made for any charitable purposes. If an exemption were
allowed for taxation purposes in respect of gifts or donations, the result would be that the revenue would, in effect,
provide part of the donor’s gift. For example, if the tax payer whose income tax rate is 10s in the pound donates, say,
£100 annually, the revenue would clearly be providing £50 of the £100 donated. Exemption of donations of the kind
mentioned would involve the Government in [a] heavy loss of revenue, and the matter of granting exemption cannot be
given favourable consideration.
6.1.6 1948: New Plymouth Hospital Ex-patients’ Association
Mr Aderman was clearly the champion of voluntary causes and philanthropic support at that time, as he again
surfaces in 1948, this time asking if the Minister of Customs would reconsider his decision not to provide for a
refund of sales tax on equipment that had cost the New Plymouth Hospital Ex-patients’ Association £4 13s
203 The Minister had replied to the Association that while he commended their “charitable work … no
legislation existed whereby such relief could be given.” 204
6.1.7 1952: Donations concession
Ten years before the National Government introduced the donations concession into legislation, during the
Address in Reply: Want of Confidence in 1952, the Hon (later Sir) Leon Götz MP, after suggesting that the
Government should establish a fund to support charities that did not want to rely on gambling profits, stated that
199 Above n 198 (emphasis added); “Patriotic Gifts: No Tax Exemption” The Evening Post vol CXXXVI, iss 32 (5 August 1943) Papers
200 (11 September 1946) 275 NZPD Addendum Questions and Replies 777.
201 Above n 200.
202 Above n 200 (emphasis added).
203 (24 September 1948) 283 NZPD 2556.
204 Above n 203.
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he had “[a]nother suggestion” which he said was “guided by some extent by the donation recently made by a
leading company in Auckland … that donations to approved charities should be removed from the necessity of
having to pay income tax.”
205 Mr Götz pointed out that: 206
[a] donation recently made of £5,000 means something in excess of £11,000 of profits. Many of these charitable
organisations are being denuded of funds, from having to draw on their capital. They are carrying out a duty which, if
there were no such charitable institutions, would devolve on the State, and any assistance, any encouragement which we
can give to those institutions to carry on their wonderful work would be of very great advantage not only to this country,
but to the particular beneficiaries.
The comment by Mr Götz that, if there were no charities, then it would be the responsibility of the State to
provide for the people that charities would otherwise have assisted, is a hint at the underlying rationale for the
donations concession as stated by Mr Holyoake in 1960, and is also a suggestion that it is up to the community
to care for its own and not to rely on the State. Mr Götz also spoke of his own voluntary activity in the
community, noting that:
among the organisations to which I am privileged to give my little share towards assisting the sick, the aged, and the
infirm, there are no Labour members sitting, and yet they have an equal opportunity, and the same invitation as I
receive, to participate in what is being done. This Government is imbued with the highest ideals of doing all that is
humanly possible to help those in need.
7.0 REVIEWS OF THE TAXATION OF CHARITIES
7.1 1967: The Ross Committee
In 1966, the Holyoake Government (with the Hon Robert Muldoon as Minister of Finance) instigated a review
of taxation in New Zealand, with the task being assigned to a committee chaired by LN Ross (hence the
committee is also known as the Ross Committee). The Ross Committee’s mandate was:
to carry out a comprehensive review of the rates, structure, and incidence of the whole field of central government
taxation in New Zealand, including both direct and indirect taxes, and to report any changes in taxation law or practice
which appear to be desirable.
After outlining the general principles regarding the taxation of religious and charitable organisations, co-
operative and friendly societies, and statutory and incorporated organisations, 209 the Ross Committee then
discussed the trading activities of charitable organisations. 210 The Ross Committee concluded that “incomes
derived from activities of a commercial nature should, in principle, be included in the tax base.” 211 This led to
the Ross Committee recommending that: 212
1. The existing legislation [under the Land and Income Tax Act 1954] should be amended to provide that:
Profits from trading derived directly or indirectly by charitable organisations, and
205 (10 July 1952) 297 NZPD 245.
206 Above n 205 (emphasis added).
207 Above n 203.
208 Taxation Review Committee Taxation in New Zealand: Report of the Taxation Review Committee (Government Printer, Wellington,
1967) at 8.
209 At 308.
210 At 308.
211 At 309.
212 At 312.
168 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
Dividends derived from any company substantially owned by such organisations
are assessable for income tax at normal rates.
2. All other income of charitable organisations should remain exempt from taxation.
Earlier in its report, the Ross Committee had considered the issue of tax exemptions and deductions allowed
to individual taxpayers. 213 At that time (1967), a special exemption for donations and charities of up to $100 per
annum was allowed “for ordinary income tax purposes.” 214 The Ross Committee had no further comment on this
issue, other than to say that: 215
we consider that exemptions for charitable donations and school fees are matters of Government policy rather than tax
problems. Accordingly we recommend no change in the present exemptions.
7.2 1987: The Lange Government
On 17 December 1987, the Hon Roger Douglas MP, the Minister of Finance in the Lange-led Labour
Government, released a Government Economic Statement 216 that included the removal of fiscal privileges for
charitable organisations. 217 Mr Douglas proposed that: 218
(a) Donations will be exempt and expenditure incurred in raising donations will be non-deductible;
(b) Income from activities undertaken for the purpose of making a profit will be assessable, and expenditure
incurred in that process will be deductible;
(c) Income from activities undertaken for purposes other than making a profit (ie income from charitable
activities) will be assessable, but offsetting that, expenditure will be deductible to the extent that it was
incurred in the production of that assessable income.
This proposal was included in Annex 5, under the heading, “Other Base-broadening Measures”.
removing the fiscal privileges, Mr Douglas considered that “[government] assistance to charitable organisations
can be more efficiently delivered through direct expenditure programmes.”
220 This would be achieved through
the removal of the income tax exemption, “and the equivalent level of aggregate funding [being] made available
through [direct] expenditure programmes.”
Mr Douglas also argued that, as charities were exempt from income tax and benefitted from concessionary
treatment under the goods and services tax (GST), “this treatment raised two problems. First, assistance
provided through the tax system was often poorly targeted and, second, this special treatment was being
exploited to avoid tax.”
222 Mr Douglas then argued that “as loopholes in the tax system were being closed off,
pressure on the remaining openings for avoidance would increase.” 223 The new tax regime for charities “would
213 At 103.
214 At 104.
215 At 107.
216 New Zealand Government Government Economic Statement (Wellington, 17 December 1987).
217 Oliver Riddell “Tax exemption clampdown to hit charities” The Press (18 December 1987) at 1.
218 New Zealand Government, above n 216, at 33.
219 At 33.
220 At 33.
221 At 33.
222 Riddell, above n 217.
223 Riddell, above n 217.
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recognise their activities such as raising donations, making investments, and other business done for profit, and
the delivery of social services [that charities] provided.” 224 Mr Douglas’s proposal was that “[e]ach of those
types of activity would have an associated stream of income and expenditure with its own tax treatment.” 225
[n]o charity receiving donations would have to pay tax on any aspect of that operation, but a charity that was involved
in commercial business to raise money would be treated like any other business. It would pay tax on its profits, but its
legitimate expenses would be deductible.
Mr Douglas also explained that “the reason for including income from charitable activities – but not from
donations – in the tax base was to limit the scope for charities to be used for tax avoidance.” 227 However, Mr
Douglas also went on to say “[t]hat income, for example, would include fees charged for emergency
accommodation or rest home care.”
228 If these proposals had been introduced, then entities running business
activities under the guise of charitable status, such as St George’s Hospital, Ngai Tahu Charitable Trust and
Marist Holdings (Greenmeadows) Ltd, would today be entities that paid income tax.
Mr Douglas went even further than the income tax exemption issue, having also proposed that the income tax
deductibility on donations to charitable organisations was to be abolished.
230 This proposal is to be found in the
main body of the Government Economic Statement, under the heading “Tax Rebates and Deductions”, which
Most personal tax rebates and deductions will be removed – many of these are of [the] greatest benefit to people
with high incomes.
Alternative funding support will be provided for charitable activities benefiting from present concessions relating
to gifts and donations.
It is also possible to identify Mr Douglas’s agenda, through the title of the proposals, under the heading
“Other Base-broadening Measures”, 232 that is, this proposal was intended to broaden the tax base. In the opinion
of the Opposition, the reason why Labour intended to remove the tax deductibility on school fees was that “the
Government hates the thought of private education.”
The Government’s response to the reaction to the various tax reform proposals contained in the Government
Economic Statement was to establish a consultative committee under Dr Don Brash, to which submissions on
the various topics could be made. However, two years after announcing its economic reforms, in response to a
question by the Hon George Gair MP, the Government was not able “to give a clear and unequivocal answer as
to [its] intentions regarding the tax treatment of [charities],” with the Hon David Caygill not being able to say,
224 Riddell, above n 217.
225 Riddell, above n 217.
226 Riddell, above n 217.
227 Riddell, above n 217.
228 Riddell, above n 217.
229 See the Appendix of this article. This issue will be the subject of Part 2 of this article.
230 Max Abbott “Death of the Voluntary Sector” Mental Health News (February/March 1988) at 3.
231 New Zealand Government, above n 216, at 7.
232 Abbott, above n 230.
233 (16 March 1988) 487 NZPD 2762.
170 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
“at this stage, when an announcement of the Government’s intentions will be made.” 234 History suggests that the
process died a natural death.
7.3 2001: The Clark Government
In June 2001, the Clark Government released a discussion document, Tax and charities, 235 which once again
raised the issue of income tax and donee status. The discussion document was particularly interested in the
accumulation of profits by businesses run by charities, and of investments, and whether these should be taxed,
as was being proposed regarding a charity’s trading activities.
236 The proposal regarding trading activities was
that such operations “would be subject to tax in the same way as other businesses, but with an unlimited
deduction for distributions made to relevant charitable purposes.”
237 In effect, this is the route now being taken
in Australia with respect to charities and their business activities. 238
The discussion document also considered increasing the limit for donations to be eligible for rebates,
proposing that the limit be raised from $1,500 to $1,800 per individual per year, which would provide a
maximum rebate of $600.
239 The limit was eventually increased in 2003 to $1,890 240 and then, in 2007, removed
7.4 Greater Incentives for Charitable Donations
In February 2007, the Hon Dr Michael Cullen (Labour), Minister of Finance, in response to a question by
Gordon Copeland MP as to “[w]hat reports has the Minister seen on new developments in fiscal policy,” replied
[he had j]ust today seen reports suggesting that a major new policy on welfare would be released … which is simply the
National Party’s submission on the tax and charities discussion document released by my colleague the Hon Peter
Dunne earlier this month. It is, of course, Mr Dunne who has been leading the charge in terms of changes to the
charities taxation regime.
National (through John Key MP) had that day issued a press release claiming that “a bold charity tax policy”
was being announced which will “support private giving and is serious about backing groups doing important
work in our communities.”
242 The policy would “[r]emove the $1,890 cap on charitable donations, [and that] donations of any amount, up to an individual’s total net income, will be eligible for the 33.3% rebate.” 243
National stated that “[t]he existing level of donations is about $350 million a year. If National’s policy sees
donations increase as much as we estimate, then donations will increase by a further $300 million – nearly
doubling the amount that goes to the sector.”
234 (13 December 1989) 495 NZPD 9053. The author has not, at the time of writing, found a consultative document by the Brash
Committee concerning the tax reforms of concern to charities.
235 New Zealand Government Tax and charities (Policy Advice Division, Inland Revenue Department, Wellington, June 2001).
236 At 45.
237 At 44.
238 See n 256.
239 New Zealand Government, above n 235, at 49.
240 Inland Revenue “Donation rebates, 2002 to 2011” About us
241 (27 February 2007) 637 NZPD 7657.
242 NZNP “Bold charity tax policy announced” (press release, 27 February 2007).
243 Above n 242. Concessions for donations by companies and Māori authorities would also be increased.
244 Above n 242.
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It was, however, Labour and United Future that removed the maximum limit on the tax credit for donations
made by individuals, as well as removing the five per cent deduction limit on donations made by companies and
Māori authorities through amendments to ss DB 41 and DV 12, and sub-pt LD, of the Income Tax Act 2007.
The impact on private charitable giving has been significant. According to data available on the Inland
246 the average claimed by way of donations rebates for the period March 2001 to March 2008
was $98.5 million per year. Following the removal of the cap, the average claimed per year increased to $193
million, with the average amount for rebates increasing from $256 to a tax credit of $504. The annual cost to the
Revenue is clearly significant.
7.5 What the Government Giveth with One Hand, the Government may Taketh Away with
7.5.1 1979: CORSO
CORSO’s story has been well told by Sutton, Cordery and Baskerville, and the author commends their paper
to readers. 247 CORSO ran foul of the then Prime Minister, the Rt Hon Robert Muldoon, and the National
Government which, in response to a film produced by CORSO in 1979, A Fair Deal, which Television New
Zealand (TVNZ) refused to screen, “legislated the removal of the tax exempt status of CORSO and ended a
$40,000 annual government grant to the organisation.”
248 The Hon Derek Quigley advised the House of the
charity law concerning political activity, referring to the four principal divisions of charity as laid down in
249 and that a “former president of CORSO said that the organisation had become analogous with HART
and CARE, … and that the organisation is now a political one.” 250
7.5.2 2012: Review of the Charities Act 2005
While the decision of the National Government to disestablish the Charities Commission and to redistribute
its functions to the Department of Internal Affairs as from 1 July 2012 was unexpected by the charity sector, the
decision announced in November 2012 by the Minister for the Community and Voluntary Sector, the Hon Jo
Goodhew, that the Government would not now proceed with the planned “First Principles” review of the
Charities Act 2005
251 was even more of a shock. The reasons given by the Minister were that “the regulatory
245 Inland Revenue “Greater tax incentives for charitable donations” (28 April 2008) Technical tax area
The changes were included in the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill, which was
introduced in May 2007, and were effective from the 2008-2009 income year. The term “tax credit” was introduced to replace “tax
rebate” for donations.
246 Inland Revenue “Donation Rebates, 2001 to 2010” About us
247 The author is indebted to David Sutton, Carolyn Cordery and Rachel Baskerville for their paper on the CORSO story, “Paying the Price
of the Failure to retain Legitimacy in a National Charity: the CORSO Story” (Working Paper 47, Centre for Accounting, Governance
and Taxation Research, School of Accounting and Commercial Law, Victoria University of Wellington, 2007) Centre for Accounting,
Governance and Taxation Research
described in their Working Paper. To complete the story, the rebate in respect of gifts of money to CORSO was removed in s 11 of the
Income Tax Amendment Act 1979 (No. 18), which repealed sub-paragraph (e) of s 56A (2) the principal Act, as inserted by s 9 (1) of
the Income Tax Amendment Act 1977 (No. 2). The principal Act was the Income Tax Act 1976 (No. 65). Muldoon ensured CORSO’s
removal by tabling a Supplementary Order Paper to that effect during the debate on the Income Tax Amendment Bill in September
1979. See 426 NZPD 3183 ff.
248 Sutton, Cordery and Baskerville, above n 247, at 13, citing The Evening Post (12 November 1994). See also (27 September 1979) 426
NZPD 3182-4831 for the lively debates in the House surrounding CORSO.
249 Commissioners for Special Purposes of the Income Tax v Pemsel, above n 7, at 583.
250 (27 September 1979) 426 NZPD 3189.
251 Goodhew, above n 177.
172 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
regime for charities is still bedding in and the [Government’s concerns due to the] continuing constrained fiscal
environment.” 252 The reasons behind this decision became clear after the Minister stated that the Government
narrowing the review to look only at the definition of charitable purposes in the [Charities] Act. However, it is likely
that the current tight fiscal environment would limit the scope of such a review due to the probable tax implications of
any widening of the definition. … I will reconsider a review of the definition once the fiscal situation has improved.
The Cabinet Social Policy Committee papers throw even more light on the background to the decision, as in
the papers it is stated that “… it might be unhelpful to conduct a review while the fiscal environment remains
constrained as it may create expectations of more organisations being eligible for charitable status, which in
light of the associated taxation concessions, could result in increased fiscal costs.”
Finally, in a personal letter to the author, the Minister states that “… policy reviews [are] being conducted by
Inland Revenue on tax issues relating to charities and donee organisations … .”
255 Clearly, the Government has
been ‘spooked’ by the reality of the fiscal implications with respect to charities and donee organisations.
However, is the Government also looking at the contribution these entities make to society, as well as
questioning those entities that accumulate wealth but fail to provide evidence of how, through their activities,
they are of benefit to the community?
Fifty-one years ago, in 1962, the National Party announced, as a part of the Party’s tax policy as contained in
their Election Manifesto, that National, if elected, intended to encourage greater community self-help and
initiative through the provision of a concession for donations to certain approved organisations. In 2012, that
same political party moved to stifle the creation of charities and other organisations that benefit the community.
One-hundred-and-twenty-one years ago, in 1892, organisations with charitable purposes in New Zealand were
granted the privilege of an age-old exemption from income tax. However, did the legislators of that time even
consider the extent to which that privilege would be taken advantage of by charities in the 21st century, through
their commercial structures? Australia is moving to introduce an unrelated activities tax, to ensure that fiscal
privileges are being applied as the legislature intended, and are not being unfairly taken advantage of by
commercial entities at the expense of for-profit entities.
256 New Zealand has yet to discuss this issue. The author
considers that the issue should be discussed on the basis that if the Government is serious about the fiscal
implications of donee status, then the Government should also be as concerned about the fiscal implications of
252 Goodhew, above n 177.
253 Goodhew, above n 177 (emphasis added).
254 Cabinet Social Policy Committee “Future of the Charities Act Review” (2012) (emphasis added) Department of Internal Affairs
255 Letter from the Hon Jo Goodhew (Minister for the Community and Voluntary Sector) to the author regarding the review of the Charities
Act 2005 (12 December 2012).
256 See Myles McGregor-Lowndes, Matthew D Turnour and Elizabeth Turnour “Not for profit income tax exemption: Is there a hole in the
bucket, dear Henry?” (2011) 26 ATF 601 for a discussion on the implications of the decision in Federal Commissioner of Taxation v
Word Investments Ltd  HCA 55, (2008) 236 CLR 204, 70 ATR 225. The Abstract to the paper states: “Australia’s Future Tax
System Review, headed by the then head of the Australian Treasury, and the Productivity Commission’s Research Report on the not for
profit sector, both examined the state of tax concessions to Australia’s not for profit sector in the light of the High Court’s decision in
Commissioner of Taxation v Word Investments Ltd. Despite being unable to quantify with any certainty the pre- or post-Word
Investments cost of the tax concessions, both Reports indicated their support for continuation of the income tax exemption. However,
the government acted in the 2011 Budget to target the not for profit income tax concessions more precisely, mainly on competitive
neutrality grounds.” This article examines the income tax exemption by applying the five taxation design principles, proposed in the
Australia’s Future Tax System Review, for assessing tax expenditure. The conclusion is that the exemptions can be justified and,
further, that a rationale for the exemption can be consistent with the reasoning in the Word Investments case.
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income tax-exempt commercial activities, by requiring those organisations, as well as all charities, to
demonstrate public benefit by providing written reports that are available to the public via the Charities Register
of their activities and their contribution to society.
257 That is the least that should be expected of them in return
for the privilege of the fiscal concessions that are available to this significant part of our economy and society.
Accepted for publication on 27 May 2013
257 Space did not allow for a discussion on this issue, which the author is researching for publication in the future.
174 NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 19
When William Pitt provided an exemption from income tax in 1799 to corporations, fraternities and societies
of persons established “for charitable purposes only,” 258 the concept of a corporation then did not include for-
profit corporations in the form of limited liability companies. Corporations were either ecclesiastical or lay, 259
with lay corporations further subdivided into eleemosynary and civil. 260 Eleemosynary corporations were
constituted “for the perpetual distribution of free alms, or bounty of the founder of them, to such persons as he
261 Of those there were two further types, “hospitals for the maintenance and relief of poor and
impotent persons; and colleges for the promotion of learning, and the support of persons engaged in literary
pursuits … within the universities … and others … out of the universities.”
262 Eleemosynary corporations were
incorporated by trustees for the purpose of “public charity”, such as “the corporation created in the reign of
263 Civil corporations were created for “temporal purposes”, for example, local government; “the
maintenance and regulation of some particular object of public policy, such as the Corporation of the Trinity
House for regulation navigation;” and “the College of Physicians and the Company of Surgeons in London for
the improvement of medical science.”
In the 21st century it is not uncommon, although not generally known by the public, for the form of the
limited liability company to be used for charitable purposes. Given the scale of the commercial activities of such
entities, the protection afforded by the status of limited liability is prudent business practice. However, the
question to be asked, and answered, is what are the expectations of the tax-paying public who subsidise such
entities with respect to distributions to charitable purposes? In the 18th century, the expectation was that surplus
funds would be applied to charitable purposes, as in The Case of Thetford School, for which a charitable
corporation was vested in trustees for the purposes of the corporation, requiring “the annual income of the land
appointed for the maintenance of the objects of the founder’s bounty … to be distributed in a certain proportion
… and if afterwards the revenues increase by a rise in the rents of the land, the increase shall be employed in
making a proportionable increase in the allowance of the objects of the charity.”
265 Two hundred years later,
should this concept be revisited in light of the apparently minimal distributions, relative to their total revenues,
by the N gai Tahu Charitable Trust and the Society of Mary General New Zealand Trust? is it also time for New
Zealand to reconsider the presumption of charitability?
258 Duties upon Income Act 1799 39 Geo III c 13, s V. See Gousmett, above n 51.
259 Stewart Kyd A Treatise on the Law of Corporations (J Butterworth, London, 1793) at 22.
260 At 25.
261 At 25.
262 At 25.
263 At 27.
264 At 28.
265 At 179, citing The Case of Thetford School 8 Co Rep 130b, 77 ER 671.