Friday, April 12, 2013
Mike Butler: Tolerating tribal 'charities'
How long will taxpayers tolerate the tax-exempt status of tribal “charities”? Last week Dr Michael Gousmett in his guest column on this site titled “Tax-payer subsidised charities and their business activities - time for change” looked at the operation of three New Zealand taxpayer-subsidised charitable businesses and argued that there was time for change in the tax-exemptions.
Gousmett cited the Sanitarium Health Food Company, a business of the Seventh Day Adventist Church that makes breakfast cereals; Hawke's Bay’s Mission Estate, a winery, function venue, and location of the annual Mission concert which is owned by Marist Holdings (Greenmeadows) Limited which pays a dividend to the Society of Mary; and Shotover Jet, a business of the Ngai Tahu Charitable Group, a South Island tribal charity.
The column showed that because charities do not have to justify, in their annual reports or returns to the Department of Internal Affairs, what it is that they actually do for that privilege, those charities in fact contribute little to charitable causes.
A significant difference between Ngai Tahu operations and those of the Seventh Day Adventists and the Catholic Church is that Ngai Tahu seed money was a $170-million public government grant dressed up as financial redress whereas the other two operations started with their own money, much of which was privately donated.
Ngai Tahu sold most of the South Island to the government in a series of 10 transactions over 20 years from 1844 for a total of ₤14,750, complained, and received a series of five settlements starting in 1868, with the $170-million payment agreed upon, with relativity top-ups, in 1998.
Ngai Tahu leaders appear to feel the need to justify their settlement since they continue to argue that they settled cheaply. Chairman Mark Solomon told Q&A television current affairs programme on June 6, 2010, that "the figure of loss to Ngai Tahu is between 18 and 20 billion".
He does not say that Ngai Tahu chiefs had sold much of the South Island before 1840, and that the Treaty of Waitangi confirmation that chiefs possessed their property and the promise that pre-1840 land transactions would be investigated enabled Ngai Tahu to sell the South Island yet again.
The Ngai Tahu settlement is just one of the 53 tribal deals agreed upon and mostly paid to January of this year for a total of nearly $2-billion. Most are not aware the extent to which tribal corporations go to minimise tax obligations.
When the Crown settles with tribal claimants, the money must go to a post-settlement governance entity that cannot be tax-exempt. This entity is usually a Maori authority that pays tax at 17.5 percent, and tax on the settlement is paid at the 17.5 percent rate.
However, a Maori authority may give or settle money to a charity. Therefore, the remaining 82.5 percent of the settlement may be settled in that tribe’s charitable trust. The charitable trust may claim a refund of the 17.5 percent paid in tax. This means claimants retain 100 percent of the settlement received. In this way a tax credit is available for a Maori authority. No similar tax credit is allowed to an ordinary company, which pays 28 percent tax.
The Inland Revenue page on Maori organisations says that from April 1, 2003, any organisation that administers a marae situated on a Maori reservation may qualify for an income tax exemption as a charity, as long as it uses its funds to administer and maintain the marae's physical structure and land, or for charitable purposes. As of July 1, 2008, marae needed to be registered by the Charities Commission to qualify for an exemption from income tax.
Former National Party leader Don Brash vehemently opposed treating tribes as charities. He suggested one way to make the tax treatment of tribal businesses more equitable would be "to make the payment to the shareholding charity a deductible payment and then have them pay tax, at the same tax rate as any other company would, on what is left," This proposal is similar to charitable tax law reforms planned in Australia.
Revenue Minister Peter Dunne said that a review of the Charities Act 2005, to be completed by 2015, would include a look at how the charitable operations of commercial entities were taxed.
at 11:56 AM