The Press of 3 October carried yet another story on Ngai Tahu’s continuing successes, this time focussing on its property developments at Wigram Skies, the former air force base.
The CEO of Ngai Tahu Property Limited, Tony Sewell, in responding to people who criticise Ngai Tahu’s income tax exempt status as a charity, stated that he thinks that Maori in New Zealand are easy to criticise for being successful, and in so doing misses the point altogether.
When I lecture my advanced tax students at the University of Canterbury on charities and income tax I make the point that Ngai Tahu is to be congratulated for being so successful, whether or not they are Maori, and that I am not “Maori-bashing.” I also make the point that because a shareholder has charitable status and is therefore exempt from income tax, as also stated by Mr Sewell, why is it then that that status colours the commercial activities undertaken by the shareholding company with the same income tax privilege?
This is not a failing of charity law; it is a failure of tax policy and of successive governments to address the issue.
Since 1967 numerous tax reviews have argued that trading by charities should be taxed. If the commercial activity is not directly related to the charitable purposes of the entity, then it should be liable to income tax, as happens in the UK where this concept dates back to the 1920s.
To explain: a private school charges fees for the provision of education. Under charity law, the advancement of education is one of the four heads of charitable purpose as laid down in the famous Pemsel case in England in 1891. The fees are directly related to advancing education.
What then is the activity in property development that is a related charitable purpose? Are homes for the disadvantaged built at Wigram Skies and provided at minimal cost to the purchaser regardless of race? If so, that falls under Pemsel’s fourth head, public benefit.
However that does not appear to be the case with Ngai Tahu Property, but I will stand corrected if I am wrong.
But when we are talking of property development, there is another issue that needs to be considered. Under the Income Tax Act 2007, dealing in land with the intention of making a profit creates an income tax liability.
The Press article states that Ngai Tahu bought Wigram Aerodrome in 1997 for $16 million. The Press also recently reported that Ngai Tahu Property’s assets have grown from about $3 million to an equity value of $553 million at June 30 2015 with total property assets valued at $700 million.
Clearly Ngai Tahu deals in land with the intention of making a profit. What for-profit property developer could possibly compete against an entity with such a privileged fiscal status?
How is it that such dealing, which has nothing to with charitable purposes other than claiming that as its shareholder has charitable status therefore dealing land is also coloured with that privilege, is not coming under the scrutiny of Inland Revenue?
Dr Michael Gousmett FCIS PhD is an independent researcher and public historian.