CIR v Roberts

• Jurisdiction: New Zealand
• Judge: Stevens J
• Judgment Date: 17 December 2019
• Neutral Citation: [2019] NZCA 654
• Court: Court of Appeal
• Docket Number: CA560/2018
• Date: 17 December 2019

Between

Commissioner of Inland Revenue

Appellant

and

Nancy Lois Roberts

Respondent

[2019] NZCA 654

Court:

Clifford, Goddard and Stevens JJ

CA560/2018

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Statutory Interpretation, Taxation — whether forgiveness of a debt owed to the donor by a charity qualified as a “charitable or other public benefit gift” under the Income Tax Act 2007 — definitions of “monetary” and “money”

Counsel:

A B Goosen and C M Kern for Appellant

J H Coleman for Respondent

A The appeal is dismissed.

B The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Stevens J)

Introduction

1 The question in this appeal is whether forgiveness of a debt owed to the donor by a charity qualifies as a “charitable or other public benefit gift” under s LD 1 of the Income Tax Act 2007 (the ITA 2007) with the consequence that the donor is entitled to a tax credit under the section.

2 The answer depends on the meaning of “charitable or other public benefit gift” in s LD 3 of the ITA 2007 as defined at the relevant times. In dispute are the 2011 to 2015 tax years, during which period the respondent, Mrs Roberts, made annual gifts to a charitable trust by mean of deeds of gift.

3 The wording in s LD 3(1)(a) of the ITA Act 2007 was amended for the 2014 and 2015 years with the result that we are required to interpret the meaning of the following words:

• (a) “a gift of $5 or more that is paid” (for the 2011 to 2013 years); and

• (b) “a monetary gift of $5 or more that is paid” (for the 2014 and 2015 years). 1

Factual background

4 The facts behind this disputed question of interpretation are not in issue. Mrs Roberts and her late husband had in 2007 established the Oasis Charitable Trust (the Trust) which was registered with the Charities Commission. Mr and Mrs Roberts lent $1,708,080.90 to the Trust in October 2008.

5 Mrs Roberts stated in her affidavit evidence in the High Court that she later forgave some of the debt due to her in the 2011 to 2015 income years as follows:

Date	Amount
30 March 2011	$38,400
30 March 2012	$45,270
28 March 2013	$65,272
28 March 2014	$60,418
31 March 2015	$65,372
Total	$274,732

6 By way of example, the forgiveness of debt for the tax year ended 31 March 2011 was implemented by Mrs Roberts executing a deed of gift, which

provided that “the Donor [does hereby] freely give and release unto the Donee the sum of [$38,400 and does reduce] the liability of the Donee to the sum of [$820,064.50] as from the date hereof”. Subsequently, Mrs Roberts filed a charitable tax credit claim form in respect to the $38,400 gift to the Trust claiming a tax credit of $12,799.98

7 Mrs Roberts stated in her evidence that the total tax credits for the amounts forgiven were claimed by her for the relevant income years as follows:

Income year ended	Amount
31 March 2011	$12,799.98
31 March 2012	$15,089.99
31 March 2013	$21,757.31
31 March 2014	$20,139.31
31 March 2015	$21,791.65
Total	$91,577.24

8 Mr Roberts died in September 2011 and Mrs Roberts received payment from the Commissioner of Inland Revenue (the Commissioner) of the donations tax credits for the forgiveness of debt (as well as for some other cash donations which are not in issue) in each of the five years by direct credit to her bank account.

9 Following an investigation, the Commissioner issued a notice on 4 May 2016 requiring repayment by Mrs Roberts of the previously paid tax credits relating to the forgiveness of debt. This amounted to a disputable decision that is not an assessment under s 3(1) of the Tax Administration Act 1994 (the TAA). This resulted in a disputes process under Part 4A of the TAA. Following completion of the disputes process, the Commissioner's Disputes Review Unit confirmed the Commissioner's disputable decision. Mrs Roberts successfully challenged that ruling in the High Court. 2

High Court judgment

10 In the High Court it was common ground between the parties that “monetary” is not a defined term for the purposes of s LD 3. 3 Counsel also accepted that “money”

is an imprecise term, the meaning of which depends on the context in which it is used. 4 Counsel disagreed, however, on whether “monetary” was simply synonymous with “money” in a narrow sense (e.g. cash or the like, such as payments by cheque, electronic funds transfer, credit card or debit card), or whether it had a wider meaning. 5

11 After considering the legislative history, Parliament's purpose and the statutory context, Cull J preferred the submission on behalf of Mrs Roberts that “monetary” is a broader concept than “money” in the form of cash. 6 The Judge's reasoning is conveniently summarised thus:

[43] There is no discernible difference between the kind of debt and credit relationship that occurs when dealing with a bank account, whether by internet banking or by cheque, and the similar kind of debt and credit relationship between a debtor and creditor. In both cases, the content of the gift is denominated in terms of money. The value of the gift is the monetary figure that is credited to the recipient. No complicated valuation issues arise in the typical case. It is for this reason that I prefer the meaning of “monetary” advanced by Mr Coleman, namely, that “monetary” has a broader meaning than “money” in the form of cash.

[44] To the extent there might be difficult questions to answer in cases where the charitable organisation has become insolvent, those are best left to be dealt with on the facts of a suitable case, if and when one arises. Certainly, this issue is not sufficiently concerning, to detract from the conclusion I have otherwise reached on the appropriate meaning of “monetary”.

12 The Judge held there was no question that the forgiveness of debt to the Trust met the definition of gift and that the gifts were for an amount of more than $5 in each year. 7 Moreover, the recipient of the gifts was a charitable trust as required by s LD 3. 8 Given those findings, the only question was whether the gifts, in the form of forgiveness of debts, were monetary gifts. 9 On this point, the Judge concluded:

[74] I have reached the view that a monetary gift of “$5 or more” does not require a cash payment. Consistent with the policy approach to the legislative amendment, it must be a gift that is sum specific, not a chattel or property item of uncertain value. It must pertain to money, which includes not only actual cash, but a credit of a specified amount, such as a forgiveness of debt. I also

accept that payment can be effected by the crediting and debiting of accounts that is involved in giving effect to a reduction of debt.

13 On that basis, the Judge upheld Mrs Roberts' challenge and directed the Commissioner to alter the disputable decision to conform with the decision of the High Court upholding the tax credits. 10

14 Before us, Mr Coleman for Mrs Roberts, in general terms supported the Judge's reasoning. In his oral submissions he addressed a small number of the submissions made on behalf of the Commissioner. These submissions are reflected later in this judgment.

Submissions on behalf of the Commissioner

15 For the Commissioner, Mr Goosen submitted that the High Court erred in holding that a forgiveness of debt is a charitable or other public benefit gift under s LD 3(1)(a). While a forgiveness of debt can undoubtedly be a gift at common law, it is not a gift that qualifies as a charitable or other public benefit gift under s LD 1.

16 Mr Goosen submitted such a conclusion followed for two main reasons. First, on a proper interpretation, s LD 1 read with s LD 3(1) requires the gift to be a gift of money in the form of cash, or the like. A release of an obligation to repay money is not a gift of money. Mr Goosen cited Mills v Dowdall, a decision of this Court said to be authority for the proposition that a forgiveness of a debt does not result in the acquisition of any property by the person forgiven. 11 Where there is a forgiveness of a debt, the gift is the extinguishment of a liability to repay money.

17 Second, there are compelling extrinsic interpretative aids that show it was Parliament's purpose that the gift must involve a transfer of money from the donor to the donee, and a forgiveness of a debt was not intended to qualify. The purpose of Parliament's policy was a desire to avoid:

• (a) the difficulty of valuing non-cash donations, which could result in tax avoidance; and

• (b) significant compliance and administrative costs. 12

18 He submitted these difficulties would arise in relation to forgiveness of debt. For example, if a debt is owed to a taxpayer by an insolvent charity, that debt is worth less than its face value to the taxpayer: forgiveness of that debt does not cost the taxpayer the face value of the forgiven debt, so should not attract a tax rebate based on its face value.

19 Ms Kern submitted that initially gifts of “money” meant gifts of cash. The subsequent legislative history of ss LD 1 and LD 3, comprising three government discussion documents demonstrated, she submitted, that Parliament did not intend there to be a change when the word “money” was omitted from s LD 3(1)(a). Thus, the phrase “a gift of $5 or more” was intended by Parliament to have the same meaning as a gift “of money of $5 or more” (in s KC 5 of the Income Tax Act 2004 (the ITA 2004)), that is, cash or the like.

20 Moreover, when the phrase “a gift of $5 or more” was replaced from 27 February 2014 with the phrase “a monetary gift of $5 or more”, Parliament did not intend any change of meaning. Thus, at all times the statutory intention was that the gift must be a gift of money which Ms Kern submitted meant “cash transfers of money from...