The Church of Jesus Christ of Latter-Day Saints Trust Board v Commissioner of Inland Revenue

• Jurisdiction: New Zealand
• Judge: Collins J
• Judgment Date: 06 May 2020
• Neutral Citation: [2020] NZCA 143
• Court: Court of Appeal
• Docket Number: CA69/2019
• Date: 06 May 2020

Between

The Church of Jesus Christ of Latter-Day Saints Trust Board

First Appellant/Cross-Respondent

Paul Ross Coward

Second Appellant/Cross-Respondent

and

Commissioner of Inland Revenue

Respondent/Cross-Appellant

[2020] NZCA 143

Court:

Cooper, Collins and Stevens JJ

CA69/2019

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Statutory Interpretation, Taxation — appeal against a High Court decision which held that payments made to the appellant by some family members of missionaries were not gifts and could not be treated as tax credits-whether any of the taxpayers received a material benefit — whether there was a connection between the payments and the financial assistance received by the New Zealand missionary serving overseas — meaning of “gift” — Income Tax Act 2007

Counsel:

R A Green and N B Bland for Appellants/Cross-Respondents

H W Ebersohn and C M Kern for Respondent/Cross-Appellant

• A The appeals by the first and second appellants are allowed.

• B The High Court's declarations are substituted with a declaration that all payments made to the Trust Board by the taxpayers in this case are gifts for the purposes of s LD 1(1) of the Act.

• C The cross-appeal by the respondent is dismissed.

• D The respondent is to pay one set of costs to the appellants for a standard appeal on a band A basis with usual disbursements. We certify for two counsel.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Collins J)

Introduction

1 The issues addressed in this judgment arise from payments made by taxpayers to a charity, namely the Trust Board of a church in circumstances where the payments are:

• (a) voluntary and not refundable;

• (b) made either by taxpayers who are performing charitable work (missionary services) overseas on behalf of the church or by taxpayers connected to the person performing the missionary services; and

• (c) not applied by the Trust Board towards the missionary services or the persons performing those services. Instead, the missionaries receive financial assistance from entities overseas that are part of the church's global network.

2 The principal issue is whether the payments made by the taxpayers to the Trust Board are gifts and therefore provide a tax credit under s LD 1(1) and (2) of the Income Tax Act 2007 (the Act).

3 There are two sub-issues that stem from the principal issue, namely:

• (a) whether any of the taxpayers receive a material benefit from the financial assistance received by those performing missionary services overseas; and if so

• (b) whether there is a connection between the payments made by the taxpayer and the financial assistance received by the New Zealand missionary serving overseas so that the payments cannot be treated as gifts.

4 There are two appellants:

• (a) The Trust Board of the Church of Jesus Christ of Latter-Day Saints in New Zealand (the Trust Board). It is established by a Private Act of Parliament 1 and is a registered charity under the Charities Act 2005.

• (b) Mr Coward, who is a member of the Church of Jesus Christ of Latter-Day Saints in New Zealand (the New Zealand Church). He made payments to the Trust Board when his daughter became a missionary in 2014.

5 In the High Court Hinton J determined that payments made to the Trust Board: 2

• (a) by a missionary, his or her parents, guardians, or grandparents are not gifts, and are therefore not able to be treated as tax credits; but that

• (b) payments made by a missionary's sibling, other relatives such as a cousin, uncle or aunt and members of the Church in New Zealand who are not related to the missionary, are gifts and therefore eligible to be treated as tax credits.

6 The Trust Board and Mr Coward have appealed the first part of the High Court judgment we have summarised in [5(a)]. The Commissioner of Inland Revenue (the Commissioner) has cross-appealed the second part of the High Court judgment summarised in [5(b)].

7 When it is convenient to do so we shall refer to all who made payments to the Trust Board as being “the taxpayers”. That term encompasses a missionary, a member of his or her family or a member of the New Zealand Church who make payments to the Trust Board in the circumstances covered by this case.

Background

8 The Church of Jesus Christ of Latter-Day Saints (the Church) is an international organisation based in Salt Lake City, Utah. Its New Zealand activities are administered by the Trust Board. The Trust Board holds property in New Zealand on trust for the general religious, charitable and educational purposes of the Church in New Zealand, subject to any specific trust and specific provisions regarding the use of buildings for public worship and other purposes. 3

9 One of the roles of the Church is to send missionaries, usually young women and men, into international communities to proselytise, which is a form of missionary service. There are approximately 70,000 young people performing missionary services on behalf of the Church throughout the world. At any one time there may be up to 300 young New Zealanders performing missionary services on behalf of the Church in other countries.

10 Those who are appointed as missionaries by the Church are expected to make significant financial and personal sacrifices when carrying out the Church's work. Missionary terms are usually for 18 to 24 months and may involve considerable sacrifice and hardship. Missionary service for the Church is voluntary and is motivated by the missionary's spiritual desire to advance the aims of the Church.

11 In Davis v United States, the Supreme Court of the United States held that payments made directly to the account of a missionary of the Church by his or her parents in the expectation that the payment would be applied towards missionary work carried out by the taxpayer's child was not tax deductible under s 170 of the United States Inland Revenue Code 1954. 4 This was because the funds in question were not for the use of the Church, but were to be applied for the benefit of the missionary on whose behalf the payments were made. The Church in the United States responded by ensuring that future payments by a United States taxpayer are made to a “Ward Missionary Fund”. Those payments are not applied to the missionary.

As a consequence, the Internal Revenue Service (the IRS) of the United States now treats such payments as being tax deductible. 5

12 In New Zealand there is no separate Ward Missionary Fund. Instead, all payments made by a taxpayer to the Trust Board are intermingled with the Trust Board's funds and applied, at the sole discretion of the Trust Board, towards the activities of the New Zealand Church in a manner consistent with the objects and purposes of the Trust. The payments made by taxpayers to the Trust Board are voluntary and not refundable.

13 The financial support the Trust Board receives from New Zealand sources is insufficient to meet the costs associated with the New Zealand Church's functions in New Zealand. As a consequence, the Trust Board relies on payments it receives from the Church in Salt Lake City to meet a substantial portion of the costs of missionary work that is carried out in New Zealand, as well as the performance of other activities undertaken by the Trust Board on behalf of the New Zealand Church.

14 A member of the New Zealand Church who is selected to be a missionary in another country has their basic travel, accommodation, food and mission-related costs met by the Church organisation of the country in which the missionary is serving. We will refer to these costs as the missionary's “basic costs”. If the Church organisation in the host country is unable to meet those basic costs, then the Church in Salt Lake City meets the costs associated with maintaining the missionary in the host country. The Trust Board makes no payment towards the costs of a New Zealand missionary serving overseas.

15 A New Zealand missionary is expected to make financial contributions towards his or her missionary work in a foreign country either through his or her own resources, or through financial support from their family. The Church's handbook states:

The primary responsibility to provide financial support for a missionary lies with the individual and [their] family. Generally, missionaries should not rely entirely on people outside of their family for financial support.

Missionaries and their families should make appropriate sacrifices to provide financial support for a mission. It is better for a person to delay a mission for a time and earn money towards his or her support than to rely entirely on others. However, worthy missionary candidates should not be prevented from serving missions solely for financial reasons when they and their families have sacrificed according to their capability.

16 The Church has developed a set of guidelines concerning the amount that a missionary, his or her family or a member of the Church should strive to pay to a Ward Missionary Fund. That sum, referred to as a “equalized contribution” does not reflect the actual costs of maintaining a missionary in an overseas posting.

17 The New Zealand Church is not a “designated country” that takes part in the equalised contribution scheme. Nevertheless, the Trust Board sets a “standard amount” which people in the position of the taxpayers are encouraged to pay. In New Zealand the “standard amount” is currently $385.00 per month. That sum is recalculated on a regular basis and was as much as $475.00 per month from 2011 to 2014.

18 Most missionaries or their families manage to pay the “standard amount”. For example, in 2014, when Ms Coward became a missionary, 655 members of the New Zealand Church were undertaking missionary work abroad. Of that number, 629 were able to fund their missionary work through their own resources or with the assistance of members of their family or other people.

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