Goff Phil: Melanesian Trusts (Income Tax Exemption) Amendment Bill — First Reading 
Goff Phil: Melanesian Trusts (Income Tax Exemption) Amendment Bill — First Reading 
[Volume:642;Page:12471] 
Hon PHIL GOFF (Labour—Mt Roskill) 
: 
 I move  
That the Melanesian Trusts (Income Tax Exemption) Amendment Bill be now read a first time. 
 At the appropriate time I intend to move that the bill be referred to the Finance and Expenditure Committee. 
The Melanesian Mission Trust Board was established back in 1862 by deed under an Act of the New Zealand General Assembly with the objective of applying income from land in New Zealand to charitable education and religious purposes in the South Seas. In 1974 the Melanesian Trusts Act was passed by this Parliament focusing the efforts of the trust on the province of Melanesia and placing the control of the trust under the Church of Melanesia. The trust has therefore had a long history of charitable works in Melanesia made possible by Acts of this Parliament. 
Today 94 percent of the income of the Church of Melanesia is from trust board distributions utilising this funding predominantly in the Solomon Islands but also in Vanuatu and to a lesser extent New Caledonia. The church runs nine schools in the Solomons and 10 schools in Vanuatu educating approximately 4600 pupils and employing around 210 teachers. It also runs seven vocational training centres for 620 students employing around 46 teachers. In addition it provides theological training for another 80 students. The Church of Melanesia runs two medical clinics in the Solomons where it employs a staff of 23. The church runs a ship for mission work in the Solomons and Vanuatu which is also used to freight cargo and people. 
Distributions from the trust board are also used for various projects including building construction and renovation and the purchase of vehicles and canoes. A Christian care centre east of Honiara caters for women affected by domestic violence and for women and girls who have been abused. The church’s mothers’ union assists women in family life matters including life skills and literacy training. 
From that we can see that the trust is a board that does valuable and charitable work in countries to the north of us in the Pacific with whom we have a close relationship and that that work is extraordinarily valued by the people who live in those countries. Any reduction in the estimated $7 million income from New Zealand would clearly affect and impact heavily on these activities. 
The Income Tax Act 2004 gives trustees two tax exemptions for income received for charitable purposes. These exemptions are in section CW 34 and CW 35. They provide that income received by trustees for charitable purposes is non-taxable if it is non-business income or if it is applied for charitable purposes in New Zealand. The latter exemption does not apply to the trust board as it uses its distributable income almost exclusively for charitable purposes outside of New Zealand. The trust board however has always considered that it has the benefit of the first exemption as its long-term investment portfolio is not a business and its income is therefore not business income. However in 2002 this longstanding approach of the trust board was rendered uncertain because of a New Zealand Court of Appeal decision:  
Dick v Commissioner of Inland Revenue 
 (2002) 20 NZTC 17 961. In Dick the Court of Appeal held that trustees of a charitable trust with investments in four commercial properties were carrying on a business. 
This raises uncertainty about the tax-exempt nature of the trust board because it could be argued that it is carrying on a business in respect of its commercial and residential properties and that income from the properties could therefore be deemed business income. The trust board sought and received expert tax advice that there was a reasonable prospect of the Court of Appeal distinguishing Dick from the trust board’s position and accepting that the first exemption did in fact apply to the trust board. That advice was premised on the fact that Dick was an unusual factor situation and the decision was given without full argumentation in relation to the issue. However the uncertainty created puts the trustees in a very difficult position in terms of discharging their fiduciary and other obligations and potentially puts the current charitable activities of the church in Melanesia—and in fact of the church itself—in jeopardy given its heavy dependence on New Zealand funding. 
If the tax exemption does not apply the trust’s income would be reduced by up to $2 million. That would significantly affect its ability to continue to deliver essential services and support in particular to the Solomon Islands through the province of Melanesia and the church infrastructure. That reduction would in fact work in the opposite direction to what New Zealand is trying to achieve in Melanesia through its Official Development Assistance programme. Furthermore this Parliament has always assumed that the trust money to be applied to the social services it delivers in the Solomons and elsewhere was tax-exempt. 
The solution proposed in this bill is to amend the Melanesian Trusts Act to provide that all income received by the trust board including any business income and all distributions by the trust board are exempt from income tax. This in fact represents the situation we have believed to have been the case since 1974. It would apply from the commencement date of the Melanesian Trusts Act 1974. This would give the trustees certainty and enable the trust board’s income to continue to be available in full to deliver essential services. 
The solution has been discussed by the trust board with officials in the Inland Revenue Department and has been approved by them as being the best means to remedy the current uncertainty. The department is satisfied that the bill is unlikely to give rise to calls from other New Zealand charitable trusts for legislation exempting them from income tax. The department is unaware of other entities in the same position as the Melanesian Mission Trust Board. The department does not in any case consider that granting an exemption would bind the Government to extending tax-exempt status to other entities. The Minister of Revenue has acknowledged that in this case a tax exemption is warranted because of the wider Government objectives this trust is meeting. These wider objectives would not necessarily be met or apply to the same extent in other cases. 
This bill is supported by the Minister of Finance the Minister of Revenue and the Minister of Foreign Affairs. After contact with parties around the House I believe that this bill will receive the support of all parties to go to a select committee for the hearing of further evidence. Indeed I urge all parties to support the first reading of this bill and its referral to the Finance and Expenditure Committee for the hearing of submissions and further consideration.