Recommendation

The Finance and Expenditure Committee has examined the Melanesian Trusts (Income Tax Exemption) Amendment Bill and recommends that it be passed with the amendment shown.

This is a private bill. We report that the statements in the preamble have been proven to our satisfaction.

Introduction

This bill amends the Melanesian Trusts Act 1974 to ensure that, from the commencement date of the principal Act, income derived by the Melanesian Mission Trust Board (including income from any business carried on by, or for, or for the benefit of the Trust Board), and distributions of income by the Trust Board are exempt from income tax.

Income tax exemption

We are of the view that it is important to exempt the Melanesian Mission Trust Board from income tax. We note that the sole beneficiary of the Melanesian Mission Trust Board is the Church of Melanesia, which receives more than 94 percent of its funding from the Trust Board. If the Trust Board's incomes were taxable, its ability to deliver charitable activities would be seriously undermined. We therefore support the passing of this bill, subject to one minor amendment.

To ensure that the income tax exemption for the Melanesian Mission Trust Board is comprehensive, we recommend that new paragraph 4A(2)(c) be inserted into the Melanesian Trusts Act 1974 (clause 5). New paragraph (c) provides that income derived by the Trust Board and distributions of income by the Trust Board are treated as exempt income under the Income Tax Act 2007.

Similar trust boards

We understand that it has become unclear whether trust boards' incomes are taxable since the decision of the New Zealand Court of Appeal in Dick v Commissioner of Inland Revenue (2002) 20NZTC 17, 961. While this bill will clarify the tax status of the Melanesian Mission Trust Board, we are concerned that the tax status of other charitable trust boards, which are of a similar nature to the Melanesian Mission Trust Board, remains unclear. We believe these trust boards are likely to promote private bills similar to this one to ensure that their incomes are exempt from income tax.

If all of these trust boards do promote such private bills, not only will they incur substantial legal costs, but Parliament will also have to spend a significant amount of time considering them one by one. The Government should deal with the general effect of the Court of Appeal decision rather than requiring individual trusts that believe they might be affected by it to approach Parliament for a remedy.