Melanesian Trusts (Income Tax Exemption) Amendment Bill

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 4,600 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.

National will support the first reading of this Melanesian Trusts (Income Tax Exemption) Amendment Bill 2007, but I will not say too much as I think the Hon Phil Goff gave a fairly extensive background to the legislation.

One of reasons why it is important to support this bill going to the Finance and Expenditure Committee is that if this organisation, which does charitable work, lost its tax-exempt status, then, as the Minister mentioned, maybe $2 million a year would be involved, and that would be a shame. But there is an even wider issue than that: clearly, the trust would not want to give up its tax-exempt status without a bit of a fight. Therefore, there is a risk of litigation, a risk of wasting money on sorting out the matter in court.

At the end of the day, there is not only a risk of having to spend money on sorting out the matter in court but a risk that the court may, in fact, rule against the tax-exempt status, because of the circumstances around the Court of Appeal case that the Hon Phil Goff just mentioned, Dick v Commissioner of Inland Revenue (2002). Some of the facts of that case have remarkably similar parallels to some of the activities that have gone on in respect of the Melanesian Mission Trust Board, yet I think everyone accepts that the work of the Melanesian Mission Trust Board is charitable work. The Minister mentioned that the trust runs many schools, medical centres, and training institutions in a number of countries, and New Zealand has a very significant interest in making sure that the interests of those countries are advanced—perhaps, in particular, the Solomons and Vanuatu. New Zealand is very heavily involved in trying to advance the interests of those two countries. There is no doubt that the Melanesian Mission Trust Board is very much involved in charitable work, and it would be a shame if technicalities were to waste money that it has raised for that charitable work.

When one looks back at the foundation of the Melanesian Mission Trust Board, it is quite staggering to see that in 1855 some people had the vision to purchase land in an area of Auckland that was clearly going to become very valuable land. The mission is able to raise funds for this charitable purpose because of the vision of those people involved a long time ago—well over 150 years ago. One has to admire the vision and commitment of people prepared to enter into arrangements for the benefit of people less well off. It was certainly quite a visionary investment back in those days.

Although this bill is an unusual piece of legislation, National feels that in the interests of avoiding loss of money in litigation, and in the interests of making sure that the charitable work of the Melanesian Mission Trust Board is not disadvantaged, this bill should go to the select committee. If there are any issues that Parliament should be considering, I am sure they will come forward at the select committee. In the meantime, we are happy to support this legislation.

Sitting suspended from 6 p.m. to 7.30 p.m.

I will take a brief call tonight on the Melanesian Trusts (Income Tax Exemption) Amendment Bill. National will be supporting this bill going to a select committee. I understand that it is to go to the Finance and Expenditure Committee, where it will be chaired through that committee, and then the bill will pass through its remaining stages. The bill clarifies beyond doubt that the Melanesian Mission Trust Board is exempt from paying income tax on its earnings and on the distribution of its income.

Let me just go over some of the points that Minister Goff raised tonight in respect of the mission, just to remind members what the Melanesian Mission Trust Board is all about. The mission was originally established by the Anglican Church in 1855. Those members who visit Auckland or who are residents of Auckland will know the mission building in Mission Bay, just around from Kohimārama. It is a lovely building, which has been there I understand since 1872. That was the original base of the mission trust, and the surrounding land originally formed the asset of the trust.

The mission trust was set up as a charitable entity to support mission work in the province of Melanesia, including the Solomon Islands, the New Hebrides, and New Caledonia. The mission trust undertakes, as Minister Goff canvassed, a range of charitable work, including housing, schooling, and hospital work. I will not go into more detail about the specific charitable works of the trust; it is just so that people know that this organisation does a lot of good work in the South Pacific. Currently the trust is the beneficiary of some $7 million per annum in income and this arose, as I said earlier, from the subdivision of the mission-owned land in the Mission Bay area and in the Kohimārama area. The trust did not just subdivide and sell the land; it subdivided it and leased it out on a perpetually renewable, Glasgow lease - type arrangement, which was subject to periodic rent reviews.

We are quite familiar with those types of leases because we have a number of them in the seat of Napier. Members will recall that the 1931 Napier earthquake caused a significant amount of land to rise out of the marshes—it rose nearly 6 feet in some areas. We ended up with suburbs such as Onekawa, Pirimai, and Mārewa, which now have significant tracts of leasehold land. These lands are now under a Treaty claim, and quite understandably. But the beneficiaries of those lands were the original harbour board, and also more particularly the Hawke’s Bay Regional Council, which are now the beneficiaries of a significant amount of annual income as a result.

Most of the leases are 21-year leases and they have been the cause of some angst in my electorate. They come around for renewal every 21 years, and the leases are based on the new values of that land. As members will be aware, obviously land values have gone up significantly around New Zealand, and particularly in the city of Napier I might add, but many of the residents who have been in these properties for some period of time—many have been there for 21 years—are now faced with significant increases to the value of their leasehold payments. It is an issue, because it is pricing some older residents out of their houses.

I come back to the similar situation with the Melanesian Mission Trust Board. It is in that situation, and it has property like that around Kohimārama and Mission Bay. So the value of the leasehold payments from that land now is significant, and it allows the mission trust to do its charitable work in the South Pacific, in the area of Melanesia. That income is at issue tonight—the $7 million that the trust is concerned about—and it is why we are debating this bill tonight.

The decision in a recent case in the New Zealand Court of Appeal, Dick v Commissioner of Inland Revenue, placed the tax-exempt nature of the Melanesian Mission Trust Board at risk. I will not go into the details of that particular case, as Mr Goff has covered it fully tonight. Let us say that advice to the trust, both legal advice and accounting advice, has put it in a position where it believes that its tax-exempt status is at risk. We are here tonight, with this bill, to avert that problem, to solve the issue for the trust, and to put legislation in place that puts beyond doubt the tax-exempt status of the trust. I will not get into the details. I will leave it at that. Suffice it to say that the Melanesian Mission Trust Board will be put in a situation with this bill where its tax-exempt status is beyond doubt and it can go on doing the good works within the South Pacific that it has become legendary for. Thank you, Madam Assistant Speaker.

Tēnā koe, Madam Assistant Speaker. Tēnā tātou katoa i te Whare. When one goes for a stroll down the affluent streets of Kohimārama, Mission Bay, and St Heliers it is hard to see the connection with the Solomons, Vanuatu, and Noumea, until we find that up to 20 percent of the land around there is still owned and leased out by the Melanesian Mission Trust Board. It is interesting too because Mission Bay’s first connection with the Melanesian Mission dates back to 1849, which is where the name “Mission” comes in, of course, dating back as far as 1856 when Bishop Selwyn brought Melanesians to Auckland for training in Mission Bay.

In 1859 the Melanesian Mission House was opened, to coincide with the arrival of 38 Melanesians on board the mission vessel Southern Cross. [Interruption] I would like to thank Mr Pita Paraone for always listening intently to the speeches of the Māori Party, because they are so informative and educational. Nowadays the Melanesian Mission dining hall on Tamaki Drive has been transformed into a restaurant, but what it probably does not include in its menu notes is that 14 of the original training students died at the mission, from an epidemic of dysentery in 1863. It would probably not be that good for business.

This bill is about amending the Melanesian Trusts Act 1974 to establish certain income tax exemptions. When it first came up at caucus I was reminded of a couple of things from my days at Hato Tipene College—firstly, the Melanesian cross I used to carry for padre when I was an altar boy, and, secondly, the number of Melanesian students who attended Tipene courtesy of the Melanesian Mission Trust Board, many of whom have gone on to leadership positions back in their own countries. So I understood immediately the connection and the relevance of the assets of the Melanesian Mission Trust Board to the work, and indeed the aspirations, of the Māori Party.

Māori people’s relationship with Melanesia exists on many levels. Our tribal histories detail relationships and negotiations between the islands of Polynesia and Melanesia many, many centuries ago. Back in 1772 the French navigator Crozet came to the Bay of Islands, and amongst his descriptions of the fine and outstanding breed of people known as Ngāpuhi, he also noted a presence of people he described as “more Melanesian”, who were shorter in stature, had “slightly frizzled” hair, and were “more swarthy”. Our Mātaatua whanaunga from Ngāti Awa also include in their tribal histories the arrival of some black-skinned people on board a canoe that reached Whakatāne some 500 years ago, with links to Melanesia.

Then there is the language that we speak. Māori is often described as a Malayo-Polynesian language, categorised as Indonesian, Melanesian, Micronesian, and Polynesian. Although it would be fair to say our language bears more in common with Rarotonga, Tahiti, Hawaii, and the islands of French Polynesia than it does with Fiji, Vanuatu, or Papua New Guinea, still the connection is important.

The relationship between Māori and Melanesian art forms has also been noted. As far back as 1915, in an article on “Māori and Maruiwi”, Elsdon Best describes koru-like motifs and spirals, so frequently applied in our arts, as “abounding in the tribal arts of Melanesia”.

Perhaps the greatest connection we amongst Māori share with the islands of Melanesia is the common history we have endured as supposed protectors came in the form of traders, whalers, sealers, and missionaries, bringing with them diseases, guns, and the prospect of unsettled settlement. So the islands of Polynesia and Melanesia became occupied, inhabited, and influenced by British, French, Spanish, Dutch, German, and American visitors.

What does all this connection between Aotearoa and Melanesia have to do with income tax? Well, it sets the tone for the Māori Party’s position on this bill. All those citizens out in Kohimārama, St Heliers, and Mission Bay boosting up the income of the Melanesian Mission Trust Board will probably not be too worried that their leases are not subject to income tax. The same goes for the distribution of income by the Melanesian Mission Trust Board.

But for people like Brian Corban, who is chairperson of the trust, Peter Brook, William Somerville, Derek Firth, and the other members of the board, this bill is very important to tidy up any uncertainties that have emerged since the 2002 decision of the New Zealand Court of Appeal in Dick v Commissioner of Inland Revenue. The trust board has always treated its income as tax-exempt, considering that its charitable status was based on it being vastly different from mainstream business operations.

When one looks at the definition of “charitable purposes” in the Charitable Trusts Act one can see that there is not a lot of commercial profit in supplying—and I quote from the trust board’s documents—for “the physical wants of sick, aged, destitute, poor, or helpless persons, or of the expenses of funerals of poor persons”. That list of charitable purposes goes even further to specify “the education of the poor or indigent or their children; the reformation of offenders, prostitutes, drunkards, or drug addicts and the employment and care of discharged offenders”. True to form, the Melanesian Mission Trust Board helped set up the Auckland Industrial School in 1882 to provide for destitute and neglected children.

The central question that this bill aims to address is whether the income from the residential tenure on church leasehold land should be taxed. The Māori Party has three key principles that guide our decisions on this bill. We support tax exemptions for charitable purposes. We support tax exemptions for beneficiaries and low-income earners. We also support this bill because of our common history with Melanesia. But we will also be looking at the Committee stage to understand the accountability and connection of the trust board back to the Islands of Melanesia.

In considering those peoples—our whanaunga—from Melanesia, the story of Vanuatu bears a specific mention, because it is estimated that the impact of imported diseases brought to the country by British and French missionaries, sandalwood traders, and blackbirders decimated the population in Vanuatu from approximately 1 million in 1800, to just 45,000 by 1935. If that were not savage enough, during World War II the Yanks moved in, building their own infrastructure and buildings, and then just as abruptly departed in 1945, leaving the island struggling.

The ni-Vanuatu, particularly in urban areas such as Port-Vila are still burdened by their lack of economic independence, with their economy in a fragile position. It is so fragile, in fact, that the United Nations has listed Vanuatu as one of its least developed countries, with the average economic growth continuing to fall 2.5 percent behind the average rate of population growth. Mission Bay, Kohimārama, Port-Vila—well, maybe there is very little in common after all.

This bill on its own will not do much for Vanuatu, but on this International Day for the Eradication of Poverty, perhaps together we in this House can do something to help create a more socially just world, and stand up and speak out against poverty everywhere. For those reasons and for many others expressed by speakers in the House before me, the Māori Party will be supporting this bill. Tēnā koe, Madam Assistant Speaker. Kia ora tātou kātoa.

Bill read a first time.

Bill referred to the Finance and Expenditure Committee.