Forgiveness of a debt owed by a charity amounts to a charitable ‘monetary gift’ generating a tax benefit for the creditor of 33 cents in the dollar.
In 2007, Mr and Ms Roberts set up the Oasis Charitable Trust for spreading the Christian faith and for helping those in financial difficulty. They transferred investment assets valued at $1.7 million to the Trust, recording this transfer as a loan. Over a five year period they signed deeds of forgiveness of debt, progressively forgiving $274,700 dollars of the original loan. Inland Revenue allowed tax credits totalling $91,500. The High Court was told Inland Revenue later changed its mind, demanding repayment of the credits. Mr Roberts had died. Mrs Roberts contested the tax assessment.
The narrow legal question before the High Court was whether forgiveness of the charity’s debt amounted to a ‘monetary gift’. Inland Revenue said the tax break applied only to charitable gifts made in money. Non-monetary gifts to charities create a headache for revenue authorities. Valuations can be manipulated.
Justice Cull ruled forgiveness of a debt deals with a specific sum of money. It qualifies as a ‘monetary gift’. Inland Revenue raised potential concerns over insolvent charitable trusts. Loans payable by the trust will be worth less than their nominal value at a time when a creditor may attempt to engineer a tax rebate based on the face value of the loan.
Roberts v. Inland Revenue – High Court (21.08.18)
18.168