Income tax amendment?

Press, 31 August 1984, Page 4

Income tax amendment?

By

OLIVER RIDDELL

The Government plans to amend the Income Tax Act, 1976, this year to remedy a deficiency in provisions on the taxation of the business income of some charitable trusts. This has been announced by the Under-Secretary to the Minister of Finance, Mr de Cleene. He said that before 1982 the business income of a charitable trust had been exempt from income tax except to the extent that it was applied for charitable purposes outside New Zealand.

In 1982, that exemption had been narrowed in a manner designed to prevent the use of certain kinds of charitable trusts for taxavoidance purposes. Under those measures, where business assets had been settled in a charitable trust and a settlor, trustee, or an associated person of either of them, was materially able to influence any benefit to be derived by himself, the trust lost the general charitable trust exemption, Mr de Cleene said. It had since become evi; dent, however, that the 1982 measure was not of itself

sufficient to counter the use of a charitable trust for tax avoidance in certain cases where a beneficiary of the trust was a recognised charitable institution. Notwithstanding that a charitable trust might fall outside the general tax exemption provisions, the trustees would not be liable for tax on the income which was paid and applied to the charitable beneficiary during the income year, he said. This had clearly been an unintended result and the legislation to be introduced this session would close the

loophole. It was proposed that the amendment would take effect from the income year beginning on April 1, 1984, Mr de Cleene said. It would ensure that the measures to prevent tax avoidance through the use of charitable trusts were not frustrated. An amendment would also be introduced, he said, to ensure that the 1982 measures applied to nonexempt charitable trusts on income derived from the 1983-84 income year, irrespective of the date the assets were settled.