ROBERTS v THE COMMISSIONER OF INLAND REVENUE [2018] NZHC 2153

ROBERTS v THE COMMISSIONER OF INLAND REVENUE [2018] NZHC 2153 [21 August 2018]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-Ā-TARA ROHECIV-2017-485-493[2018] NZHC 2153BETWEEN NANCY LOIS ROBERTSPlaintiffAND THE COMMISSIONER OF INLANDREVENUEDefendantHearing: 23 April 2018Appearances: J H Coleman for the PlaintiffA B Goosen and C M Kern for the DefendantJudgment: 21 August 2018JUDGMENT OF CULL J[1] Mrs Roberts challenges a decision of the Commissioner of Inland Revenue(Commissioner) disallowing charitable tax credits for gifts made by Mrs Roberts tothe Oasis Charitable Trust, by way of executed Deeds of Gift. These had beenpermitted for the previous five years.[2] The decision turns on the correct meaning of "a monetary gift of $5 or morethat is paid " under s LD 3(1)(a) of the Income Tax Act 2007 (the Act) and whetherthe forgiveness of debt executed by Mrs Roberts constitutes "a monetary gift of $5 ormore."[3] The Commissioner contends that a forgiveness of a right to be repaid a loan isnot a charitable gift within the meaning of s LD 1 of the Act, because it is not a cashgift that is paid. "Monetary" in this context means cash, says the Commissioner.Factual background[4] On 14 October 2007, Mrs Roberts and her late husband jointly established theOasis Charitable Trust (the Trust), which was registered with the CharitiesCommission in November that year. The charitable objects of the Trust are to facilitatethe growth of the Christian faith in New Zealand, by helping local churches to provideshelter, clothing and education to those who cannot afford them, and by raising moneyfor the benefit of the community.[5] On 16 October 2008, Mr and Mrs Roberts transferred $1,708,080.90 to theTrust by way of loan. This included $500,000 to be invested in Telecom bonds, andthe remainder of a term deposit with interest to be reinvested in the name of the Trust.The evidence confirmed that the original loan advance by Mr and Mrs Roberts wasmade in the form of a bank term deposit to the Trust, from which investments weremade in the name of the Trust. It did not change into another type of non-monetaryasset.[6] In each of the income years ending 2011 to 2015, Mr and Mrs Roberts executedDeeds of Gift, releasing the Trust from liability to repay specified amounts of the loan.They then claimed a tax credit in each year on the basis that the forgiveness of debtwas a charitable gift. The amounts forgiven, and the amounts claimed as tax credits,for each year are shown in the following table:Income year ending Amount forgiven Tax credit claimed31 March 2011 $38,400 $12,799.9831 March 2012 $45,270 $15,089.9931 March 2013 $65,272 $21,757.3131 March 2014 $60,418 $20,139.3131 March 2015 $65,372 $21,791.65Total $274,732 $91,577.24[7] The Commissioner allowed the tax credits in each of these years, but, on1 December 2015, wrote to Mrs Roberts initiating a risk review with respect to the taxcredits claimed. On 4 May 2016, as a result of the review, the tax credits for the fiveyears were reversed and Mrs Roberts was required to repay them. That constitutes adisputable decision within the meaning of s 3 of the Tax Administration Act 1994(TAA).Challenge to a disputable decision[8] Mrs Roberts challenges the Commissioner's disputable decision under s 138Cof the TAA, having completed the disputes process contained in Part IVA of the TAA.This challenge was filed in this Court, in accordance with the High Court Rules 2016.1[9] In support of her challenge, Mrs Roberts and the following witnesses gaveevidence: Mr Oleson, the accountant for Mrs Roberts; Mr Brewerton, the accountantfor the Trust; and Ms Jamieson, a trustee of the Trust and Mr and Mrs Roberts'daughter. No evidence was called by the Commissioner, but Mr Goosen cross-examined the two accountant witnesses.[10] The accountants both confirmed that the Trust liability to Mrs Roberts wasirrevocably reduced each year by the amounts forgiven, under each of the Deeds ofGift. The Deeds were recorded in the Trust financial accounts with underlying journalentries recorded as "Donations received. Deed of Gift from Mrs Roberts". MrBrewerton explained that he "put through a journal entry", because the gift from MrsRoberts was "made by way of deed of gift". He credited the Trust's current accountwith the amount of the donation and debited the current account liability owing to Mrand Mrs Roberts, reducing that liability by the same amount.The issue[11] The single issue for determination by this Court is whether the annualforgiveness of debts to a charitable trust are monetary gifts that are paid to thatcharitable trust, such that they qualify as charitable gifts under ss LD1 and LD3 of theAct.The statutory scheme[12] Section LD 1 of the Act allows a person who makes a "charitable or otherpublic benefit gift" to have a tax credit:LD 1 Tax credits for charitable or other public benefit giftsAmount of credit1 Tax Administration Act 1994, s 138(b).(1) A person who makes a charitable or other public benefit gift in a taxyear and who meets the requirements of section 41A of the TaxAdministration Act 1994 has a tax credit for the tax year equal to theamount calculated using the formula in subsection (2).Formula(2) The formula referred to in subsection (1) is—total gifts × 33⅓%.Definition of item in formula(3) In the formula, total gifts means the total amount of all charitable orother public benefit gifts made by the person in the tax year.Administrative requirements(4) Despite subsection (1), the requirements of section 41A are modifiedif a tax agent applies for a refund under that section on behalf of aperson, and—(a) the tax agent sees the receipt for the person's charitable orother public benefit gift; and(b) the person retains the receipt for 4 tax years after the tax yearto which the claim relates.Refundable credits(5) A credit under this section is a refundable tax credit under section LA7 (Remaining refundable credits: tax credits for social policy andother initiatives) and is excluded from the application of sections LA2 to LA 6 (which relate to a person's income tax liability).[13] Section LD 3 defines "charitable or other public benefit gift":LD 3 Meaning of charitable or other public benefit giftMeaning(1) For the purposes of this subpart, a charitable or other public benefitgift—(a) means a monetary gift of $5 or more that is paid to a society,institution, association, organisation, trust, or fund, describedin subsection (2) or listed in schedule 32 (Recipients ofcharitable or other public benefit gifts) (the entity):Description of organisations(2) The following are the entities referred to in subsection (1)(a) and (b):(a) a society, institution, association, organisation, or trust that isnot carried on for the private pecuniary profit of an individual,and whose funds are applied wholly or mainly to charitable,benevolent, philanthropic, or cultural purposes within NewZealand:[14] Section LD 1 is subject to some specified exclusions in s LD 2. None of thoseexclusions apply in this case.[15] A person who is eligible for a tax credit under s LD 1 may apply to theCommissioner for a refund under s 41A(1) of the Tax Administration Act. The totalamount refunded may not be more than the annual amount of tax credits. Further, atax credit may not be claimed for charitable gifts over the sum of the taxable incomeof the taxpayer in the tax year in which the gifts are made. There is no dispute that therequirements of s 41A were met in this case.What is a monetary gift under s LD3?[16] It was common ground between the parties that "monetary" is not a definedterm for the purposes of s LD 3.2 It was also accepted that "money" is an impreciseterm, and its meaning depends on the context in which it is used. As Tipping J said inCommissioner of Inland Revenue v Thomas Cook (New Zealand) Ltd, the "word'money' is for legal purposes a word of notoriously variable and flexible meaning."3[17] The meaning of "money" is described in the following way in the Laws of NewZealand:4The term "money" generally includes bank notes as well as coins. However,the amount of money that can be paid in the various small denomination banknotes and in coins is limited. The term money is sometimes used to includenot only actual cash but also a right to receive cash, such as sums standing tothe credit of a bank account, or invested in securities. The term may also beused in a popular sense to include all personal or even, exceptionally, all realand personal property. If the term "money" is used in relation to paying moneyinto Court it is to be construed in its ordinary and natural meaning, asincluding money in foreign currency.2 "Money" is defined in s YA 1, but not for the purposes of s LD 3.3 Commissioner of Inland Revenue v Thomas Cook (New Zealand) Ltd [2003] 2 NZLR 296 (CA) at[62].4 Laws of New Zealand Money (online ed) at [3] (footnotes omitted and emphasis added).The precise meaning of the term depends upon the context in which it is used,so that, for example, it is usually given a wide meaning if used in a will and ifthat meaning gives effect to the intention of the testator, and in criminal lawdealing with the return of stolen money, an intermediate meaning inconnection with actions for money paid or for money had and received, and anarrow meaning in relation to execution [of court judgments].[18] Counsel agreed that the intermediate meaning of money was most appropriatein the context, defined as cash and the right to receive cash, such as sums standing tothe credit of a bank account.5[19] Where counsel disagreed was whether "monetary" was simply synonymouswith "money", or whether it indicated a wider meaning. Mr Coleman submitted that"monetary" should be given the meaning "of or pertaining to money".6 He submittedthat this interpretation was wider than money itself, and included obligationsdenominated in terms of money, although it still excluded property, such as land orchattels. Mr Goosen submitted that "monetary" has the same meaning as "money".In his submission, this meaning accords with the purpose of the section, to limit taxcredits to cash donations. He submitted this was done for important policy reasons,including to avoid valuation issues, avoidance risks and administrative andcompliance costs.7[20] The disagreement on the meaning of "monetary" centred on three overlappingissues, which I will address in turn:(a) the legislative history, including the effect of the 2014 amendment;(b) Parliament's purpose in limiting the tax credit to monetary gifts; and5 Mr Coleman, for Mrs Roberts, described the intermediate meaning of money as including physicalbank notes and coins, as well as a right to receive notes and coins, such as sums standing to thecredit of a bank account or invested in securities. He accepted that a wider meaning "anythingwith a value", is too broad, as it would then include real and personal property. Mr Goosen, forthe Commissioner, described the intermediate meaning of money as restricted to "cash or the like,such as electronic fund transfers, cheques, credit cards and debits cards."6 Referring to Bryan Garner (ed) Blacks Law Dictionary (8th ed, West Group, St Paul, Minnesota,2004); and Shorter Oxford English Dictionary (5th ed, Oxford University Press, Oxford, 2002).7 Referring to Michael Cullen, Paul Swain and John Wright Tax and Charites: A GovernmentDiscussion Document on Taxation Issues relating to Charites and Non-profit Bodies (PolicyAdvice Division of the Inland Revenue Department, June 2001); and Michael Cullen and PeterDunne Tax Incentives for Giving to Charites and Other Non-profit Organisations: A GovernmentDiscussion Document (Policy Advice Division of the Inland Revenue Department, October 2006).(c) any potential mischief that the wider interpretation might create.Legislative history[21] The predecessor to ss LD 1 and LD 3 in the Income Tax Act 2004 (the 2004Act) was s KC 5, which provided as follows:KC 5 Rebate in respect of gifts of money(1) A taxpayer is allowed as a rebate of income tax the amount of anygift (not being a testamentary gift) of money of $5 or more made bythe taxpayer in the tax year to any of the following societies,institutions, associations, organisations, trusts, or funds [22] When the 2007 Act was first enacted, the word "money" was left out of thesuccessor provision, so that the section read "a gift of $5 or more". The Commissionerclaims there was no change intended to the meaning of the provision. On 27 February2014, Parliament amended s LD 3 by inserting the word "monetary", giving the sectionits present form.8 A Taxation Officials' Report relating to the amending Bill recordedthe policy reasons for adding the word "monetary" to the section:9The policy intention is that the tax credit for a charitable or other public benefitgift requires the gift to be made in money, or be a subscription paid to a society,institution, association, organisation, trust or fund referred to in section LD 3.The rewrite of this definition into section LD 3 omitted the phrase "of money"on the basis the language of the provision provided sufficient direction thatthe gift was required to be paid in money. However, questions have beenraised with officials on whether this drafting approach definitively requiresthe gift to be paid in money.Officials recommend that the definition of "charitable or other public benefitgift" be amended to clarify the definition of "charitable or other public benefitgift" is a monetary gift. This is consistent with the long standing policy andthe corresponding provision of the Income Tax Act 2004.[23] When interpreting any legislative provision, regard must be had to the plainmeaning of the words as enacted.10 The removal of the phrase "of money" appears tobe an intentional deletion. The fact questions had been raised, and that Parliament was8 See Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014, ss 2 and103.9 Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill: Taxation Officials'Report to the Finance and Expenditure Committee on Submissions on the Bill (Inland Revenueand Treasury, September 2013) at 155.10 Interpretation Act 1999, s 5(1).sufficiently concerned with those questions to amend the section, indicates that therewas a substantive change. Nevertheless, it is unnecessary to decide the point becauseof the conclusion I have reached on the meaning of "monetary".[24] It is also relevant to note that Parliament chose to implement this apparentcorrection by adopting the phrase "monetary" instead of just re-inserting the originalphrase "of money". If Parliament sought to restrict s LD 3(1)(a) to cash donationsonly, it could have clearly amended the legislation accordingly. Instead, it chose touse a broader phrase, suggesting a broader scope to the provision.[25] I note the submission Mr Coleman raised that for the income years ending 2011to 2014, before s LD 3 was amended to insert the word "monetary", no question aroseas to whether the payment was a monetary gift. The pre-amendment wording merelyrequired a gift in the amount of $5 or more.Parliament's purpose[26] Both counsel referred to several government policy documents, that discussedthe purpose behind limiting the scope of the 2004 Act provision to donations "ofmoney". The first of these was a 2001 discussion document, issued as part of theconsultation phase in a government review of the tax treatment of charities.11 Thediscussion document described the status quo in 2001 as follows:12At present, individuals can claim a tax rebate at a set 33 cents in the dollar upto a maximum of $1,500 of donations made to "donee organisations". Doneeorganisations are those entities that meet the requirements in section KC 5(1)of the Income Tax Act [2004], which include all charities. Donations must bein cash in order to qualify.[27] Under the heading "Other matters considered", the document explained thefollowing:13The government also considered whether donations other than in cash shouldalso be eligible for the rebate. However, to allow this would lead to increasedcompliance costs for taxpayers, and administrative costs for Inland Revenue,as it would give rise to questions as to the valuation of the donated goods andservices. When rebates are available for non-cash donations, complex11 Cullen, Swain and Wright Tax and Charites, above n 7.12 At [11.7].13 At [11.9].valuation rules are required, and anecdotal evidence from other jurisdictionssuggests this can give rise to tax planning opportunities. Even when valuesare readily identifiable, the outcome of donating goods or services needs to bethe same as when the goods or services are sold and the proceeds donated. Forexample, tax on the sale of a revenue account asset should not be avoided bydonating that asset. Because of these complexities, the rebate would not beextended to non-cash donations.[28] The second policy document referred to was a 2006 discussion documentseeking consultation on a number of proposals for increasing the tax incentives forcharitable giving.14 These proposals arose from the Fifth Labour Government'sconfidence and supply agreement with United Future. The discussion documentdescribed the status quo in 2006 in the following way:15Individuals can claim a tax rebate at a set 33 1/3 cents in the dollar up to amaximum of $1,890 for cash donations made to donee organisations[29] The 2006 discussion document later referred to a United Kingdom schemeallowing deductions for the donation of shares and other property to charities.Addressing the implications of such a scheme in New Zealand, the documentexplained:16The 2001 Tax and Charities discussion document concluded that the idea ofallowing donations other than in cash to qualify for the tax rebate forindividuals and the tax deduction for companies should not be pursued. Therewas concern at the time that this extension would have led to increasedcompliance costs for taxpayers and administrative costs for Inland Revenue,since it would have given rise to questions as to the valuation of the non-cashdonations.If the giving of shares and other property to charities were to be eligible forthe current tax rebate, individuals would need to determine the value of thenon-cash donations and claim them as a donation in their tax rebate claimform[30] The 2006 discussion document also referred to an Australian scheme providingtax relief for non-cash donations, making the following comments about its applicationin New Zealand:17Adopting any of these measures in New Zealand would recognise the value ofnon-cash donations and could encourage more donations of this kind.14 Cullen and Dunne Tax Incentives, above n 7.15 At [2.4].16 At [4.19]–[4.20].17 At [4.28].However, a key concern for the government is the difficulty of valuing non-cash donations, which could result in tax avoidance as well as significantcompliance and administrative costs. In addition, the concerns relating to adeduction mechanism as outlined in paragraphs 2.22 to 2.23 would also arise.Even so, it would be possible to modify these measures so that donors receivedtax rebates instead of tax deductions for their donations.[31] The Officials' Report relating to the 2014 Amendment Bill, said the "policyintention is that the tax credit for a charitable or other public benefit gift requires thegift to be made in money."18[32] On the one hand, Mr Goosen submitted that these documents are a clearindication that Parliament intended to limit eligibility for tax credits on charitable giftsto cash donations. On the other, Mr Coleman submitted that they merely indicate anintention to exclude eligibility for donations of goods or services, but not all non-cashdonations.[33] Only the earlier two documents specifically refer to "cash". The Officials'Report uses the word "money", which is the subject of dispute in this proceeding.Both the earlier documents pre-date the enactment of the 2007 Act, which removedthe phrase "of money" from the provision. To the extent those documents continue toinform the proper interpretation of the replacement word "monetary", it is appropriateto have regard to the underlying concerns they raise, and the applicability of thoseconcerns in the present context.Potential mischief[34] Mr Goosen identified three specific problems that likely arise in casesinvolving forgiveness of a debt:(a) it can be difficult to verify the details of a loan made many years prior,including the date and amount of the loan;18 Taxation Officials' Report, above n 9, at 155.(b) it would provide the opportunity for taxpayers to manipulate books ofaccount to reflect loans that have in substance not been made,effectively allowing them to avoid tax; and(c) valuation issues might arise in cases where a charitable trust hasbecome insolvent and the value of the loan has been reduced to a lowersum than its face value.[35] The concerns are three-fold, but related to one another. They are the difficultyof valuation, the risk of tax avoidance and increased administration costs. Theprincipal problem is one of valuation. It is difficult to assess the value of "non-cash"donations because they do not have a fixed monetary value. Many assets depreciate,stocks change value according to the performance of the company, and other propertyappreciates, commonly land. Of course, it is possible to obtain the market value ofsuch donations. However, doing so requires significant effort and is open to a degreeof interpretation. These difficulties lead to the other two concerns, which is the realmischief Parliament was presumably trying to avoid. The degree of interpretationavailable in valuation creates the opportunity for tax avoidance. The possibility of taxavoidance then necessitates the administration costs on behalf of Inland Revenue, asit has to check the legitimacy of tax credits claimed.[36] The question then is whether the forgiveness of debt raises the same valuationissues that arise for donations of property. Mr Goosen's only example of such avaluation issue was where a charity had become insolvent, and the value of a loantaken by it had reduced to a value lower than its "face value". It was, in other words,a bad debt.[37] I do not consider that the economic value to the creditor is relevant for presentpurposes. Forgiving a debt still places the charity in a better position than it wasbefore. The charity would be in the same position as if that taxpayer had made a cashdonation instead. Whether a debt is forgiven or a cash donation is made to an insolventcharity, either method may assist it to improve its net position, to avoid dissolution.In any event, there was no suggestion that the Trust in this case was insolvent at therelevant times and it is unnecessary to express a conclusive view on the matter.[38] Finally, even if the economic value of the loan were to be taken into account,a forgiveness of debt does not generally raise the same problems of valuation, as woulda donation of real property or chattels. Valuation concerns are inherent in the natureof property.[39] The Commissioner expressed concern that there would be administration costsinvolved in confirming whether a loan had in fact been made, and in ascertaining theactual value of the loan. There are, however, administration costs that arise for everykind of donation, even those made in cash. Although a "simple receipt" is all that isrequired to verify a cash donation in most circumstances, as Mr Goosen submitted,there are instances where no such receipt is available. Such differences often dependon the charitable organisation's record-keeping practices. Equally, it is incumbent oncharitable organisations to write receipts, (if they do not already do so) acknowledgingforgiveness of debt. The same administration detail is required for verification ofdonations, as required for forgiveness of debt.Conclusion on the appropriate definition of "monetary"[40] Mr Goosen accepted that the Commissioner's argument stands or falls ondefining a "monetary gift" as cash. I have declined to accept that such a meaning isrequired by the purpose and history of the provision. I accept Mr Coleman'ssubmission that "monetary" is a broader concept than "money" in the form of cash.[41] If, as both parties agreed, the intermediate meaning of "money" is the mostappropriate in the context of s LD 3, then it becomes difficult to draw a principleddistinction between the kinds of donations the Commissioner is willing to accept andthe kind that was made in the present case, by way of a forgiveness of debt.[42] In her Statement of Position,19 the Commissioner confirmed Inland Revenue'slong-standing practice of accepting "payments by means other than legal tender" such19 This is a document outlining the position of a party as part of the disputes procedure in the TaxationReview Authority.as "electronic bank transfers, credit card payments, or cheques".20 As the FederalCourt of Australia said in Lean v Commissioner of Taxation:21It is notorious that the meaning of "money" is mercurial both in law andeconomics. It extends from the simple concept of cash and coins throughnegotiable instruments and on to debts and other more obscure interests. Giventhat money is very often a medium of exchange it is particularly susceptibleto changes in form. Cash, if placed by a depositor in a bank account becomesa debt; if a cheque is drawn the debt "becomes" a negotiable instrument andnew debts and relationships arise. All of these, in some sense, represent thesame money.[43] There is no discernible difference between the kind of debt and creditrelationship that occurs when dealing with a bank account, whether by internetbanking or by cheque, and the similar kind of debt and credit relationship between adebtor and creditor. In both cases, the content of the gift is denominated in terms ofmoney. The value of the gift is the monetary figure that is credited to the recipient.No complicated valuation issues arise in the typical case. It is for this reason that Iprefer the meaning of "monetary" advanced by Mr Coleman, namely, that "monetary"has a broader meaning than "money" in the form of cash.[44] To the extent there might be difficult questions to answer in cases where thecharitable organisation has become insolvent, those are best left to be dealt with on thefacts of a suitable case, if and when one arises. Certainly, this issue is not sufficientlyconcerning, to detract from the conclusion I have otherwise reached on the appropriatemeaning of "monetary".Forgiveness of debt as a gift[45] Finally, for the sake of completeness, I deal with Mr Goosen's oral argumentthat the forgiveness of debt is not a gift, but merely extinguishes an obligation.Although the Commissioner has regularly accepted in the past that forgiveness ofdebts could constitute gifts, for example, for gift duty purposes before the Estate andGift Duties Act 1968 was repealed, Mr Goosen for the Commissioner orally raised thisargument, relying on the Court of Appeal's decision in Mills v Dowdall.2220 Commissioner's Statement of Position, dated 16 December 2016, at [78].21 Lean v Commissioner of Taxation [2010] FCAFC 1, (2010) 181 FCR 589 at [45].22 Mills v Dowdall [1983] NZLR 154 (CA) at 156.[46] The decision of Mills examined the meaning of "gift" in s 10 of theMatrimonial Property Act 1976, now the Property (Relationships) Act 1976, andconcerned the issue of whether there had been intermingling of company shares and ahouse property with other matrimonial property. The sole issue for that Court waswhether those two items were excluded from the matrimonial property pool by s 10(1)of the Matrimonial Property Act, as having been acquired by the husband "by gift froma third person". Unless those items were classified as s 10 separate property items,they were matrimonial property to be shared by the husband and wife.[47] The relevant section is:2310 Property acquired by succession or by survivorship or as abeneficiary under a trust or by gift(1) Property acquired by gift from a third person shall not bematrimonial property unless, with the express or implied consent ofthe spouse who received it, the property or the proceeds of anydisposition of it have been so intermingled with other matrimonialproperty that it is unreasonable or impracticable to regard thatproperty or those proceeds as being separate property.[48] The Court noted that "gift" was not defined in the Matrimonial Property Actbut it did not have the "enlarged meaning which is expressly given in s 2 of the Estateand Gift Duties Act for estate and gift duty purposes". As Richardson J observed:24 it does not on its face extend to dispositions of property which are madefor valuable consideration but one which is not fully adequate in money ormoney's worth.[49] The context in which Mills decided upon "gift" and "forgiveness of debt"transactions was markedly different from the present. In Mills, the company sharesand the house property had been transferred to the husband, in return for a bindingfinancial obligation and both items of property had been acquired by purchase. TheCourt held that neither item of property could then be treated as a gift to the husband.They were matrimonial property items under s 8(e) of the Matrimonial Property Act.The Court specifically noted that the gift in each case had been a monetary sum by23 Emphasis added.24 Mills, above n 22, at 158.way of forgiveness of the debt. Neither the shares or the land themselves had beengifted.[50] Mr Goosen relied on the passage in Mills, where Cooke J said:25 there are substantially different ways of carrying out [a transfer of propertywithout payment]. One way is to give the property itself. A second way is tosell the property and then forgive the debt for the purchase price, commonlyby instalments. A gifting programme of the latter kind is commonly adoptedto save duty. To make such a scheme effective it is essential that the transferbe not gratuitous. In other words the object is that in substance the transfereeshould not acquire the property itself by gift. A real obligation must becreated to make the scheme work. And forgiveness of debt does not result inthe acquisition of any property by the person forgiven. It is simply that hisliabilities are diminished or extinguished.[51] However, the Court was making a distinction between the property havingbeen transferred to the husband and therefore "acquired", and the gifting programme,which reduced his indebtedness to his parents. The debt owing over the property wasthe intended subject of a gifting programme over a period of time, in accordance withthe practice of gifting programmes under the Estate and Gift Duties Act. Thesubsequent forgiveness of debt did not transform the transfer of property to thehusband, into a gift from a third party under s 10 of the Matrimonial Property Act.[52] As Cooke J clarified:26It remains to say that where a gifting programme reducing the indebtedness ofa spouse for property transferred has been followed, it may in some cases bepossible to apply s 18(1)(d) of the 1976 Act. The acquisition of the propertymight be treated as a contribution attributable to that spouse. In the presentcase an argument on those lines would not have assisted Mr Williams as itwould still have been difficult to establish that the overall contribution of thehusband to the marriage partnership had clearly been greater than that of thewife.[53] Here, the focus is on the gifting programme of Mr and Mrs Roberts, not thenature of the original loan. The issue was whether those gifts are the kind captured bys LD 3(1)(a) of the Act.25 Mills, above n 22, at 156 (emphasis added).26 At 158.[54] Each year, the Trust's debt was forgiven by Mr and Mrs Roberts, by Deeds ofGift, thereby reducing the liability owed by the Trust. Obviously, the forgiveness ofdebt partially extinguished the Trust's obligation, but as the Trust no longer had to paythe full amount of its liability, the Trust is the recipient of a gift in the express amountof the relevant Deed of Gift. Such sums qualify as gifts.[55] Indeed, in the Commissioner's Statement of Position, the Commissionerspecifically recorded that:27(a) The Commissioner has regularly accepted forgiveness of debt couldconstitute a gift (e.g. for gift duty purposes before its repeal).(b) The Commissioner accepted that the elements of a gift, set out by MrsRoberts in her Statement of Position, satisfied the elements of a gift inthat, there has been:(i) a transfer of property (that is, a transfer of "value");(ii) that is voluntary;(iii) made by way of benefaction; and(iv) in return for which, the donor receives no material benefit oradvantage.[56] The Commissioner also accepted that the effect of the Deeds of Gift, whilerecording the forgiveness of debts, were gifts made to an entity of the kind describedin s LD 3(2) of the Act, as the Trust is a registered charity.[57] I find that the forgiveness of debts as recorded in the Deeds of Gift, are giftsmade to a registered charity. I am unable, therefore, to uphold the Commissioner'ssubmission that the forgiveness of debts are not monetary gifts, because they are notcash donations. I find that the forgiveness of debt transactions were monetary gifts.To require monetary gifts to be made in cash only artificially restricts the legislativelanguage of the Act.27 Commissioner's Statement of Position, dated 16 December 2016, at [63]–[69].Does the forgiveness of debt come within the meaning of paid under s LD3 of theAct?[58] Both parties agreed that the meaning of "paid" in s LD 3 was very muchinformed by the meaning of "monetary," but disagreed about the application of the sYA 1 definition of "pay" in the context of s LD 3.[59] Section YA 1 of the Act defines "pay" as:(a) for an amount and a person, includes−(i) to distribute the amount to them:(ii) to credit them for the amount:(iii) to deal with the amount in their interest or on their behalf, insome other way:[60] "Amount" is also defined in s YA 1 to include "an amount in money's worth".Both these definitions are subject to the exception "unless the context requiresotherwise".[61] Mr Coleman submitted that "paid" should be given the defined meaning of"pay" in s YA 1 of the Act, which includes "to credit [a person] for the amount". Hesubmitted that this definition is consistent with the common law meaning of "pay", inthe cases of cheques, internet bank transfers and credit card transactions.28Alternatively, he submitted that what subsequently became a gift was already "paid"in 2008, when the loan was made.[62] Mr Goosen submitted that "paid" should not be given the meaning in s YA 1,because the exception, "unless the context requires otherwise" applies to s LD 3. Therelevant context relied upon by the Commissioner is the statutory purpose of limitingtax credits to cash donations. He says that even if the definition of "pay" in s YA 1 is28 Referring to Databank Systems Ltd v Commissioner of Inland Revenue [1990] 3 NZLR 385 (PC);In re Harmony and Montague Tin and Copper Mining Co (Spargo's Case) (1873) LR 8 Ch App407 (EWCA); North Sydney Investment and Tramway Co Ltd v Higgins [1899] AC 263 (PC); andHealing Industries Ltd v Commissioner of Inland Revenue (1988) 10 NZTC 5,115 (HC).adopted, it requires a payment action by the taxpayer and that the recording of a creditby the Trust in its books of account cannot "create a payment from the plaintiff".[63] The s YA 1 definition of "pay" encompasses crediting accounts and dealingwith amounts in a person's interest or on their behalf. It is wider than a payment ofcash. The s YA 1 definition of "pay" applies to s LD 3, in the words "a monetary giftof $5 or more that is paid to" a trust. It supports Mrs Roberts' contention that thedefinition of pay is expansive and involves concepts consistent with the intermediatemeaning of money. "Pay" can include debiting and crediting accounts by journal entryon a person's behalf.[64] In Databank Systems Ltd v Commissioner of Inland Revenue, the Privy Councilobserved that cheques are not paid until the bank reduces the indebtedness to therecipient's account.29 Databank is authority for the proposition that a payment can bemade by journal entry. Although Databank also deals with the precise time such apayment occurs, timing is not relevant for present purposes. All that s LD 3 requiresis that the monetary gift is "paid".[65] The person who carries out the process of crediting (and debiting as the casemay be) is irrelevant to the fact of payment having been made. In most cases, theperson making the monetary gift under s LD 3 will be different to the person carryingout the process of crediting, typically this will be done by a bank. For that reason, inthis context, the words "to credit them for the amount" mean something like "to causethem to be credited for the amount".[66] I also accept Mr Coleman's submission that the s YA 1 definition reflects thecommon law. In Healing Industries Ltd v Commissioner of Inland Revenue, TompkinsJ said:30[W]hat in my view emerges from these and other cases is that in appropriatecircumstances it can properly be held that a payment has been made by therelease of a financial obligation or by the discharging of a contractualobligation.29 Databank Systems, above n 28, at 389.30 Healing Industries, above n 28, at 7.[67] That case concerned an exception to bonus issues tax under s 259 of the IncomeTax Act 1976, which applied when the amount distributed to the shareholderconstituted "premiums paid". The taxpayer had applied the amount towardsdischarging a debt obligation owed to a shareholder from an earlier share purchase.[68] In In re Harmony and Montague Tin and Copper Mining Co (Spargo's Case),the England and Wales Court of Appeal held that the discharge of a debt owed by acompany to a shareholder constituted "payment in cash" for shares issued within themeaning of s 25 of the Companies Act 1867 (UK):31 if a transactions resulted in this, that there was on the one side a bona fidedebt payable in money at once for the purchase of property, and on the otherside a bona fide liability to pay money at once on shares, so that if bank noteshad been handed from one side of the table to the other in payment of calls,they might legitimately have been handed back in payment for the property, itdid appear to me in Fothergill's Case, and does appear to me now, that thisAct of Parliament did not make it necessary that the formality should be gonethrough of the money being handed over and taken back again; but that if thetwo demands are set off against each other the shares have been paid for incash.[69] Spargo's Case was later affirmed by the Privy Council in North SydneyInvestment and Tramway Co Ltd v Higgins, in the context of a similar provision in theCompanies Act 1874 (NSW).32[70] These authorities all recognise that payment can be effected by the reductionof a debt. I am unable to accept the Commissioner's contention that s LD 3 of the Actis a provision where "the context requires otherwise" because Parliament intended tolimit tax credits to cash donations. This submission relies upon the same argumentsalready canvassed and rejected at [21]–[39].[71] Accordingly, it is unnecessary to address Mr Coleman's alternative argumentthat the forgiveness of debt was "paid" when the original loan was made. In any event,that argument does not accurately reflect what occurred here and is contrary to thelegal nature of a debt, which is an obligation to pay a sum of money.31 Spargo's Case, above n 28, at 412.32 North Sydney Investment, above n 28.Summary[72] There can be no question that the forgiveness of debt to the Trust meets thedefinition of a gift. There is also no question that the gifts are for an amount of morethan $5 each year. The recipient of the gifts is a charitable trust, as required unders LD 3 of the Act.[73] The only question at issue is whether the gifts, in the form of forgiveness ofdebts, are monetary gifts, and whether those gifts have been paid to the Trust.[74] I have reached the view that a monetary gift of "$5 or more" does not requirea cash payment. Consistent with the policy approach to the legislative amendment, itmust be a gift that is sum specific, not a chattel or property item of uncertain value. Itmust pertain to money, which includes not only actual cash, but a credit of a specifiedamount, such as a forgiveness of debt. I also accept that payment can be effected bythe crediting and debiting of accounts that is involved in giving effect to a reductionof debt.[75] In this case, $1.7 million was transferred to the Trust by way of loan.Subsequently, Mrs Roberts gifted $274,732 of that from the income years 2011 to 2015to the Trust. On the execution and receipt of the forgiveness of debt from Mrs Roberts,I find that the Trust received a monetary gift of $5 or more, and in those instances,payment was effected by the reduction of the debt.Result[76] Mrs Roberts' challenge is upheld.[77] I make an order directing the Commissioner to alter the disputable decision toconform with the decision of this Court.[78] Leave is granted to the parties to file memoranda in respect of further orders,if required.[79] Costs are awarded to the plaintiff on a 2B basis and disbursements as approvedby the Registrar.Cull JSolicitors:Keam Standen, TaurangaCrown Law, Wellington