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Privy Cl Judgement: Crown Forestry Rental Trust

Privy Council Judgement: Crown Forestry Rental Trust applauds the decision

The Privy Council has delivered its judgment that the Crown Forestry Rental Trust is a charitable trust, thus upholding the Trust's appeal. The effect of the decision is that the Trust is exempt from paying income tax for the past and future. Over $40 million in the tax that the Trust has paid since the dispute arose should be returned to it shortly, enabling it to further assist claimants in their Treaty claims.

This decision ends a lengthy legal dispute between the Trust and the IRD that began nearly a decade ago when the IRD changed the tax status it had originally given the Trust.

The Crown Forestry Rental Trust is relieved the issue is settled. Chairman of the Board of Trustees Sir Graham Latimer says: "The money returned to us will form part of the ongoing support for the settlement of all Crown forest claims. It's another step in the process of re-focusing the Trust's work."

The Crown Forestry Rental Trust is an independent trust jointly established by the Crown and Maori, which receives no taxpayer funding. It started a major review of its operations in August last year and has already made many changes.

The main purpose of Trust is the management and administration of interest earned from investment of rental proceeds from Crown forest licensed land. CFRT uses this income to assist Maori claimants in the preparation, presentation and negotiation of claims before the Waitangi Tribunal.

In 1993, the IRD made a decision on the Trust's tax status. The effect was that the distribution of the Trust's income to claimants was a deductible expense, meaning that the Trust had to pay tax on its surplus income only, not the funds distributed to claimants.

In 1996, the IRD reversed this decision, advising the Trust that its distributions to claimants were not tax deductible. The new ruling also applied retrospectively, so the Trust was left with a large liability.

The Trust paid the tax and has continued to do so. The total amount paid since 1996 amounts to over $40 million. After obtaining legal advice, the Trust decided to challenge the ruling in the Courts.

The Trust argued before the High Court and Court of Appeal that its primary purpose was to help with claims that involved Crown forestry land. It argued that, since its purpose was charitable, the Trust was charitable according to law and therefore exempt from paying income tax.

Both the High Court and the Court of Appeal agreed that the Trust's purpose of assisting Maori with Waitangi Tribunal claims was charitable.

Although most of the Trust's income goes to assisting Maori with their Treaty claims, it was ultimately unsuccessful in both Courts because: a) The High Court ruled that the Trust had a secondary purpose of receiving and holding the rental proceeds, which it deemed was not charitable.

b) The Court of Appeal rejected that finding. It ruled that, in terms of the Trust Deed, if any surplus income were paid to the Crown on the occasion of the Trust being wound up, the income would not be held exclusively for charitable purposes. The requirements for tax exemption were therefore not met.

The Trust lodged an appeal to the Privy Council against this ruling, because it believed that its purposes were charitable and success in that forum meant the Trust would have significantly greater funds available to carry out its function of assisting claimants.

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