Glossary of terms relating to taxation of Maori organisations

Approved donee status

To qualify for donee status an entity must meet the requirements in section KC 5(1) of the Income Tax Act 1994, which includes entities established for charitable, benevolent, philanthropic, or cultural purposes within New Zealand or that are specifically listed in this section. Entities interested in obtaining donee status must apply to the Inland Revenue Department.

Beneficial owners

The owner of a beneficial interest in land. If the land is vested in trustees, those trustees own the land as legal owners on behalf of the beneficiaries who hold their individual shares in the land.

Charitable purpose

A charitable purpose is a purpose for:

• the relief of poverty;
• the advancement of education;
• the advancement of religion; or
• any other purpose that is beneficial to the community.

These categories of charitable purpose are prescribed by common law and may appear to be quite wide. However, the courts in determining whether the purpose of an entity is for "any other purpose that is beneficial to the community" have restricted the purposes similar to those listed in the preamble to the United Kingdom's Charitable Uses Act 1601.

Modern examples of type of activities that come within this purpose are:

• providing public halls, public recreational facilities, botanical gardens, parks, libraries and museums;
• social rehabilitation - integrating people back into the community;
• providing an ambulance service, district fire brigade or life saving service;
• repairing highways and bridges, providing a water supply, paving and lighting a town; and
• the afforestation or making of public domains or national parks.

Company

The definition of a "company" for tax purposes is broad. It includes any body corporate or other entity that has a legal personality or existence distinct from those of its members, whether that body corporate or other entity is incorporated or created in New Zealand or elsewhere. Certain entities such as unit trusts are deemed to be companies for tax purposes, whereas Maori authorities are specifically excluded from that definition.

Company tax rules

Key features of company tax rules in the Income Tax Act 1994 are:

• Companies are subject to a flat tax at a rate of 33 percent.
• Companies are separate legal entities, and the members have an "interest" in the company, usually defined by shareholding.
• The benefit of tax paid by a company can be passed on to shareholders as imputation tax credits attached to dividends. Gross dividends are included as gross income of the shareholder, but individual tax liabilities are satisfied in part by the amount of any tax credits that have been allocated to the dividend.
• If a taxpayer receives a dividend that has more imputation credits attached than the level of tax payable on that dividend, and the taxpayer has other income, the excess tax credit can be used to satisfy this tax liability.
• Tax losses can be carried forward to be offset against the future income of the company, subject to maintaining certain membership requirements from the beginning of the year of loss to the end of the year of carry forward.
• Charitable gifts may be deductible if they are provided to organisations with approved donee status. (This concession is not available to closely held companies.) The deduction is subject to certain limits.
• Capital gains are taxable when distributed to shareholders but not when distributed in the course of liquidation.
• Available subscribed capital for initial investment in a company is defined as capital, and is non-taxable when distributed.

Compliance costs

Compliance costs are the other costs that people and businesses incur when they pay their tax, over and above the actual amount of tax they pay. These other costs can have a money value, in that they may involve time, fees paid to tax advisers, and other costs. They can also be "psychological" costs, such as the stress that comes from not being certain that you have met all the rules correctly, or even what those rules are.

Court order

A document prepared by and signed under the seal of a court to give effect to a decision of a judge of the court.

Crown Forestry Rental Trust

The Crown and Maori entered into an agreement in 1989 permitting the Crown to dispose of its forestry interests, while protecting the ability to provide redress for Treaty claims. The agreement arose from action taken by Maori to the Court of Appeal to protect their claims to Crown forestry interests. The Court of Appeal action was adjourned (sine die) following the negotiated agreement between the parties. If no agreement had been reached or if the agreement is broken, Maori had the right to return to the Court of Appeal in order to protect their interests.

The agreement was embodied in legislation, the Crown Forest Assets Act 1989. The Trust was formed in April 1990 with the signing of the Trust Deed. The 1989 agreement, the Crown Forest Assets Act and the Trust Deed were all negotiated and approved by the Maori Appointors.

The Trust was established to:

• Receive rental proceeds from Crown forest licences; and
• Make the interest, earned from investment of the rental proceeds, available to assist Maori in the preparation, presentation and negotiation of claims before the Waitangi Tribunal which involve, or could involve, certain Crown forest land.

Hapu

Subtribe or kin group linked by a common ancestor.

Imputation tax credits

Imputation tax credits reflect the tax paid by a company. When companies pay dividends to their shareholders they can attach imputation tax credits to the dividends. The dividends are taxed in the hands of the shareholders, who can use those credits to offset their personal tax liability. If the credits cannot be used, they can be converted into a tax loss by shareholders and used in the next income year.

Individuals

Natural persons.

Iwi

Traditional Maori tribal hierarchy and social order made up of hapu (kin groups) and whanau (family groups) having a founding ancestor and territorial (tribal) boundaries.

Maori associations

A "Maori association" is defined in the Maori Community Development Act 1962 and means a Maori Committee, a Maori Executive Committee or a District Maori Council. All of these bodies are committees of the New Zealand Maori Council.

Maori authority credit account

A proposed measure that will record Maori authority income tax payments and refunds, and account for the number of tax credits available for distribution.

Maori community purposes

Maori Community Purposes include the promotion by financial support, loans and grants, in support of health, social, cultural and economic welfare, educational and vocational training and anything else the trustees deem appropriate, provided the Maori Land Court approves. For a full definition of Maori Community Purposes refer to section 218 of the Maori Land Act 1993.

Maori freehold land

This is land whose beneficial ownership has been determined by the Maori Land Court (that is, the Maori Land Court has created a title for the land and has determined the beneficial owners of that land). Under current law, the status of the land will continue to be Maori land unless the Maori Land Court makes an order changing the status of the land.

Maori incorporations

A Maori incorporation is a structure similar to a company established to facilitate and promote the use and administration of Maori freehold land on behalf of the owners. Maori incorporations were designed to manage whole blocks of land and are some of the most commercial types of Maori-land management structures. Maori incorporations are established under Te Ture Whenua Maori Act 1993 (also known as the Maori Land Act 1993).

Maori land trusts

The purpose of these trusts is to reduce the high transaction costs of managing fragmented lands with numerous owners, by amalgamating the land titles under a single entity and by delegating the management of the entity to a committee of owner representatives.

The different types of Maori land trusts are:

• Ahuwhenua trust - the most common Maori land trust. It is designed to promote the use and administration of land in the interest of its owners. These trusts are often used for commercial purposes.
• Whenua topu trust - an iwi-based or hapu-based trust designed to facilitate the use and administration of the land in the interest of the iwi and hapu. This type of trust is used for receiving Crown land as part of any settlement.
• Kai tiaki trust - established solely for individuals who are minors or have a disability, and who are unable to manage their own affairs.
• Whanau trust - a whanau-oriented trust. It allows the whanau to bring together their Maori land interests for the benefit of the whanau and their descendants.
• Putea trust - allows owners of small and uneconomical interests to pool their interests together.

Ahuwhenua and whenua topu trusts are land-management trusts and involve whole land blocks. Whanau and putea trusts are share-management trusts and relate primarily to specified shares in land. Kai tiaki trusts are for minors or persons with a disability, and can include all their assets.

Whenua topu and putea trusts allow spending for "Maori community purposes". Maori community purposes are defined in Te Ture Whenua Maori Act as purposes that are for the promotion of education and vocational training, health, and social, cultural and economic welfare.

Whanau and ahuwhenua trusts may also use funds for Maori community purposes, if their trust orders allow and if the owners agree. The trust order will define who will benefit from Maori community-purpose funds.

Maori reservation

An area of land that is set aside as a "Maori reservation" under section 338 of the Maori Land Act 1993 for specific purposes. One of those purposes could be for a marae.

Maori trust boards

Maori trust boards are established under the Maori Trust Boards Act 1955 to manage tribal assets for the general benefit of their members. The boards are able to provide money for the benefit or advancement of their members and to apply their funds towards the promotion of health, social and economic welfare, and education and vocational training. Some boards were set up to administer compensation received as settlement of grievances by Maori against the Crown, while other boards were established to secure government recognition (in order to take up service contracts), or to secure a mandate in order to pursue Treaty of Waitangi claims.

Marae

Meeting place for the Maori community. Often an area of land set aside for the use of hapu or iwi, with buildings on it, such as a meeting house and dining hall.

Marginal tax rates applying to individuals

"Marginal" tax rates are the rates that apply to the last dollar earned by a taxpayer. These rates take into account the low-income rebate. This means that a taxpayer has an "effective" tax rate of 15% when his or her gross income is less than or equal to $9,500. The low-income rebate abates progressively until the taxpayer earns $38,000. The marginal tax rates for individuals are:

0 - 9,500	15%
9,501 - 38,000	21%
38,001 - 60,000	33%
60,001 and over	39%

Personal tax summary

Most individuals who receive salary, wages, interest, or dividends will have their final income tax liability determined by means of an income statement instead of being required to file an annual tax return. These statements are commonly referred to as "personal tax summaries". The personal tax summary is a summary of a taxpayer's income and tax information. It tells you whether you will need to pay tax or if you are due a refund.

"Public benefit"

All entities other than those established for the relief of poverty must satisfy the "public benefit" test. This means they must be established for the benefit of the public or at least an "appreciably significant section" of the public.

In determining whether an entity benefits "an appreciably significant section of the public", it will be necessary to consider factors such as the nature of the entity, the number of potential beneficiaries, and the degree of the relationship between beneficiaries.

Shareholder continuity rules

Rules in the Income Tax Act 1994 that involve measuring a shareholder's economic interest in a company by reference to his or her voting rights, or market value interests.

Special corporate entity

The definition of "special corporate entity" contains a list of entities. Such entities generally do not have share capital or shareholders that are natural persons. The shares of the special corporate entity are deemed to be held by the same single person. Consequently, it will always be 100 percent owned and no breach of the shareholder continuity in the special corporate entity is possible.

The Treaty of Waitangi Fisheries Commission

The Treaty of Waitangi Fisheries Commission/Te Ohu Kai Moana (the Commission) is a statutory body established under the Maori Fisheries Act 1989, as amended by the Treaty of Waitangi (Fisheries Claims) Settlement Act 1992. It was set up in 1992 to replace the Maori Fisheries Commission that was established in 1989 to hold fisheries assets returned to Maori by the Crown, and to arrange for their eventual distribution to iwi.

Under the Deed of Settlement, the Crown agreed to fund Maori into a 50/50 joint venture with Brierley Investments Ltd to bid for Sealord Products Ltd, New Zealand's biggest fishing company. In return, Maori agreed to relinquish all current and future claims for commercial fishing rights in New Zealand.

The role of the Commission is set out in the Maori Fisheries Act. Its main function is to facilitate and assist the entry of Maori into, and the development by Maori of, the business and activity of fishing. A portion of the income it derives from the assets vested in it by the Crown (essentially cash, fishing quota and interests in fishing companies) funds the activities of the Commission.

The assets can be categorised as "pre-settlement assets" and "post-settlement assets". Pre-settlement assets are those vested in the Commission under the Maori Fisheries Act when originally enacted up to the date of settlement (23 September 1992) and the acquisition of Sealord Products Ltd on 6 January 1993 ("settlement date"). Post-settlement assets are those vested in the Commission after the settlement date in accordance with the Deed of Settlement.

The Commission is holding the pre and post-settlement assets ultimately for the benefit of all Maori, until an agreed allocation model is finalised.

Trust

A trust is an equitable obligation under which a person (the trustee) who has control of a property is bound to deal with that property either:

• for the benefit of identifiable persons (referred to as "beneficiaries") and any other person who may enforce the obligation; or
• for some object or purpose permitted by law.

The property concerned is referred to as "trust property". The person who created this trust relationship is referred to as the "settlor" and is the source of the trust property. The trustee has legal ownership of the trust property while the beneficiaries have a beneficial entitlement to that property.

The trustee may also be one of the beneficiaries in a trust.

Trust tax rules

There are three types of trusts for tax purposes: qualifying, foreign and non-qualifying. The most common trust is a qualifying trust, which is defined for tax purposes as a trust that has been continuously liable for tax in New Zealand since being settled and which has met all of its tax liabilities.

Trusts can also be "discretionary" or "non-discretionary". Under a discretionary trust, a trustee has the power to determine who the beneficiaries are and the amounts distributed to them.

The key features of the trust tax rules are:

• A trust's annual income is separated into two classes: "beneficiary income" and "trustee income". "Beneficiary income" is the annual income earned by the trustee that is paid or applied to the beneficiary in that year or six months after, or that vests in the beneficiaries in terms of the trust deed. "Trustee income" is annual income earned by the trustee that is not beneficiary income - that is, income earned by the trust that has not been distributed within that timeframe or has not been vested in the beneficiaries.
• Trustee income is taxed at 33 percent, while beneficiary income is taxed at the beneficiary's marginal tax rate (unless it is beneficiary income of a minor, in which case it is taxed in some circumstances at the trustee rate of 33 percent).
• Losses cannot be passed on to beneficiaries.
• Income retains its nature when it is distributed. Capital gains are distributed tax-free, and dividends with imputation credits attached may be distributed to beneficiaries.
• Any income that is taxed as trustee income or that is added to the trust's "corpus" can be subsequently distributed to beneficiaries tax-free.
• Trustees are obliged to deduct tax from beneficiary income at an appropriate rate as agent for the beneficiary.

Waahi tapu

An area (usually of land) that is sacred to Maori.

Whanau

Family - extends beyond the concept of immediate family (parents and siblings). "Whanau" links people of one family to a common tipuna or ancestor.

Winding up

Termination of a business. Liquidation. Ceasing to operate as a business.

Home | Contents | Previous | Next