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Opinion of the New Zealand Inland Revenue Department on the Charitable Status of Scientology (Dec. 24, 2002)



A P Molloy QC

Shortland Chambers

12/70 Shortland St

PO Box 4338




Dear Mr Molloy



IRD NUMBER 19-184-897



I refer to our recent discussions, your letters and, in particular your –


(a)     detailed submission dated 14th May 2002, and

(b)     request that the amended ‘draft’ rules for the Church be considered in terms of being granted charitable status.

First, I must clarify that Inland Revenue does not have a function or authority under the Revenue Acts to “approve” charitable status. Whether an organisation is charitable is a question of fact and law, and does not rely on an application being made by the organisation or “approval” by the Department.

What in fact Inland Revenue is doing is expressing a non-binding opinion on whether the Church will or will not qualify for the various exemptions available to charities under the Revenue Acts administered by this Department.


Detailed Submission


I now refer to your detailed submission. I accept that –


1.      the advancement of Scientology meets the requirements of the definition of Charitable Purpose in s OB 1 of the Income Tax Act 1994, and

2.      in terms of the existing (current) Rules, the Church of Scientology of New Zealand is a “society or institution established exclusively for charitable purposes” within section CB 4(1)(c) of the Income Tax Act, 1994.



In light of this Income Tax exemption not extending beyond section CB 4(1)(c) – non-business income – you have asked that I consider the proposed amended draft rules with a view to extending the exemption approval to all of the following:




·      section KC 5 Income Tax Act 1994 – which provides a rebate for income tax purposes for donations of $5.00 or more where made by an individual taxpayer to the Church. The overall maximum rebate allowable would be the smaller of:

§     A sum equal to 331/3 percent of the aggregate of all gifts and/or donations made by the taxpayer, or

§     The sum of $500.00.

·      section DJ 4 Income Tax Act 1994 – which provides for a deduction in respect of cash donations made by companies not closely held to qualifying charitable organisations (i.e. approved for exemption purposes).


The deduction in respect of donations to any one organisation is limited to the greater of –


(i)  five percent (5%) of their assessable income, or

(ii) $1,000.00.




·      section CB 4 (1)(c) Income Tax Act 1994 – the Church would be exempt from income tax on income derived, other than business income, provided that such income is applied for the exclusively charitable purposes stated in the founding document. Note, rental income derived other than as part of the Churches charitable activity, is business income.

·      Section CB 4(1)(e) Income Tax Act 1994 – the Church would be exempt from income tax on business income (which includes income from rents) derived by the trustees in trust for exclusively charitable purposes in New Zealand. Approval in terms of this section is conditional upon the provisions of the section being met each year.

·      section 73(1) Estate & Gift Duties Act 1968 – any gift made to an established “approved” charitable organisation will not attract gift duty.


Amended ‘Draft’ Rules


I now turn to the proposed amended rules submitted in ‘draft’ form along with your letter of 19th December 2002. You ask that I consider the draft model with a view to meeting the legislative requirements in relation to all the exemptions set out above.


I can now confirm that these rules meet our requirements in that they adequately address all of the following areas:



1.   Objects being charitable;

2.    Sufficient public benefit;

3.    New Zealand limitations;

4.    Rule changes;

5.    Private pecuniary benefit, profit or gain;

6.    Commercial transactions;

7.    Conflicts of interest; and

8.    Winding up.


Accordingly, upon receipt of the following, formal approval of the exemptions detailed above would be granted with effect from the date of adoption of the Rules as submitted –


1.    Copy of the duly executed rules;


2.    Copy of the minutes/resolution signed by the appropriate parties duly ratifying the changes and adoption of the amended rules;


3.    Confirmation from the Registrar that these have been accepted by him and/or placed on record;


4.    Copy of the contracts between the New Zealand Church and its parent body/overseas organisations for supply of goods and/or “Ecclesiastical Services Agreement”.


I would again draw your attention to the fact that any exemption granted in respect of business income (section CB 4(1)(e)) would be provisional only. It is dependent upon the Church meeting the requirements of that section annually.


Outstanding debt to Mother Church


As discussed, I have concerns and reservations about the amount of indebtness on the books at the time the proposed Rules are adopted. Repayment of this debt may well mean the New Zealand Church is applying funds to non charitable purposes. Also, I would need to be satisfied that any future debt is genuinely based on current market rates and will not breach any of the provisions within the proposed rules as they relate to –


(a)     limiting application of funds to charitable purposes within New Zealand;


(b)     personal pecuniary profit;


(c)     transactions reflecting current market rates.


The Church’s comments / proposals in this area should be forwarded along with the other documents required to gain the final approvals.





In the course of our communications over this issue I have presented you with draft letters outlining my thinking on the Church’s application, and we have used these as a means of addressing concerns. Now that this letter has been finalised, would you please destroy the draft letters of 23rd July 2002 and 7th December 2002.


I have attached the legislation relating all the exemptions / rebates that you are seeking. In addition, I have included the provisions from the Tax Administration Act 1994 in relation to record keeping.


Please note that I will be away all of January 2003. If you are able to progress matters further during that period could you please forward all documents to, or make contact with Anne Puttnam. Anne will be back at work on Monday 13th January. Her contact details are –


Anne Puttnam

Technical Advisor

TLSG, Inland Revenue Department

P O Box 1649, Whangarei.


During my absence, the acting manager, TLSG, will be Shane Kilian. Shane will be back at work on 6 January. His contact details are –


Shane Kilian

TLSG, Inland Revenue

PO Box 33 150



Wishing you a Happy Christmas and best wishes for 2003.


Yours faithfully

Michael Oomen

Manager – TLSG

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