Super-rich tribes pay no tax

MIKE POHIO: Staying within the rules.
MIKE POHIO: Staying within the rules.

One of Waikato's largest corporates pays no income tax despite profits approaching $200 million since 2006.

Waikato-Tainui's commercial arm Tainui Group Holdings Limited raked in profits of $179m in the past five years – largely from it's burgeoning property portfolio and its flagship 68-store, 49,000- square-metre Te Rapa retail development The Base.

Correction: Last Saturday we published an article which stated that, due to its charitable status, Tainui Group Holdings Limited (TGH) had paid no tax on profits of $179m over the last five years.  Unfortunately, our analysis of TGH's financial statements overlooked the fact that most of the $179m "profit" represented asset revaluations, which are treated as a net surplus in accounting terms, but are not taxable as profit.  Dividends paid by TGH to its sole shareholder, Waikato Raupatu Lands Trust (WRLT), are paid out of operating profit.  WRLT has in fact distributed about $27m for charitable purposes over the last five years, not $20m as stated in our article.  If TGH had not had charitable status over the last five years and paid tax at standard rates it would have paid approximately $5.5m in tax, not "tens of millions" as suggested in our article.  During the past five years, TGH has paid millions of dollars in GST on its various developments and projects. The errors are regretted.

A law change by the then-Labour government has for the past six years allowed the commercial arms of Maori tribes to gain charitable exemption from paying any income tax on their business profits.

And those businesses are getting big.

Tribes such as Waikato-Tainui and Ngai Tahu have become the country's richest iwi with combined assets of about $1.2 billion but they pay no company tax on annual profits of tens of millions of dollars made by their subsidiaries with charitable tax status.

But Tainui Group Holdings (TGH) chief executive Mike Pohio said it was misleading to judge the tribe's charitable efforts on its headline profits, as those were made up of operating (cash) earnings and property revaluations, which were paper-value changes.

He said its tax exempt status also meant the tribe could not claim depreciation, or the interest costs of its borrowing.

TGH generated operating earnings of about $15m last year of which $10m went back to the tribe for charitable use, Mr Pohia said.

"It's misleading to suggest that through Waikato-Tainui's exempt status we are witholding anything from New Zealand Inc. We're not doing anything that is outside the rules," he said.

"At the end of the day, it's the voting public that makes the decisions."

But ACT party leader Don Brash says he wants to change the "objectional" tax policy which, when it was brought in in 2003, was attacked by the National-led opposition as racist and divisive.

Dr Brash wants to force charities making millions in tax-free profits to pay income tax.

Dr Brash said the policy was based on race and the legislation should be revisited on that basis alone, however, he believed all charities making large business profits should pay income tax.

"One way to do it would be to make the payment to the shareholding charity a deductible payment and then have them pay tax, at the same tax rate as any other company would, on what is left," Dr Brash said. His proposal is similar to charitable tax law reforms planned in Australia.

Tainui Group Holdings would have paid about $8m more tax last year if the ACT party had its way.

Religious enterprises such as the Seventh Day Adventist Church-owned Sanitarium foods empire have long enjoyed income tax breaks in return for putting their business profits towards charitable good works and grants.

Charities Commission data shows Tainui Group Holdings Limited is now the country's 10th largest charity by total income and assets combined.

Between 2003 and 2007 its assets more than doubled from $166m to $378m, and it holds $235m of retained earnings. While its charitable dividend to the tribe rose too, it has levelled off at $10m a year.

Parekawhia McLean, chief executive of Tainui's parliament, Te Kauhanganui, said the organisation has solely charitable purposes. These included promoting education, religious and cultural activities, elderly health support, and marae development.

She said the sole object of TGH was to make profits to further the charitable purposes of the tribe. "The organisation, and the relevant tax charities, continue to meet the requirements to be a tax charity."