New Zealand, Missionaries, and Inland Revenue

Effective January 1, 1991, the church equalized the cost of missionary service. Before, a missionary had to pay the actual costs of his or her mission.[fn1] Now, a missionary pays a set amount to the church, and the church pays the costs of missionaries’ missions irrespective of where they go.

Why did the church make this change? A bunch of reasons, I suspect, but one was because of the tax law. I’ve blogged about Davis v. United States before, and I have a chapter in my book that goes into extensive detail about both the litigation and the thinking behind the case. The short of it, though, is that the Supreme Court held that payments from parents to their missionary children did not qualify for the charitable deduction. Donations from parents to a church-controlled fund (at least, as long as those payments weren’t earmarked particularly for their children) did qualify.

Almost thirty years after the Supreme Court decided Davis, the question of the deductibility of missionary payments is back. Kind of.

On February 1, a New Zealand court issued an opinion deciding whether donations to the Trust Board of the Church of Jesus Christ of Latter-Day [sic] Saints, made in connection with a missionary’s mission application, were deductible. Now, I’m no expert in New Zealand tax law, but I can read an opinion, and this strikes me as an important entry into questions of the taxation of Mormon things.

Until 2015, the Commissioner of Inland Revenue allowed deductions for the amounts donated. Since 2015, the Commissioner has disallowed deductions for donations from the missionary herself and from her immediate family.

The question the court had to grapple with was whether the donations qualified as gifts for tax purposes. Unfortunately, New Zealand tax law doesn’t define “gift.”[fn2] After sifting through precedent, the court came up with the following criteria to determine whether something was a gift:

  • A voluntary transfer of property
  • No material benefit flowing from the recipient to the donor. (The court decided that a minor benefit, or a purely moral benefit, wouldn’t disqualify the gift, though.[fn3])
  • The benefit doesn’t have to accrue directly to the donor. That is, a benefit to a donor’s child counts as a benefit.

The court’s analysis ultimately turned on the question of benefit. And it determined that there was a link between payments into the missionary fund and the church’s supporting missionaries in the field. It doesn’t matter that there’s not a direct link between the two (and, in fact, the court makes clear that it doesn’t see this as subterfuge or a sham), because the church has a strong moral obligation to support the New Zealand-resident missionaries while they serve their missions, and donors understand that their payments allow their missionary to serve and be supported where she is.

That link does not, by itself, create benefit. So the court further goes into the question of benefit. It finds that the missionary herself benefits. Yes, she works hard—this isn’t, in the court’s words, ” a situation where a person claiming a tax deduction travels overseas and performs a small amount of work for a charity, but predominantly has a holiday”—but the benefit of having travel, lodging, food, and other basic expenses met is not a minor benefit. Thus, payments by the missionary herself are not deductible.

The court also determines that payments from parents and grandparents are not deductible. Parents and grandparents benefit from seeing their (grand)child “travel, live overseas, and experience being a missionary abroad.”

But the court holds that there is no material benefit to anybody else. Siblings, cousins, ward members, and other unrelated individuals can deduct amounts they donate to the church’s mission fund, even if they do it to meet a particular missionary’s obligation, because they don’t feel the same obligation to support the missionary, and they don’t benefit in the same manner.

Other Countries

The church argued that other countries allow deductions for payments to the missionary fund. The court reported these arguments, but held that (a) they weren’t precedential, and (b) because they were either administrative or because the courts in the other countries didn’t explain why they believed the donations were deductible, they weren’t persuasive.

Nonetheless, it appears that donors to the missionary fund can deduct their donations in the United States, and Canada (edit: but probably not Australia). The UK doesn’t have charitable deductions, but it does have “gift aid,” which is a type of matching grant from the government for qualifying donations, and donations to the missionary fund qualify for gift aid in the UK.

New Zealand Trivia

There are some interesting details about the church in New Zealand. The church’s New Zealand entity was established by a 1957 Parliamentary Act. The church in New Zealand doesn’t have a segregated account for the missionary donations; they go to the same place as tithing and other offerings. It does keep track of which donations are for the missionary fund, though, and pays for missionaries who serve their missions in New Zealand out of those monies. Ultimately, though, money from New Zealand donors is insufficient for the church’s needs in New Zealand, and the church is a net importer of revenue.

Some of My Thoughts

Honestly, this is a well-thought-out opinion, and is relatively persuasive (at least, if the judge’s definition of “gift” is upheld). The decision ultimately won’t bear on the question of deductibility in the U.S., though. Partly that’s because we take little notice of foreign judicial decisions, but it’s also because the Supreme Court’s decision in Davis didn’t turn on the question of whether the payments were gifts. Instead, the question was whether the payments were made “to or for the use of” the church. When parents sent money directly to their children, it clearly wasn’t a donation “to” the church, and the Court held that it didn’t qualify as “for the use of” the church.

Where Do We Go From Here?

A church spokesperson reports that the church is “disappointed” in the ruling, and that it plans to appeal. To the extent that happens, I’ll keep you posted on the future of the deductibililty of New Zealand missionary fund contributions.

(h/t to the Trib’s Mormon Land; that’s where I first read about this decision.)


[fn1] Angela Liscom Clayton’s fascinating memoir The Legend of Hermana Plunge briefly talks about some consequences of this pay-your-own-way system.

[fn2] FWIW, neither does US tax law. The courts have defined a tax gift as something given from “detached and disinterested generosity.

[fn3] In my book, I also write about Hernandez v. Commissioner, in which the Supreme Court determined that Scientologists couldn’t deduct the cost of auditing, because it represented a quid pro quo. The Scientologists argued that the only benefit was a spiritual one, so it wasn’t the type of quid pro quo that vitiated a deduction. I suspect that would have been a winning argument (that is, that the benefit was a “purely moral” one) under the New Zealand court’s decision.

Comments

  1. It would seem that another consequence of the current system arose in Switzerland. Since the missionaries’ living expenses are paid by the Church (funds donated to the Church) and not by themselves or their families, they are Church employees, subject to the Swiss legal preference for EU citizen employment. Hence, no more American LDS missionaries assigned to Switzerland (except possibly for brief periods that may qualify them as tourists). If the Church had ceased bragging about how missionaries serve “at their own expense” there might have been less support for the New Zealand decision. The theory of “at their own expense” directly undercuts the notion that the donations are Church funds. The “equalization” I understand. The trying to have one’s cake and eat it too is more difficult.

  2. Thanks, JR. I hadn’t heard anything about Switzerland. I think, from a tax perspective, that’s a defensible conclusion, and I’m kind of surprised that the U.S. doesn’t tax missionaries on what they receive in support. (They wouldn’t have to be “employees” for income to be taxable.)

    FWIW, I don’t think a change in rhetoric would have changed the New Zealand case’s outcome. The judge didn’t seem swayed by the rhetorical idea of paying one’s own way. The opinion recognized that there was no direct, and no legal, link between payments and the receipt of support. It focused, instead, on the idea that receiving a non-trivial benefit (like having your expenses paid) meant donations didn’t qualify as “gifts” for New Zealand tax purposes.

  3. J. Stapley says:

    “The benefit doesn’t have to accrue directly to the donor. That is, a benefit to a donor’s child counts as a benefit.”

    This seems like it would be very difficult to maintain. Kids or Grandkids seems pretty arbitrary (speaking as an American non-attorney). Perhaps if they limited it to dependents…

  4. Last Lemming says:

    If all donations in New Zealand go into the same fund, what are the implications for the tithing paid by a missionary’s parents? Does that also become nondeductible? If so, that is extra harsh. If not, what is to stop the parents from simply paying an extra $400 a month in tithing instead of to the missionary fund?

  5. J., it certainly is arbitrary, and the judge seemed aware of that. As a line-drawing exercise, though, it has the benefit of simplicity. (Frankly, I think justifying grandparents is a little stretch, but it does work.)

    LL, in the U.S., we could probably get the extra $400/month with some sort of step transaction/anti-abuse rule. I don’t know enough about New Zealand to know if they have similar anti-abuse regimes. I mean, an easy way to get around the rule would be for parents to give the money (less the tax reduction from the deduction) to their missionary’s sibling, then have the sibling pay the $400 and deduct it (assuming, of course, that New Zealand doesn’t tax gifts). But an anti-abuse rule might prevent that, too.

  6. Chompers says:

    As much as I support tithing being a tax deduction, I do agree that missionary payments technically aren’t. It’s certainly nice that they are (or at least were in NZ), but I agree with the court opinion that a benefit is derived by the missionary. Although the idea of the benefit to the parents is a bit more uncertain, it does stand to reason that someone has to pay tax, and it’s a nuanced argument to state that the parents do indeed benefit from their child’s service.
    The question of church taxation is a complex one. But of course, big businesses the world over don’t pay tax, so you got to go after someone else.

  7. Guessing KiwiMo is chuft.

  8. Crazy cuz there’s precisely zero benefit/difference to the parents nor the missionaries if they make the donation to the missionary support fund or not.

  9. Most of all I like your “Honestly, this is a well-thought-out opinion, and is relatively persuasive.”
    I generally find church-and-state cases all over the world to be well reasoned and thoughtful but often very close decisions. I am annoyed every time somebody says “I don’t like the result and/but/so they were stupid.” That is very seldom the whole story. Or “wouldn’t happen under our laws.” No matter how much you enshrine the U.S. Constitutional 1st Amendment and argue that it is right for everybody everywhere (which I wouldn’t but some will), it would be a near impossible hurdle to make out U.S. 1st amendment jurisprudence as a worldwide model of excellence or rightness.