Why Destiny Church might avoid a tax bill, despite charities' deregistration

Destiny Church may avoid a large bill despite the loss of tax-exempt status for two of its charities because there are too many loopholes, according to a charity-law expert.

On Wednesday, Charities Services - a division of Internal Affairs - said Destiny International Trust and Te Hahi o Nga Matamua Holdings would be stripped of their registrations, because of their "persistent failure to meet their annual return obligations".

The latter is 100 percent owned by the former and they file returns together as the Destiny International Group. Church leader Hannah Tamaki, wife of self-anointed Bishop Brian Tamaki, is listed as chairman of the Destiny International Trust.

Earlier this month Ms Tamaki filed a return for the financial year to March 2016, but still hasn't filed a return for 2017, which was due on September 30.

Destiny said it would appeal the decision to deregister its charities and has until December 20 to do so. If the High Court bid fails, assets belonging to the Destiny International Group could be taxed.

Charities have 12 months after they're deregistered to "distribute those assets to another registered charity or give assets to charitable purposes", according to Charities Services.

With total equity in the group listed at $4,396,464 in 2016's return, a tax bill could amount to more than $1.2 million.

Charity tax lawyer Susan Barker told Newshub while Charities Services has made a "very serious" move to deregister the group, it's unlikely Destiny will end up paying.

"What they could do is file that outstanding return, then reapply for registered charitable status, saying: 'We've complied with all the requirements now, our purposes are charitable, we meet the requirements of the Act, we need to be registered.'

"If they're back on the Charities Register, then they won't need to appeal."

Another option is the one Destiny appears to be taking - appealing to the High Court.

Alternatively, Destiny could distribute the group's assets to one of the many other charities the church runs, but Ms Barker says Inland Revenue may have a problem with that course of action.

Another option is to set up yet another charity and transfer the assets to that. The difficulty here is the new charity will have a different registration number, a potential administration nightmare.

Ms Barker says the various options Destiny has to avoid paying tax, despite deregistration, suggest the Charities Act is in dire need of review.

"There's a lot wrong with the Charities Act."

The present law was passed under urgency in 2005. Labour has in the past promised to review the Charities Act, but it doesn't appear to be in any hurry. It wasn't a campaign issue and the last release from the party on the topic was in 2015.

Newshub has contacted Internal Affairs Minister Tracey Martin for comment.