Childcare giant’s $7m tax bill
Childcare giant Best Start Educare has been stung with a $7 million tax bill after Inland Revenue audited transactions around its controversial metamorphosis into a tax-free charity.
Notes to the most recent accounts of Best Start’s owner, the Wright Family Foundation (WFF), show an unexpected tax bill arose in the year to March 31, 2020.
“Following an audit investigation undertaken by the Commissioner of Inland Revenue, an amount of $7m has been recorded in respect of an amended 2015 income tax assessment. 2015 was the year of restructure of Best Start’s shares to a charity,” the accounts said.
Best Start is the country’s largest childcare operator — with over 260 centres looking after 15,000 children each week — and has had a colourful history since it was founded in 1996 by husband and wife Wayne and Chloe Wright.
First called Kidicorwp, the company was briefly listed on the NZX in the mid-2000s before choppy financial waters saw the Wrights take it back into private hands in 2007. In 2015 the operation made a wellpublicised switch into the registered charity Best Start Educare.
Less well-publicised was the complex financial engineering behind this transformation, in which the Wright family sold Best Start’s shares to their family-run charity — the WFF — for $332m, with the purchase settled through regular repayments of an interest-free loan. Under the arrangement, WFF pays the family about $20m a year from Best Start’s now tax-free earnings. According to the most recent annual report, $208.5m of this loan remains outstanding.
Wayne Wright, the chairman and until recently chief executive of Best Start, said the unexpected tax bill related to a $25m donation in 2015 from Best Start to the WFF. He said the deduction on this donation — $7m — was claimed as a refund through a Notice of Proposed Adjustment, before Inland Revenue recently decided to take another look.
“Due to my significant influence on the large flow of money in a number of entities I’m connected to, the IRD looks at them every five years or so,” Wright said. “In the audit last year they decided there was an error in the paperwork supporting the transaction and demanded the trust pay back the refund.”
The Wright family last year defended this charitable arrangement against questions from members of the Tax Working Group, who told the Herald they had recommended much stricter limits on relatedparty foundations and donations.
Wayne Wright said WFF’S annual distributions to charitable causes of about $7m were comparable to the tax bill previously paid by Kidicorp.
Chloe Wright, the WFF managing director, was made an officer of the New Zealand Order of Merit in December for services to philanthropy, education and health.
The WFF is a significant donor to Plunket, and runs a small network of Birthing Centres. The WFF also funds perinatal lobby group Mothers Matter, whose three-minute film about maternal suicide aired in advertising slots on television but in March was ordered off the air by the Advertising Standards Authority over concerns it may trigger self-harm.
The 2020 accounts to March 31, before the worst effects of Covid-19, show annual revenue — the vast bulk of which came from Best Start, which in turn received nearly $200m in government funding — had risen to $280m.
But a $40m loss was booked for the year, largely because of a $60m goodwill impairment to Best Start’s value. The accounts also record that $19,973,575 went to the Wright family to pay down the related-party loan.