The Queenstown Lakes Community Housing Trust has resolved not to appeal a High Court decision which upheld its deregistration by the Charities Commission.
The decision leaves the community housing sector liable for "millions of dollars in tax", which would "cripple" the sector, Labour's housing spokeswoman Moana Mackey says.
The trust is an independent non-profit organisation, created in October 2006, to manage and deliver affordable housing to those who cannot afford it otherwise.
In August last year, the Charities Commission informed the trust it would be deregistered from September, because the commission did not consider its activities met its guidelines, meaning the trust it would lose taxation and gift duty benefits.
In October, the trust was given a reprieve by order of the High Court at Wellington until the hearing.
Mr Cole said yesterday the court's decision, released last month, established case law which "locks out" not-for-profit housing organisations from qualifying as charitable organisations It was "up to the politicians to correct the anomaly", he said.
"We cannot commit further community funds to defend a structure and set of activities that the Crown supported when the trust was established and which another Crown agency has sought to unravel.
"We are now relying on an undertaking from the minister, received last week, to have officials look at restoring certainty to a sector that Government is relying on as a key part of its housing policy."
Ms Mackey said in a statement yesterday the Government had been served with an "ultimatum" - either amend the Charities Act and restore the charitable status of community housing organisations, or seriously damage the sector the Government was relying on to do the heavy lifting for them in social housing.
"Housing Minister Phil Heatley should have acted on this last year when the issue was first brought to his attention. Instead, he sat on his hands while the Queenstown trust was forced to spend thousands of dollars on lawyers fighting the decision through the courts - money that should have been spent on housing."
Mr Heatley was unavailable for comment last night.
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