David Whitburn

The Minister of Revenue, Peter Dunne yesterday announced that the NZ Government intends to repeal gift duty.  This is on the basis that concerns around creditor protection and social assistance targeting can be addressed.  Practically speaking this means that the typical family trust which has an own home in it, sometimes a bach and other personal or real property, will be asset protected a lot quicker.  Soon it will be quite likely to not have to draft deeds of reduction of debt and prepare gift statements to forgive $27,000 per year (per Settlor) – instead the whole amount will be forgiven in one document.

This will save the average person a lot of money in accounting and legal fees, as unfortunately most Kiwis don’t get professional structure advice before they purchase their own homes, and then they build up significant equity in them and have a larger amount to gift (as the value of their house goes up over many years) and they can run low in time to gift the money.  I would expect a 5 year stand-down or clawback period or perhaps something slightly shorter to protect creditors, and social welfare needs.

Here are the current gift duty rates in New Zealand:

From this table you can see why everyone targets $27,000 as that is the maximum “gift” allowed before gift duty is payable.

Here’s the statement from the Honorable Peter Dunne’s ministerial website:

Officials have been reviewing the gift duty rules for several months, and a strong case has emerged for repealing the rules altogether.

Gift duty was originally introduced to prevent people from circumventing the estate duty rules.  When estate duty was abolished, with effect from 1992, gift duty was retained to prevent people from gifting away large assets, where doing so may undermine the interests of creditors, minimise income tax liability or enable access to social assistance.

The use of gifting programmes ensures that gift duty is not paid in most situations.

For example, assets are sold at market value, usually to a trust, in exchange for a debt which is progressively forgiven.  This means that the vast majority of gift duty statements that Inland Revenue receives are not liable for duty.

The result is that very little revenue is being collected, but at a significant cost to Inland Revenue and to the private sector in compliance costs.

The alignment of the top personal tax rate with the trustee tax rate announced in Budget 2010 will significantly reduce the motivation to minimise tax obligations through gifting to trusts.

However, there are still some valid concerns around preventing gifting which may undermine the interests of creditors or which enables access to social assistance.

Officials have been talking to relevant government departments about these issues and possible new protection measures.

There will be further consultations over the next few months, and if gift duty is to be repealed, I intend to include it in a tax bill to be introduced in November this year,” Mr Dunne said.

Mr Dunne said that as leader of UnitedFuture he was especially pleased that gift duty looks likely to be abolished, as removing gift duty has long been UnitedFuture policy, he said.

This is a policy of UnitedFuture that I really like.  Subject to a reasonable (say 3 – 5 year) stand-down or clawback period to ensure creditors needs are not able to be compromised and social welfare/aged care benefits aren’t too easy to qualify for, then I am a huge fan of this proposal.  I look forward to updating you when this is put into a tax bill in November.

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