Posts Tagged ‘Gifting’
Soon Gift Duty will be a thing of the past, as it gets abolished in New Zealand on 30 September 2011
Today’s Gift Duty Announcement by the Honourable Peter Dunne
The Minister of Revenue, the Honourable Peter Dunne has just today confirmed the Government’s intention to abolish gift duty, saying the decision would be welcomed by taxpayers generally as the rules were resulting in a high level of compliance costs and were no longer raising any significant revenue.
“Earlier this year I announced the Government’s intention to remove gift duty if concerns regarding creditor protection and social assistance targeting could be addressed.
Since my announcement there has been considerable work done by officials across government to assess the concerns. This work has revealed that the protection that gift duty offers in the areas of income tax, creditors and social assistance has only ever been incidental and very limited.
Furthermore, the limited protection that gift duty offers does not outweigh the significant compliance costs, estimated at approximately $70 million per year that gift duty imposes on the private sector.
There is a broad range of other existing legislation that will provide adequate protection to mitigate the identified risks following the abolition of gift duty. Government agencies will monitor the impact of the changes and a post-implementation review will ensure there are no unintended effects,” said Mr Dunne.
The abolition of gift duty will be included in legislation to be introduced in November 2010 and will be effective from 1 October 2011.
My Interpretation
This is great news as this was a costly and time consuming task for Governments and private citizens with Trusts alike. Only 0.4% (as per Inland Revenue) of the 430,000 entities (mainly family trusts) for which gift statements were filed from 1 July 2001 and 28 May 2010 actually paid gift duty upon filing their return. This means that 99.6% of entities had strong “gifting programmes” in place and paid no gift duty at all. What a complete and utter waste of time and money.
This was a very expensive revenue stream to administer and the net revenue foregone is projected to be less than $5 million of the next 5 years from abolishing gift duty. The annual gifting chore of having to pay professionals $180 – $500 to prepare a deed of reduction of debt (ie. gift) and gift statement, will be a thing of the past for many people and as a result some general practice and trust lawyers and accountants will see reduced fees. Lets face it, this wasn’t a “productive” aspect of work for New Zealand’s economy and despite having done more than my fair share of gifting as a tax and trust lawyer, I am glad it is gone. It will be of huge administrative convenience to do one deed of reduction of debt for say $270,000, rather than having to do 10 gifts of $27,000. I act a trustee for more than 3 clients with over $1.5 million still to gift. I know that they are extremely happy this duty is being abolished. They think this is long overdue and I couldn’t agree more!
I think that this is fantastic legislation and that the Peter Dunne (United Future party) and the National party should be praised for. I look forward to reading the Bill when the legislation is tabled for reading in Parliament.
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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.