LEGALLY SPEAKING with Simpson Western Lawyers
Gift Duty Abolition On Oct 1st
Gift duty affects many New Zealanders - not because they are required to pay it, but because, in conjunction with transferring assets, they are required to set up programmes to ensure that they do not in fact pay gift duty. This applies particularly to persons who have formed family trusts.
On 10 June 2010 Peter Dunne, the Minister of Revenue, announced that the Government was considering the repeal of gift duty. This has now been followed up on 1 November 2010 by Mr Dunne confirming that the Government, after consulting with various Government officials, intended to proceed with the abolition of gift duty with effect as at 1 October this year.
Draft legislation has now been prepared (but not at this stage passed) which abolishes the payment of gift duty in respect of any gifts made on or after 1 October 2011.
Gift duty was originally imposed in New Zealand in 1885. It was introduced to discourage the avoidance of estate duty (commonly known as “death duty”) by discouraging the gifting of assets prior to death. However, estates duty was abolished, or more precisely reduced to a rate of “nil”, in 1992 but gift duty has been retained now for 19 years since estate duty was abolished, primarily to prevent the transfer of assets which may have an effect on other Government programmes such as the granting of residential care subsidies, the payment of Working for Families tax credits, student allowances and the like.
Government has recognised that only a minimal amount is collected in payment of gift duty - just over $1.6 million in the 2009/2010 year and just under $1.5 million in the 2008/2009 year, yet 225,000.00 gift statements have filed each year, of which only 0.4% result in an obligation to pay gift duty. So long as a gifting programme is properly set up and adhered to, then the payment of gift duty does not eventuate - the payment of gift duty often arises by virtue of a person making a mistake by either gifting more than $27,000.00 in any 12 month period, or otherwise transferring assets in excess of $27,000.00 in any 12 month period without being aware that gift duty is then required to be paid.
It must be emphasised that, at this stage, gift duty has not been abolished and gift duty continues to be payable in respect of any gifts in excess of $27,000.00 per 12 month period that are formalised prior to 1 October 2011. There is also the possibility that the present Bill is not passed into law for one reason or another, or for a subsequent government to determine to reintroduce it (at this stage the Labour Party has indicated that it is not happy that gift duty is being abolished, but whether any subsequent government that it participated in would reintroduce it at a later date is a moot point - the Labour Party had indicated that it was not in favour of raising GST prior to its increase to 15%, but has since indicated that it would not seek to reinstate it to 12.5% (in the event that it came into power). Therefore, once gift duty is abolished, then it is likely to remain abolished.
In my view the abolition of gift duty is a good, and long overdue, measure - its abolition will not deprive the Government of a substantial amount of income and it will enable people to achieve the complete transfer of property to their Trusts, and to other persons/entities almost instantaneously.
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