Friday, June 11, 2010
New Zealand’s Revenue Minister, Peter Dunne, has announced that the government intends to repeal gift duty, if concerns around creditor protection and social assistance targeting can be addressed.
A gift of any asset which is in New Zealand is currently liable for gift duty. Gifts up to NZD27,000 (USD18,000) are exempted from gift duties, but tax rates between 5% and 25% are then levied at progressive rates, with gifts over NZD72,000 subject to the top rate.
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 might undermine the interests of creditors, minimize income tax liability or enable access to social assistance.
"Officials have been reviewing the gift duty rules for several months, and a strong case has emerged for repealing the rules altogether," Dunne said. "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,” he continued. “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 minimize tax obligations through gifting to trusts,” he added. "However, there are still some valid concerns around preventing gifting which may undermine the interests of creditors or which enables access to social assistance.
He disclosed that: "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 There will be further consultations over the next few months, and if gift duty is to be repealed, I intend to include it in a tax bill to be introduced in November this year.”