Gift duty has been around in New Zealand since 1885. It was originally established to make sure people didn’t simply gift their belongings on the deathbed, avoiding the imposition of death duty tax.
Death duty was abolished in 1992, however the Government at the time felt that gift duty was a useful mechanism to avoid tax planning, so kept it on the books.
With valuation of annuity data 25 years out of date and no provision for electronic filing of gift statements, the law had became antiquated.
There were recent revelations that gift duty costs New Zealanders $70 million a year in compliance – an aggregate of people paying their accountants and lawyers – while only providing the IRD a net one million of revenue a year. Eventually, the government made the decision to get rid of it
Come October the first it finally happened, Gift duty was repealed in New Zealand.
The key features of the change are:
- Gift duty will not be payable for dispositions of property made on or after 1 October 2011.
- Gift statements will not need to be filed for dispositions of property made on or after 1 October 2011.
- Gift duty and gift statements will remain due for dispositions of property made prior to 1 October 2011.
It’s important to note here that Work and Income will still test for gifted assets when assessing benefit levels (Residential Care Subsidy) including as they operate under a different model.
There are plenty of consequences of this change, including people’s ability to immediately alienate property by putting it into trusts, which has benefits, but can also mean unintended loss of control if not carried out cautiously.
Further, if the Inland Revenue believe that a gift is motivated by tax avoidance, they can still challenge and reverse the gift. So there is still a place to speak to your favourite accountant.