One Less Gift to Make?

Posted: 9th December 2010

With the completion of the Government's review of the gift duty regime it was announced that gift duty will be abolished effective from 1 October 2011.

Legislation will soon be introduced but with no additional protection for creditors and social policy initiatives.  The Government believe that the existing provisions in the Property (Relationships) Act 1976, the Criminal Proceeds (Recovery) Act 2009, the Insolvency Act 2006 and the Child Support Act 1991 all provide sufficient protection for creditors and other affected parties where assets have been alienated.

Since the abolition of estate duties nearly twenty years ago, the regime has remained largely untouched and has become outdated in its application.  The majority of gifting statements filed are for nil duty and as a result, the cost of compliance far outweighs the annual revenue collected.

From 1 October 2011 people will be able to forgive an unlimited amount each year.  Although this will mean that gifting can be done all at once, this may not always be the best option.  Retaining a "settlor loan" will give settlors the flexibility to have this repaid rather than receive income or capital distributions from the trust at the discretion of the Trustees. 

  The recent decision again Krukzeiner indicates that there is a tax avoidance risk where funds are drawn down as loans only to be repaid with capital distributions.  More caution will be required in this area once gift duty has been abolished. 

If you are currently gifting please feel free to contact James McQuaid on 09 308 4058 or james.mcquaid@tbag.co.nz to discuss whether it will remain an appropriate course of action from 1 October 2011.