Gifting 16 Dec 2011

Gift duty abolition - write off all of that debt?

Gift duty was as a protection for the Estate Duty regime and it was designed to ensure that people did not try to avoid estate duty by transferring all of their assets prior to their death.

In recent years it was a regular occurrence to sell an asset, usually to a family trust, take a debt back and forgive the debt over a period of time.  Generally, the debt was forgiven at a rate of $27,000 per annum being the amount exempted before a gift duty cost was imposed.

Gift duty was abolished as at 1 October 2011.

Many people will still have a substantial balance of loan yet to be forgiven - should they take the opportunity to forgive this balance in one lump sum?

It is worthy to note that the changes in the law only apply to gift duty and that there is other legislation where the amount being gifted is still relevant.

• The Ministry of Social Development carry out financial needs assessments where an application is made for Residential Care Subsidies (RCS).  Gifts made in the five years prior to an application for RCS are subject to limitations (substantially less than $27,000).  "Excess gifts" made more than five years prior to RCS application can also be added back in the means assessment calculation.
• Property (Relationships) Act - provides for situations where one party has disposed of property in order to avoid claims by a person they have been in a relationship with.
• Company and Insolvency law have provisions to protect creditors from schemes designed to protect assets in the event of a business failure.
• There are no allowable gifts in the Social Security Act 1964 for persons applying for general benefits and assistance.

The timing and amounts of gifting will still require some planning.  While there will be no requirement to file gift statements and associated deeds, there will still be a continuing need to document the transfer of assets, associated loans back and the forgiveness of the amounts owed.   In the absence of any formal record of a gift, proving that a gift has been made may be difficult. 

We can assist with all of these matters.