Gift Duty

Gift Duty was abolished on 1st October 2011.

From 1st October there will no longer be any tax to pay on ‘gifting’ to another person or trust. Previously there was a limit of $27,000 per annum per person; amounts over this were liable for gift duty tax.

However there are several factors to consider before you ‘gift’ to another person

  • The money is no longer yours if it is gifted to a trust or another person
  • Protecting assets from creditors – if in financial difficulty you may have to prove you were solvent before the gift was made and the gift was not undertaken to disavantage a potential creditor claim or the gift may be undone
  • Protecting assets from relationships breakup – you may receive more protection by using a relationship property agreement which classifies items as ‘separate property’ and ‘relationships property’
  • Be aware that there are different rules regarding gifts for rest home subsides

For gifting purposes, a gift is something given when:

  • Nothing is received in return; or
  • Something is received in return, but its value is less than the value of the property given.

If something of lesser value is given as a gift the value of the gift is the difference between the two values.

Although gift duty ceased from 1st October 2011 it is still important to be able to quantify the value of any gift made. Different rules exist for gifting between the Income Tax Act which the Inland Revenue administer and the Social Security Act which Work and Income NZ administer. Work and Income NZ for some benefits asset test individuals and will require confirmation of the value of any gift made.

If gifting is done in large amounts availability of the rest home subsidy will be affected. The gifting will be treated as if it has not taken place. 

For example these items can all be gifts:

  • Transfers of any items (for example, company shares or land).
  • Any form of payment.
  • Creation of a trust.
  • A forgiveness or reduction of debt.
  • Allowing a debt to remain outstanding so that it can't be collected by normal legal action.

Gifts made to create a charitable trust, or in aid of such trust, society or institution are exempt from gift duty. From 1 July 2008 that charitable trust, society, or institution will need to be registered by the Charities Commission for the gift to be exempt from gift duty.

The table below outlines the rates of gift duty which applied before 1st October 2011.  For more information on Gift Duty give us a call or visit the IRD Gift Duty Guide IR194

Value of Gift

Duty Payable before 1st October 2011

0 to $27,000 NIL
$27,001 to $36,000 5% of value over $27,000
$36,001 to $54,000 $450 plus 10% of value over $36,000
$54,001 to $72,000 $2,250 plus 20% of value over $54,000
Over $72,000 $5,850 plus 25% of value over $72,000

 

Careful Consideration before Gifting

Gifting to a Trust - the money is no longer yours

The money is no longer yours. If you wanted to access it at a later date you will need to obtain approval from the trustees and a distribution for the Trust will be required.

Asset protection from creditors

To protect your assets from creditors you may gift your assets to a trust. But if you do end up in financial difficulty you need to prove that you were solvent at the time of gifting. Best practice would be to complete a solvency statement  at the time of gifting.  This may require a valuation of your assets to be completed. If this is not done any gift made within 2 years may be cancelled.

Asset protection from relationships

Gifting may not be the best way to protect assets during a relationship. Often couples enter a Section 21 Agreement to classify certain items as 'separate property' that would normally be defined as 'relationship property' and potentially subject to equal sharing.

Asset Testing for Rest Home Subsidies

Gifting rules under the Social Security Act do not follow the gifting for the Inland Revenue department

  • Gifting of $6,000 per annum, per couple is acceptable, for 5 years prior to application for rest home subsidy
  • Gifting of $27,000 pa prior to that is acceptable.
  • All other gifting is regarded as an asset.

For example if a gift of $100,000 was made 10 years ago and no gifting since the amount will not be apportioned over the 10 years.  Rather the excess over $27,000 will all be counted as an asset for any subsidy calculations.

If you have any concerns about asset testing, we advise that you continue to gift at $27,000 per annum.

For more information - Ministry of Health

 

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