Articles by Matthew Gilligan
On Monday Revenue Minister Peter Dunn confirmed that the government intends to abolish gift duty.
Earlier this year the Minister had signalled that a review was being undertaken as to whether or not the gift duty regime should be repealed or amended. Subsequently that review has occurred with the Inland Revenue producing a report assessing the impact of a repeal of gift duty across other governmental and legislative areas. One of the prime concerns that was raised when the review was announced earlier in the year was whether or not repealing gift duty would have an adverse affect on creditor protection and rules in relation to qualification for social assistance.
The outcome of this review is that the various governmental bodies have concluded that there is little or no risk to their areas of operation if gift duty were to be repealed. The Inland Revenue have confirmed that approximately $1m of revenue is collected annually in terms of gift duty. Interestingly they note that much of that revenue collection seems to be a result of timing mistakes where donors accidentally gift more than the $27,000 allowable in the 12-month timeframe.
From our perspective, the area that we were most interested in was whether a repeal of the gift duty regime would lead to any suggestions for new legislation in respect of creditor protection or access to social assistance such as residential care subsidies, family assistance, student allowances etc. In short, the review has concluded that existing legislation is adequate and no changes are proposed as a result.
As a result of the above, legislation is to be introduced later this month which will see gift duty abolished from 1 October 2011.
Overall we see this as positive development for taxpayers. Abolishing gift duty will reduce compliance costs in that those of you who have outstanding gifting programmes will be able to bring those to an end post 1 October 2011 and thereafter not have to worry about the annual gifting process. We also think it is encouraging that rules in relation to eligibility for residential care subsidies, for example, are not proposed to be altered so that there is at least some degree of certainty as to how those will apply.
What Should You Do Now?The obvious question that arises out of this is – what do you do if you have annual gifting due between now and 1 October 2011? Although it depends on the circumstances, in general we recommend that gifting continues as usual.
Certainly we note that any transfers of assets to trust prior to 1 October 2011 will still have to take place at market value with the usual sale and purchase agreement and deeds of acknowledgement of debt in place. Gift duty still applies up until that date so still needs to be dealt with. In terms of forgiving any outstanding debt, our inclination is to encourage our clients to continue to execute gifts between now and then on the basis legislative provisions in terms of the creditor clawback apply such that gifting inside certain timeframes is automatically reversed. Thus, the sooner a gift is executed the sooner it falls outside the timeframe. We also note that until the legislation is drafted and passed into law there is always the prospect of it being amended or altered, although we do see this as unlikely.
In summary, when transferring assets to a trust it is business as usual at this point, as gift duty will apply if the assets are not transferred at market value so there still needs to be valuations, sale and purchase agreements and deeds of acknowledgement of debt in place. If you are currently gifting and have a gift due in between now and 1 October 2011, we encourage you to complete that gift, particularly if it is in the immediate future. Post 1 October 2011 we will be contacting clients with existing outstanding gifting programmes and putting in place documentation to bring those gifting programmes to an end.Please contact us at Gilligan Rowe with any queries in relation to gifting by clicking HERE.
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