"The abolition of gift duty will save significant compliance costs for Inland Revenue but for many people, it will still be important to take good advice and have a managed gifting programme to ensure compliance with other provisions which are unaffected by the changes."
It cost more to comply with the duty than was actually collected. In the 2010 financial year, gift duty generated $1.6 million in revenue which cost the Government about $430,000 to administer. It also cost an estimated $70 million for the public sector involved in the regime.
Most of the focus on the abolition of gift duty had been on the effect it had on disposals of assets to family trusts, she said.
That was because New Zealand had a very high per capita rate of family trust ownership compared with other countries.
The effect of the abolition of gift duty needed to be looked at against the purpose for which the trust was established.
There were many reasons for establishing a family trust including:
• Ensuring financial support for dependant family members.
• Ensuring assets were retained for existing family members in the event of remarriage.
• Ensuring family assets and income from assets could be used for the benefit of children and other family members in accordance with their needs rather than passing directly to them.
• Making sure assets which might be passed to children were protected from unfortunate relationships they might enter into.
• Protection of family assets prior to a business being started.
The effect of disposing of personal assets to a family trust could also be that people might be able to access residential care subsidies for rest-home care sooner than might otherwise be the case, Ms Peart said.
There was a small amount of allowable gifting permitted in the lead-up to an application for the subsidy.
The abolition of gift duty only affected the taxation position of gifts which exceeded the allowable yearly limit of $27,000.
"It does not change the other statutory provisions which may challenge gifts to trusts or to other persons or entities," she said.
Gifting limits still applied when making an application for a residential care subsidy so that a person could still only gift $6000 a year for each of the five years before making an application for a residential care subsidy.
Any more than that would be brought into the applicant's asset pool for assessment, Ms Peart said.
Also, gifts of $27,000 a year were allowed for gifts made more than five years before the application which was unchanged from existing policy.
"This means that if there is any likelihood that the person might need to apply for a residential care subsidy, they still need advice as to what is allowable and to have a planned gifting programme."
Concerns had been raised about the likelihood of gifts being made to avoid creditors, Ms Peart said.
There were provisions in both the Insolvency Act and the Property Law Act which were relevant and those were also unaffected by the changes to gift duty.
Likewise, the Property Relationships Act provisions enabled the examination of transfers of property - especially to family trusts, she said.
Staples and Rodway director Neville Grey said the gift duty was antiquated as it had been around since 1885.
At that time, there was a need to stop people gifting their assets before they died to escape estate duties.
When estate duties were abolished in 1992, the gift duty was retained to address concerns about people avoiding income tax and gaining access to forms of social assistance.
