Plan to repeal gift tax welcomed

Lotto winners who want to share their windfall or farmers who want to divide their property among offspring will welcome Government proposals to repeal the "arcane" gift duty tax, says Federated Farmers.

"We've lobbied successive governments to end this arcane but avoidable tax," said the federation's economics spokesman, Philip York.

"The current gift duty threshold of $27,000 a year means it can take decades to gift a farm from parents to their children," he said.

And where people wanted to pass on property other than through a will, a gift could incur $250,000 tax for every $1 million handed on.

"Yet gift duty is easily avoided over time thanks to accountants and lawyers, so that makes gift duty not only inefficient, but punitive and pointless as well," said Mr York.

"Ending what is widely seen as an envy tax is a positive step forward".

Revenue Minister Peter Dunne said today the Government would get rid of gift duty only if "valid concerns" over matters such as the rights of creditors or use of gifting to gain social assistance were allayed.

Gift duty was introduced to prevent people circumventing estate duty rules, but estate duty was abolished in 1992, he said.

It prevented people from gifting away large assets where doing so might undermine creditors' interests, minimise tax income or enable access to social assistance such as rest home subsidies.

But the amount of revenue the Government gets from the tax is disproportionately low compared with the cost of collecting it. The scheme cost $435,000 to administer each year, but generated just $1.5 million in duties.

A lot of people were escaping the tax by selling their assets at market value in exchange for a debt which they progressively wrote off without requiring repayment.

Ernst and Young tax partner Aaron Quintal predicted many people would use the end of gift duty to transfer money into trusts because of concern over what might happen in the future.

Many New Zealanders removed assets from their ownership, concerned that the cost of rest homes could erode their children's inheritance, and some people also sought to get out of other liabilities, Mr Quintal said.


 

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