Repeal of Gift Duty will remove significant compliance cost

The Minister of Revenue, Peter Dunne, has today announced details of the planned repeal of gift duty. Grant Thornton New Zealand welcomes this news, as it will remove a significant compliance cost.

³Very few people actually pay gift duty,² said Grant Thornton tax partner, Geordie Hooft. ³Government figures show that of the 225,000 gift duty statements received by Inland Revenue each year, only 0.4 percent result in a liability for payment, and that is often simply as a result of a timing mistake.²

Mr Hooft said that a typical method of circumventing gift duty was for assets to be ³sold² (typically to a trust) in return for an interest-free loan back. That debt is then progressively forgiven within the current $27,000 per annum exemption. That exemption level has been in place since 1984.

The Government collects less than $2 million per annum in gift duty yet it is estimated that it costs over $70 million per annum for the private sector to comply with gift duty requirements.

The repeal of gift duty will have flow-on effects for other areas, including creditor protection, tax avoidance and the provision of social assistance, including rest home subsidies. ³The Government¹s Regulatory Impact Statement indicates either that there are already sufficient measures in place to deal with those matters or that the consequences are relatively insignificant compared to the estimated cost savings,² said Mr Hooft. ³It is inappropriate to maintain a tax regime simply for the purpose of addressing these non-tax issues,² he said.

Legislation repealing the Estate and Gift Duties Act is expected to be introduced this month, to take effect from 1 October 2011.

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