Gift duty to be abolished
On 1 November 2010, the Revenue Minister- Peter Dunne confirmed the government's intention to abolish gift duty.
He said the decision would be welcomed by taxpayers as the existing rules required a high level of compliance costs and were not raising any significant revenue. Dunne said: "The protection that gift duty offers in the areas of income tax, creditors and social assistance has only ever been incidental and very limited." He said the: "significant compliance costs" outweighed any benefits.
The government has indicated that compliance costs for about 225,000 family trusts who filed returns each year was about $70M paid to lawyers and accountants and only generated on average $2.2M in revenue.
Legislation relating to the abolition of gift duty will be introduced to Parliament later in November 2010 with the intention of coming into effect on 1 October 2011. For further information click here.
How does this affect you?
- "Government agencies will monitor the impact of the changes and a post-implementation review will ensure there are no unintended effects," said Dunne.
- Normal gifting procedures and gift duty rates will apply until 1 October 2011 so it is important to closely monitor your current gifting.
- It will not be open slather with people attempting to hide assets in trusts to avoid creditors, tax or gain access to rest home subsidies and various benefits. Dunne believes there is adequate measures to safe guard creditors in the Insolvency Act 2006 and other legislation and officials had found that gift duty had been of little benefit in recovering the value for creditors. Likewise, the Ministry of Health is confident existing legislation is sufficient to prevent access to the residential care subsidy where people have deliberately deprived themselves of assets, before requiring care. WINZ has a review underway to ensure that personal asset stripping via trusts to obtain Working for Families benefits, tax credits or student loans will not be able to occur. Recent changes in the tax rates now make family trusts less advantageous from a tax minimisation perspective.
- It is important to ensure that your family trust is correctly documented and operated and has been established for legitimate asset protection and estate planning purposes and not specifically to obtain access to lower tax rates, avoid creditors or increase the likelihood of benefit eligibility.
We will keep you informed over the next 12 months on how the abolition of gift duty will be administered and what changes you will need to make to your trust operation. In the interim, please give us a call on 07 578 3863 if you have any queries regarding your family trust.
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