Gift duty to be abolished after Select Committee recommends Parliament passes tax bill

Gift duty to be abolished after Select Committee recommends Parliament passes tax bill

Gift duty is all but gone after Parliament's Finance and Expenditure Committee (FEC) recommended Parliament pass laws to abolish the tax, which would put a tiny dent in the government's revenue stream, but save the private sector millions of dollars a year.

In its report on the Taxation (Tax Administration and Remedial Matters) Bill, the FEC voted by a majority to abolish gift duty. The Bill will now go through its third reading in the House before being passed into law later this year. 

Labour and the Greens held a minority view opposing the abolition of gift duty, saying there was not enough evidence to show the move would not increase trust use in New Zealand.

However the majority view of the select committee was that a Law Commission review into trust law would handle the issue of trust use, and that gift duty was not the appropriate way to handle inadequacies in trust law.

"This bill proposes to abolish gift duty from 1 October 2011. Gift duty raises the Government about NZ$1 million a year, but costs NZ$430,000 in administration, and costs the private sector an estimated NZ$70 million in compliance each year," the report says.

"The committee is aware of the concern of some submitters that the abolition of gift duty (clause 110) could increase the use of trusts in New Zealand, and suggestions that this provision should be removed from the bill and the issue addressed once the Law Commission’ s review of trust law is complete. We consider that gift duty is not the appropriate mechanism to deal with any inadequacies in New Zealand trust law. Any perceived protection that was provided through gift duty has shown itself to be incidental and ineffective. The outcome of this review is unlikely to bear upon the decision to abolish gift duty," it says.

"We understand there is no evidence that the abolition of gift duty would lead to an increase in the number of trusts or the value of assets they hold."

The New Zealand Labour and Green Party members on the select committee opposed the bill due to its proposal to abolish gift duty.

"These members do not believe that “administration and remedial matters” legislation is the right type of legislation for the abolition of any direct taxation due to the potential impact on a large number of taxpayers. The abolition of gift duty is no exception," it says in the report.

"New Zealand Labour and Green Party members also believe the analysis upon which the gift duty abolition proposal is based is fundamentally flawed because it does not adequately take into account the full range of potential tax avoidance opportunities. Trust structures are one subset of possibilities but these members do not accept that the analysis has been comprehensive. Accordingly the cost–benefit analysis upon which the bill rests must also be seen as fundamentally flawed, as no attempt has been made to quantify the counterfactual of avoidance risk pertaining to the full range of structures available," it says.

"These members note that no sensitivity analysis has been provided. No options analysis has been provided. The policy process would not meet the standards expected under a thorough Regulatory Impact Statement.

"Further, New Zealand Labour and Green Party members are concerned that the analysis does not address any of the social equity concerns raised by a number of submitters and Labour members on the committee.

"New Zealand Labour and Green Party members believe, in the first instance, that any legislation proposing the abolition of gift duty should be delayed until the Law Commission’ s review of trust law is complete. However , while realising that gifting to trusts is a significant component of the gifting regime, there are many other gifting opportunities that have been used to avoid either tax or other responsibilities," it says in the report.

"New Zealand Labour and Green Party members also believe in a fair tax regime that promotes social and fiscal equity . Gift duty is part of a progressive tax system that does not favour or disadvantage any member of society," it says.

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Good, the state has no business in deciding who I give MY money to. If I had $5M and wanted to give my son $500K to buy a house whay should the state say no?

Frikin Labour/greens, if you have money to gift you are considered a rick prick.

Here, here! The suggestion that you should pay tax on the gift of your money to your son becuase it suits the 'values' of the Left that you should do so is nothing other than an utter perversion.

Of course the greenees and labour will want to clip the ticket every time they can. Do you work hard and manage to earn some money? - We'll tax you so that we can buy votes from those who don't want to work hard. Still have some money left / saved ? - We'll tax the interest on your savings too! Want to give some of money to your family? - But what about us?! We want part of that too!...

i can and can't believe any government would expense the public $70 Million in order to obtain $570k. that's just ridiculous - thank goodness there is an end i sight for that. 

righto what's next, if they have been wasting away peoples earnings like that there is sure to be more.

570k is half the revenue of one speed camera FFS - without the $70 million in suffering

President of Property

Maybe this change has been done not for you lot at all. Maybe it has been done to ensure that the extreme wealth that New Zealand has becomes further concentrated in fewer and fewer hands. It could be that John Key and the National party work for a far more select group on interests than you imagine.

They clearly hate the poor, however you may not realise that they hate you as well. You are merely a means to an end.

That said. Gift Duty etc are all starting to sound completely stupid ways to generate tax. However from National we really only see playing around the edges  that appeal to their own interests. Much in the same way that Labour played to its home crowd. Nothing wrong with that you might say. trouble is it does not get us anywhere.

The central problem we have, if you are of the mind that some taxation is required to have functioning country, is that we persist in taxing 'doing' and we do not tax 'not doing' and then wonder why NZders fail do enough.

To achieve progress on this central problem will require.

1. A land Tax

2. Major reduction  in GST.

3. Reduction in PAYE, personal and Corporate Tax.

Why, PAYE is actually a tax on emplying people in New Zealand. GST is a tax on making transations in New Zealand, and Corporate tax is a tax on doing business in New Zealand. While a land tax  captures unearned income, puts a lid on land price inflation,and  reduces the destabilising effects of inheritance as a factor destrying the fabric ofNew Zealand society. It is also impossible to avoid.

While we are at it New Zealand should issue its own money, we did it during the financial crisis- that was all the Reserve Bank leanding to the Aussie banks, rather than letting foreign banks flood us with money via debt causing massive inflation (even econo-idiots agree eevn if they call it asset price inflation, as if it can be contained within assets rather than infect the entire economy as it has been allowed to do) , making interest payments the biggets thing we do- is it bigger than tax yet- don't worry it is getting there.

 

 

The abolition of gift duty has been fought by Fed Farmers for years.  And for good reason.  For small businesses, and for farmers in particular, there will now be a seamless system of avoiding any more than token tax from the cradle to the grave.  At the same time, full access to all taxpayer-funded public services. 

I understand that Labour is now seriously considering a CGT.  A land tax might be better.  However, it is clear that it will be impossible to maintain a first-world health, welfare and education system when your main export-earning industry is basically exempt from tax.

John Key calls CGT etc "politics of envy".  No, it would be the politics of sharing the tax burden around fairly, rather than focusing it more and more on Mr Joe Blow wage earner.  Clearly JK is an old-fashioned Tory at heart.

After the horrors of WFF etc, I would have thought that there would be nothing that would drive me to vote for Labour or the Greens this year.  However maybe I will be forced to it.

Cheers to all.

 

New Zealand doesn't have a first-world health care system already, Philly, wake up! Kiwi socialism and the wealth and opportunity that have been destroyed as a result has already well and truly put paid to that! Introduce a land tax that will suck our most productive sector dry, and I can guarantee to you that our already woeful outcomes in cancer patients for example, will get even worse.

You are wrong, statistically we hold up well with a better life expectancy than the US...

"socialism and the wealth and opportunity that have been destroyed" Typical blinkered Libertarianism....

regards

I'm not talking about life expectancy, xxx xxxxx, I'm talking about health outcomes. And why are you comparing us to the US anyway? They don't have socialised medicine. Why aren't you comparing our life expectancy with Canada, France, Germany, Sweden, Australia, Japan all first world countries that do?

Typical lazy socialist dishonesty.

Regards

From what Ive read farmers typically load up with debt to avoid paying yearly tax....to the extent that they claim WFF and free healthcare...and then eventually cash out tax free....a [sufficiently large] CGT stops that. This is good for two reasons, no crazy levels of debt and tax at least at some point...pay now or when you sell.

regards

 

farmers typically load up with debt to avoid paying yearly tax
 That is one of the most stupid comments I have read on this site for a while steven.

It is usually the stock valuations set by IRD that contributes to herd owning farmers to reduce (or increase) their tax bills.  But that is no different than what it is for an urban SME having a change in their stock on hand values, except IRD sets animal stock values.

A minority of farming entities hold the majority of farming debt. The average age of farmers is around 57years so there won't be too many of them claiming WFF. Some Maori health clinics(usually urban based), under 25yr clinics (urban based) and for some <6yr olds healthcare is free but in general healthcare is not free in NZ - not even for community services card holders.

A farmers home is usually located on their farm.  I am not aware of non farmers paying CGT on their homes - why should only farmers? There is CGT if a farm is sold within 10years - IRD makes the call on this. 

CO:  "A farmers home is usually located on their farm"

I have always noticed that when claiming expenses against income, farmers are always very insistent that the home on a farm is an inseparable part of the business, so almost all costs can be deducted

But when it comes to a CGT, the opposite is suddenly trotted out - its a home, not a business, so why should it be taxed?!

Personally I feel that if we had a CGT, all assets should be taxed including residences. This would avoid the rorts that would automatically apply (like the one you suggest).  However, not politically feasible.  This is why I feel a land tax may be better.

Cheers to all.

It probably depends on which accountant you have Philly, when it comes to taxable deductions :-) I'm not suggesting a rort - it's a bit like that ad years ago 'Is is a home, is it a business - It's an ODDFELLOW' :-)

A business run from home whether it be a farm or a home based urban business has some home costs that are tax deductable expenses. So in regards  to CGT it is BOTH, a home and a business base - just like the urban business based from home. So I guess this is why you hear arguments that appear contrary.

I'm not sure if this is simplistic, but I often feel that if tax deductions can be made against something (an asset or an activity), then tax should be paid on the gains (profit, capital gain) of that same asset or activity. 

Rental housing is an obvious example.  If landlords can claim losses against their primary income, then they should pay tax on the capital gains.

Thanks for comments.

Cheers to all.

David B

A move away from taxing 'Doing stuff " to taxing 'Not Doing stuff' is actually just what this country really needs. It will help keep land prices under control. It will allow you to keep more of what you earn. It will not help you so much if your in the business of speculating, and it will definitely not help you if your in the business of rent seeking. It takes a bit of getting your head around but basically the tax system we have ended up with gets in the way of doing stuff to pay our way and puts power in the hands of inherited wealth, rent seekers and foreign interests. Not a great outcome for our own tax system- one of the few things that we as a people can control.

NZ actually does have a first world health system. we may not for much longer.

I agree that socialism has sucked a lot of the life out of New Zealand. But it depends on which socialism we are talking about. Afterall socialism is a broad church. Do you meanthe socialism of  SMPs. Or when we paid grape growers to pull out vines. Or do you mean  paved roads to a great proportion of rural New Zealand or the  national  grid or our hydro dams, or maybe hospitals for all people, or free schools. Or are we really just talking about poor people?

 

 

You missed the latest subsidy for farmers, rural broadband......they need it to be competitive but dont consider its worth paying much for themselves.....

regards

Rural broadband steven is a joke.  I have a rural wireless service but cannot get the same deal that urbanites can from the same provider, so I do pay more - a lot more, to be able to get the same data cap. A friend has been waiting over 5 weeks to get satellite installed and yesterday they were told 'we have changed our installers and can't give you a date......'  Meanwhile no internet for conducting business such as updating cow databases, internet banking, checking up on gps effluent control systems etc. Wireless and adsl are not an option in this particular area.  Have another friend 12kms from a largish Waikato town - also satellite is the only option and it is so slow they can't use skype and swear it's not much better than slow dialup.

As to the rural broadband 5 year roll out - there aren't enough technicians out there now to install rural broadband and I can't see that changing a lot in the next couple of years.

Internet is essential for running an efficient business - whether rural or urban. Do you truly believe that over the years telcos haven't received some form of govt subsidy for installing urban broadband? 

But surely Plan B, land is doing stuff when it is being farmed or cropped, or houses factories, offices, and schools, or provides homes for tenants? What do you think a capital gains tax will do to all of that?

CO, ive got  sat intertnet hookup. Its not too bad with speed, but at $350 a month it should be pretty good. Its when you travel and get to see what others have, you realise how expensive it is for us rural folks in NZ.

Oh for the unlimited data caps our northern hemisphere family have including phone and unlimited free 1hr calls to NZ, all for £20 a month!! :-)

I does bug me that I pay more for a 1gb plan than urban folks pay, to the same provider, for 5gbs. Given that urban folks around here access the same transmitter that I do blows away any argument of 'extra cost to provide it to the rural areas'.

The compliance costs to the private sector of gift duty are $ 70 million , annually .

The government receives $ 1 million in revenue from gift duties , annually .

But $ 430 000 comes out of that $ 1 million in administration costs .

........ The figures do the talking on this one , don't they .......

And as ever , Labour & Greens , just don't get it ........ not surprised by that , are we !