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.