Revenue Minister Peter Dunne announced the government would abolish gift duty from October 11 next year, in a move that could save the private sector NZ$70 million a year in compliance costs.
Dunne said gift duty only brought in NZ$1.5 million a year for the government, and that other existing legislation would cover concerns that a removal of gift duty would lead to tax avoidance.
The move was welcomed by Federated Farmers, who said the move would help smooth farm succession.
Grant Thornton tax partner Geordie Hooft said the government collected less than NZ$2 million per annum from gift duty.
“Very few people actually pay gift duty,” Hooft said.
“Government 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.”
A typical method of circumventing gift duty was for assets to be “sold” (typically to a trust) in return for an interest-free loan back, Hooft said. "That debt is then progressively forgiven within the current NZ$27,000 per annum exemption. That exemption level has been in place since 1984."
Hooft said the repeal of gift duty would have flow-on effects for other areas, including creditor protection, tax avoidance and the provision of social assistance, including rest home subsidies.
“The Government’s 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.
"It is inappropriate to maintain a tax regime simply for the purpose of addressing these non-tax issues,” he said.
Meanwhile, Dunne later rubbished talk from Labour Party leader Phil Goff that it was a mistake to scrap gift Duty.
Goff had said the abolition allowed the very wealthiest New Zealanders to structure their affairs by transferring income and assets into trusts and to their children to reduce their tax liability, reports Brian Fallow in the NZ Herald.
"It just shows potentially how valuable this free lunch will be for the wealthiest Kiwis," Goff said.
Dunne hit back, saying: “If he (Goff) honestly thinks it is a mistake to scrap a tax that brings in just NZ$1.5 million a year and costs people and businesses NZ$70 million a year in compliance costs then he needs to tell New Zealanders: yes or no, will Labour bring gift duty back and at what level?”
“If he won’t walk his talk and reinstate gift duty, then this is yet another ‘axe the tax’ fraud being perpetrated on New Zealanders.
“Mr Goff huffed and puffed for months about not increasing GST to 15 percent; he ran a campaign, worked out his slogans and one-liners, and then let the whole thing slide, quietly admitting that Labour won’t change a thing.
“This looks suspiciously like he is playing the same game again,” he said.
“At some point, Mr Goff needs to decide that New Zealanders deserve more than cheap-shot, commit to nothing Opposition grandstanding.”
Dunne said Goff’s claim that abolishing gift duty would open the way for tax avoidance and structuring were particularly concerning.
“This is very clearly wrong. Existing legislation covers these concerns and will continue to guard against such behaviour.
“It is worrying if Mr Goff does not have sufficient grasp of the mechanisms already in place to understand that,” he said.
See the full initial statement here from Peter Dunne:
Minister of Revenue Peter Dunne today confirmed the Government's intention to abolish gift duty, saying the decision would be welcomed by taxpayers generally as the rules were resulting in a high level of compliance costs and were no longer raising any significant revenue.
"Earlier this year I announced the Government's intention to remove gift duty if concerns regarding creditor protection and social assistance targeting could be addressed," said Mr Dunne. "Since my announcement there has been considerable work done by officials across government to assess the concerns. This work has revealed that the protection that gift duty offers in the areas of income tax, creditors and social assistance has only ever been incidental and very limited."
"Furthermore, the limited protection that gift duty offers does not outweigh the significant compliance costs, estimated at approximately $70 million per year that gift duty imposes on the private sector." "There is a broad range of other existing legislation that will provide adequate protection to mitigate the identified risks following the abolition of gift duty. Government agencies will monitor the impact of the changes and a post-implementation review will ensure there are no unintended effects," said Mr Dunne.
The abolition of gift duty will be included in legislation to be introduced in November 2010 and will be effective from 1 October 2011.
Here is Federated Farmers' statement welcoming the move.
Federated Farmers is applauding the Government’s decision to abolish the arcane gift duty tax. The decision will help ‘save our farms’ by smoothing farm succession.
"News the Revenue Minister, the Hon Peter Dunne, intends to abolish Gift Duty is the best I’ve heard in very a long while," says Philip York, Federated Farmers economics and commerce spokesperson. “Abolishing Gift Duty has been one of the longest held policy objectives of Federated Farmers.
“It’s been something like a 42 year slog for us against this envy tax. While Government deserves a bouquet for this, so to do all of our staff and elected members who over decades, have kept the pressure on.
“Because it can take decades to gift a farm from parents to their children, farm succession, rather than land prices, is a major factor if we are to farm for generations. “Yet Gift Duty itself is one example of poor regulation we’d avoid if we had a Regulatory Responsibility Bill in place.
“After the costs of administering it were deducted, Gift Duty only brought in around $750,000 a year. But it made taxpayers spend $70 million a year on lawyers and accountants to get around it, as long as time was on their side.
“On the topic of ‘saving our farms’, the Kiwi dollar’s appreciation against the greenback is of concern. We’re simply not seeing the high returns overseas translate into farm incomes, despite the ANZ Commodity Price Index lifting 3.5 percent in October.
“Yet any intervention in the Kiwi or radically changing policies just because of the current US economy is madness.
Pegging the dollar would slaughter our exporters with hedge positions.
“We ought to get some relief against the Australian dollar at least, if the Reserve Bank of Australia tomorrow increases its cash rate to 4.75 percent.
“The only long term recipe for our economy is for politicians to fundamentally get the need for economic reform. It’s long overdue and urgent as our economic performance shows.
“Our warning alarms went off with the UK’s ‘uninsulated’ June quarter growth being four times that of New Zealand’s ‘insulated’ June quarter result.
“We’ve got to stop pussy footing around the fact Government is too big with our economy now running on ‘Government time’.
“We need a root and branch review of all Government spending. “The Conservative-Liberal Government in the United Kingdom has done just that and won public respect for brutal honesty. If we’re to develop a lean and efficient economy we need the same and we need it now,” Mr York concluded.
(Updates with Goff comments, Dunne comments on Goff, Grant Thornton comments)
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.