Background to Gift Duty

Gift duty has existed in New Zealand since 1885. Its original purpose was to protect the estate duty base (by discouraging the gifting of assets before death) and to raise revenue. When estate duty was abolished in 1992, the government of the day decided to retain gift duty to protect against income tax avoidance and social assistance targeting until alternative protection measures could be introduced.

Ministers and officials have received frequent requests for exemptions from gift duty and for a review of the gift duty thresholds over the past few years. The thresholds of $27,000 for non-dutiable gifts and $12,000 for the filing of gift statements were set in 1984 and have not been revised since. In addition, administration of gift duty has become antiquated, with no provision for the electronic filing of gift statements or any form of payment other than by cheque. Further, the valuation of annuities for the purposes of gifts under the EGDA is set according to life expectancy data that is more than 25 years out of date.

With this background, a review of gift duty was initiated. Options considered included:

  • narrowing the scope of gift duty to apply only to gifts between individuals, trusts and closely held companies;
  • raising the thresholds at which gift duty applies;
  • removing the requirement to file gift statements for non-liable gifts;
  • introducing electronic systems for the filing of gift statements and payment of gift duty; and
  • updating life-expectancy tables for valuing annuities under the Estate and Gift Duties Act 1968.

As the review progressed, a strong case for outright abolition emerged. Some of the concerns which existed in 1992 have been addressed or reduced by the strengthening of existing legislative provisions. Remaining areas of concern were scrutinised in consultation with the Treasury, the Ministry of Economic Development, Ministry of Justice, Ministry of Health, New Zealand Police, the Ministry of Social Development, and Housing New Zealand Corporation. None of these agencies opposed gift duty abolition and several have said they will make administrative changes to support its abolition.

The review concluded that gift duty no longer raises any significant revenue and imposes a high level of compliance costs on the private sector. The protections offered by gift duty in the areas of income tax, creditors and social assistance have been incidental rather than intended policy goals. The analysis undertaken across government revealed that the protection gift duty offers is inefficient, limited and outweighed by the significant compliance costs that it imposes on the private sector. Therefore Ministers decided to abolish gift duty and an effective date of 1 October 2011 was chosen to provide certainty for the private sector.

The government agencies mentioned above will monitor the effects of gift duty abolition on their respective areas of responsibility. Inland Revenue will also co-ordinate in due course, a post-implementation review to ensure there are no unintended consequences arising from the abolition of gift duty.