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Current Gifting Rules

Current Law relating to the rest home subsidy “Gifting”

 For people contemplating rest home care there are two tests to determine if you are entitled to a rest home subsidy. The first is the asset test:

Asset test

The first test is to add up your assets and if they exceed certain limits then you are not entitled to the subsidy (the limit is about 220.000 for a single person)

More importantly if you have ever gifted more than $27,000 pa then that amount needs to be added into the asset amount. It is accepted that any gifts of less than $27000pa are not added into the asset amount.

The second is the income test:

Income test

In the event that your adjusted assets are still below the permitted threshold the income test will apply.

Pretty much your not permitted more than about $1000 of annual income before the rest home subsidy starts to reduce.

The purpose of this article is to set out what income you could have “deprived yourself of” which will also be added into your income assessment and result in a reduced subsidy.

 

The current state of the law is set out in the Broadbent v MSD case in the High Court. That decision clarifies that you are permitted to gift up to $27,000 pa and those gifts will not constitute deprivation of the income that could have been earned on that money had it not been gifted. Any Gifts in excess of $27,000pa will constitute deprivation of income that could have been earned on that capital.

The problem for advisors is that although this is the law, the MSD refuses to accept it and continues to assess deprived income that could have been earned if gifts of less than $27,000 had not been made.

 

So the quandary for advisors is should they advise in accordance with the High Court decision or should they advise on the basis of the ministries policy which is being applied in contravention of the High Court decision. And depending which advise they give are they negligent for giving the wrong advice?

Or do advisors simply give no advice? And how helpful is that?

 

In the public hearing at the Court of Appeal on 10 July 2018 I asked the question that if I gave someone $50,000 I would deprive myself of potential income, but if I gave $27,000 today and gave 23,000 in 14 months time would those gifts result in deprived income for rest home subsidy purposes.

The Court of Appeal has not yet answered that question so until they do the High court decision stands and that is that the 27k plus the 23k over a year later do not deprive income.(For rest home purposes)

 

Bottom line is that if a client asks you this question the High Court ruling is the correct answer but on applying for a rest home subsidy that person will be assessed by MSD to have deprived themselves of income. This outcome is not fair to the person or their advisors.  Another alternative is that people do not make any gifts in which case they have foregone the opportunity to gift $27000 in that particular year.

 

 

Stephen Broadbent  11 July 2018

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