gift duty is set to be abolished later this year. the due date is 1 october, but with all the fluffing around & the various issues to be considered, it's looking likely that there will be a delay.
i tend to assume that people know what gift duty is & how it works. but just in case you don't, basically a person can only gift $27,000 a year in cash or forgiveness of debt before a 4% duty kicks in. these days, so many people are transferring their major income-earning assets to a trust (big mistake for most people, but that's a story for another day). so the trust owes them back the value of the assets they've transferred.
this isn't helpful, especially if you want to protect your assets from resthome subsidies, spouses, creditors, people who are suing you for negligence or the like. so people gift off their loan to the trust, so they can personally become asset free and their assets are protected. gift duty has meant that they can't gift off the loan all at once, but have to do it in chunks of $27,000 if they want to avoid the duty.
the thing with trusts, though, is that people tend to manage them so badly and seem to immediately forget that assets belonging to the trust are no longer actually their own. they behave as though they still own the assets, which makes them very vulnerable to trust-busting by creditors, the IRD, and other beneficiaries. and there are a heap of cases going through the courts. so removing gift duty is not necessarily going to mean much, if your trust isn't run as a totally separate entity from yourself.
but there's one thing that has really been bothering me today about the removal of gift duty, and it relates to elder abuse. i know that some of our senior citizens are treated horrendously and can be put under enourmous pressure to part with their finances. gift duty is a actually a protection for them - it's much more difficult to force (or nag or push) them into gifting off huge chunks of their wealth when there is tax to pay. they have the protection of the law as a reason to not gift off any more than that amount.
when it comes to decisions about tax, it's disturbing that some people only look at the economic and legal implications, but not the social ones. i'd actually like to see a social impact assessment done for most major tax changes. because the effects on people's lives will often go way beyond the economic.
10 comments:
"they have the protection of the law as a reason to not gift off any more than that amount."
Are you thinking they'll be worse off with the tax in place if they gift assets over the threshold amount? As in, you're kinda hoping the 4% tax incentive will matter enough to them to make them think twice, right?
But if they're being asked to gift a lump-sum (say $50,000), how does the tax affect them? Won't they just pay the $50,000 and have the tax come out of the amount the recipient receives? As in, they'll pay $50,000 with the giftee receiving $50,000 with no duty in place, or pay $50,000 with the giftee receiving $48,000 with the duty.
I don't see why that would change an elderly person's decision. If they felt they ought to be making the gift, then surely they'd feel that way when the giftee was receiving $48,000, too? I can't see why someone would think "Ohh, I want to gift this, but if the giftee isn't going to receive the full $50,000 then it's really just not worth gifting".
"when it comes to decisions about tax, it's disturbing that some people only look at the economic and legal implications, but not the social ones. i'd actually like to see a social impact assessment done for most major tax changes. because the effects on people's lives will often go way beyond the economic."
Economic assessments will capture many of the effects a social assessment would find. My worry is about the extra effects it would pick up. I imagine them being heavily dependent on the values of the assessors involved and thus highly subjective. I can't see that being useful.
Even if non-economic social effects could be measured in some consistent (and minimally value-influenced/minimally subjective) fashion, how would you trade them off against the economic effects? There're going to be value judgements made at that step, too, ones that I also don't see as being particularly universal.
as to your last point, there are already measurement tools to measure stuff other than GDP for a country's health and well-being. of course measurement can't be without bias: the bias lies in what we think important enough to measure. the fact that we don't measure the social impacts is itself a bias, and not one that is helpful nor good for society.
regards your other point, in all the time i've been doing accounts for trusts (& it's been a while), i've dealt with heaps, really heaps, of gifting. and not one person has chosen to pay gift duty. so obviously it is a deterrent at the moment. i would say it's removal would have an impact, particularly on the vulnerable.
All of the health and well-being measures that I've ever seen are correlated (often strongly) with GDP movements (which is why GDP is such a good indicator: it picks up a lot of the things we're interested in). Also, you shouldn't think of them as "non-economic": they're things that many, many economists take into consideration in their assessments of policy.
And you're right that not measuring those things is a bias. However, given that on the odd occasions that they are measured, they turn out to be correlated with other things that we regularly measure (e.g. GDP, wage growth, unemployment, etc), I don't think we should be all that worried about missing them most of the time (after all, to measure them would be to incur extra expense).
I'll have to take your word on the trusts thing, but are you dealing with the elderly often? And of the elderly you do deal with, how often do you feel like they are being forced into making these gifts? (I just wonder whether the gifting you do deal with is by the trust-funder types who have obvious reasons to want to avoid the tax).
well, i'll have to disagree with you regarding your view that measuring the economic also measures the social. i'll go back to my accounting roots for a couple of examples. balance sheets list assets & liabilities, but they don't measure or report on the value of human resources. therefore, comparing two companies is more difficult, because an investor doesn't know what the staff turnover has been in the last year, what skills have been lost or gained, how committed staff feel to the company, and the like. each of these things will have a huge impact on how the company performs, but because it's not measured or reported on, it's not considered. they may be difficult to measure but they're not impossible & i think it's quite possible to do so without what you call bias. another example is environmental reporting. companies haven't had to report on the environmental costs of, for example, destroying a native forest. this means, on paper, it's much more profitable & cost-effective to cut down existing forests for paper & wood than to incur the considerable costs of planting and growing your own trees.
i don't accept your contention that the economic measures adequately cover the social impacts, nor that we are always measuring the right things.
as regards to the elderly, yup, i deal with a whole lot of them. and i don't feel like many of them are feeling forced to gift under the present rules. but i have seen the way families put pressure on the elderly, and i think the risk becomes much greater once you can gift a few million in one lump sum (most farms are worth at least that, many commercial investment properties are as well).
gifting doesn't avoid tax as such, unless you have gift duty. trusts do - they've been very effective in allowing entitlements to working for families & student loans, for example. though recent changes have plugged a large part of the former, and changes were made to child support a while back to look through trusts. whether or not a person gifts off their loan hasn't affected any of these tax issues.
"in all the time i've been doing accounts for trusts (& it's been a while), i've dealt with heaps, really heaps, of gifting. and not one person has chosen to pay gift duty"
Rich philanthropists have been moaning about it for years that they have to move to Australia or elsewhere to be able to gift lots of money to good causes without giving the govt heaps.
me
Anony-me: I thought that if the "good cause" is also registered to receive tax-deductable donations the limit didn't apply? So this would only be a problem for rich punters trying to gift to truly odd organisations. I've gifted more than $27k without even being aware of the gift duty (which I thought cut in before that anyway, showing how much it affects me). Maybe the orgs just paid it and moved on.
moz, the issue isn't about gifting to charitable organisations. the gifts i'm talking about are gifts based on "natural love & affection" (the legal definition) ie to immediate family members. gifts to charitable organisations aren't caught by the gift duty rules as far as i'm aware.
stargazer, thanks for clearing that up. So the rich non-philanthropists are just whining because gift duty doesn't affect their ability to give to "good causes". Bah!
If "natural love and affection" is really in the legislation, can I gift more than the limit if I can show that I'm estranged from the recipient and giving out of a sense of obligation :)
My elderly mother has just moved to a rest home and has been granted a subsidy for most of the cost of her rest home care Her total assets are less than $200000. Can she gift her house to her family and still retain her govt subsidy? How is the change in gifting on October 1 duty going to affect this possibility? Hope someone can answer this . Cheers
phil, why i really appreciate your mother's situation and your query, a blog like this is not a suitable place to be giving legal or financial advice in relation to a specific situation. for a start, there are huge professional liability issues.
i'd recommend that you contact a lawyer, or if the cost of that is prohibitiive, try your local community law centre.
can i please ask others who want to comment here to refrain from giving specific legal or financial advice.
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