The Abolition Of Gift Duty Implications From The Ministry Of Social Development

15 December 2014

The Ministry of Social development (the "Ministry") is responsible for the administration of the benefits system in New Zealand. The Ministry anticipates that with the proposed changes to the gifting legislation there is likely to be an increase in asset transfers and increase in gifting activity accordingly. The Ministry has recently released a conference paper which highlights the implications of the abolition of gift duty from the Ministry point of view, the key points of which are summarised in this article.

The Ministry is at pains to point out that the proposed change to the gifting legislation is a change in the Tax Administration Act and not a change in the Social Security Act which they administer. That being the case, the general principles under which the Ministry administers the benefit system will not change. The foremost principle is that people should firstly look to their own resources before seeking assistance from the State and, for this reason, under the Social Security Act, there is no such concept as "allowable gifting" for general benefits. The definition of what constitutes income under the Social Security provisions is different to that as defined for taxable purposes and is considerably wider under the Social Security provisions. The Ministry also has wide powers to enforce disclosure of information from clients and to enforce penalties where fraud occurs.

There are provisions in the Social Security legislation as amended in 2005 relating to deprivation of assets and income. Deprivation is defined as a deliberate action which has the effect of depriving a person of income or assets, whether this be giving away or selling assets for less than their value or gifting more than the allowed limit. The general approach of the Ministry in relation to trusts and gifting situations is to consider whether a client is receiving less than they otherwise would have done as a result of the gifting or transfer of assets. It is also important to note that there is no time limit in the legislation on when deprivation occurred.

In respect of the rest home subsidy, the law states that an elderly person must pay their own rest home costs until their assets are below certain allowable limits. The asset limits are as follows:

  • If the person going into care has a partner who is not in care, they can choose either a maximum of $200, 000 including their home and a care or $105, 000 excluding their home and car.

  • If the person does not have a partner who is not in care or has a partner who is also in care, then the asset limit is $200, 000 in total.

  • Personal belongings are excluded. Pre-paid funeral expenses up to $10,000 for each partner is also exempt.

There are some allowable gifting limits in respect of the rest home subsidy applications. If the gifting was made in the last five years before the application, then each applicant or their spouse may gift up to a total of $5, 500.00 per year. Any excess gifting in the last five years will be counted back in the financial means assessment undertaken by the Ministry when considering an application. Gifts made more than five years before applying for the subsidy have an allowance of $27, 000 per year for each application and excess gifts over this may be counted back in the financial means assessment. There is no time limit for adding back excess gifts made more than five years ago.

Clients need to be aware that the Ministry will ask for documentation where they identify the involvement of a trust. This may include trust deeds, financial statement, verification of asset transfers and their fair values, deeds of debt, deeds of gift and gift statements. Retention of these records is of upmost importance.

Clients will appreciate that this is a complex area of law and decisions made some years ago can have an unexpected outcome several years later when an application for a benefit of subsidy is made. Clients must also be aware that decisions made to transfer assets, forgive debt, waive the right to income or invest in non-income producing assets may be the subject of considerable scrutiny in the future.

If you are making such decisions or wish to discuss options in regards to application for the rest home subsidy, then we encourage you to contact our Trusts and Estates Team to arrange a suitable time to meet.