With the abolition of gift duty set to come into effect from 1 October this year, consideration needs to be given to how this will affect your gifting going forward.
What are the current rules?
- Gift duty is currently applied to gifts totalling more than $27,000 over a 12-month period.
- Many people would have sold assets to their trust(s); the trust in turn owes them for the value of those assets. They would then proceed to gift $27,000 a year to the trust to reduce the amount owing.
So what does the abolition of gift duty mean for you?
For many people the obvious course of action would be to do a one-off gift i.e. divest all personal assets into a trust all at once. Unfortunately it is not that simple and there is no “one size fits all” solution. The best course of action is ultimately determined by individual circumstances.
A one-off gift may well be the best course of action for an individual in a risky business venture where creditor protection is important, or where the debt could be subject to property relationship or other such claim.
However, there are equally many situations when a one-off gift may not be appropriate. An example of this is where a settlor of a trust is reliant on the trust for living expenses. While there is a loan in place, the settlor has an absolute right to call on this loan for funds. With no loan in place, the settlor / beneficiary is at the mercy of the trustees.
There are also a number of fish hooks to consider. Any gift made can be cancelled where the donor was insolvent at the time of making the gift. A one off gift may also preclude entitlement to a future residential care subsidy.
On the flipside, a one off gift may avoid immediate family contesting a will, as there would be no estate assets to claim against.
The abolition of gift duty is a welcomed change by many. We recommend that you seek advice, both from your Hayes Knight adviser and lawyer, before making further gifts. Alternatively please contact our Tax Team:
T + 64 9 414 5444
Senior Tax Manager
T +64 9 414 5444