Planning for Gift Duty

 

Gift duty applies to gifts of property situated in New Zealand and worldwide gifts made by persons domiciled in New Zealand.  The gift duty applies on a sliding scale at rates of up to 25 percent for gifts exceeding $72,000 in any 12 month period.
 

Common practice in New Zealand is to sell assets to the recipient donee (often the trustees of a family trust) with a loan back to the donor, as vendor, for the purchase price.  The loan is forgiven over time, at the rate of $27,000 per donor per year, thereby placing the gift within the gift duty exemption threshold and attracting no gift duty. 

At the relatively paltry rate of $27,000 per year, it can sometimes take many years to fully extinguish a loan made to your trustees, and your assets may remain unprotected to the extent of the outstanding loan balance during the gifting process. Depending on your age and level of wealth, the gifting process may sometimes never be completed until the remainder of the loan is forgiven upon death. 

A window of opportunity exists for a person who is not yet domiciled in New Zealand. It is possible to circumvent the gifting process, without facing a gift duty liability, by making an outright gift of assets which are not situated in New Zealand. The concept of domicile is distinct from residence or tax residence generally and will usually take longer to establish. You can only have one place of domicile and this will not change until you can show that you have acquired a new place of domicile. Your domicile of origin is acquired at birth, usually based on the domicile of your father.   It is presumed that your place of domicile is that of your origin unless there is sufficient evidence that you have changed your place of domicile by choice. This will occur only when you have a permanent home in one place and intend to reside there indefinitely. Colloquially, it will be when you start to consider yourself a “New Zealander”. Once you have established a place of domicile in New Zealand, any gifts you make (to your trust or otherwise) will be subject to gift duty regardless of where in the world the property to be gifted is situated. You will then find yourself in the position of having to embark on the often lengthy gifting process in order to stay within the $27,000 exemption from gift duty.

It is therefore advisable to consider making an outright gift of non-New Zealand assets to your trust, while you are still domiciled outside New Zealand. This will allow you to circumvent a lengthy gifting process without subjecting the transfer to gift duty. Where the gift is made to the trustees of an appropriately structured trust, it will also ensure that your assets are protected and properly managed for estate planning purposes. In order to optimize this benefit, the timing of the gift should be determined in conjunction with advisors in your place of domicile and in the place where the assets are located, to ensure that no gift duty, or other similar tax or levy, applies to the transfer of those assets.

We welcome your enquiries about establishing an appropriate trust arrangement to suit your circumstances and managing the outright transfer of property, whether outside or within a gifting programme.