Abolition of Gift Duty

Grange Associates Ltd - 20 January 2012

Gift Duty was abolished in October 2011.  Prior to that, duty applied to any gifts made by one person totalling over $27,000 in a 12 month period. Now gifting may be done freely.

This enables you to make a one-off forgiveness of debt for any amounts owed to you by your trusts.

Whether or not a one-off gift is in your best interest depends on your individual circumstances. If it is not appropriate then you could consider a gifting program of $27,000 pa.

There are several major considerations in this matter, when deciding whether a one-off gift is best in your situation, such as:

Debt back – a way of controlling a Trust

A debt may be a significant tool by which you, as lender, can control your Trust. The debt is a means by which you can have recourse without relying on the goodwill, or agreement from the trustees.

Available cash flow

A debt may provide you with the comfort of being able to call it up, should you need to do so for cash flow purposes.

Remove the debt from your estate

It is more difficult for a disappointed beneficiary to make claim against a Trust than your estate.

Relationship property claim

A debt owed back from a Trust is often focused on in claims under the Property (Relationships) Act 1976. If there is no debt, relationship property claims are more difficult to pursue.


If you are involved in business or are self-employed and have obligations to creditors, there are implications in making a one-off gift of any debt. A one-off gift may dramatically change your financial position overnight and as such may be ultimately scrutinized by creditors and the Official Assignee with a view of clawing back that asset.

Before making a one-off gift consider:

  • Making a declaration of solvency after you have considered your financial position.
  • Obtaining a “Solvency Certificate” from your accountant at the time the one-off gift is made.

Residential Care Subsidies (RCS)

A person’s entitlement for a rest home subsidy is determined by WINZ under a set of criteria which include considering gifts made. Currently the criteria allow gifting of up to $6,000 pa for each of the 5 years before the application, and $27,000 pa for any year outside the 5 years. A one-off gift could be deemed over the allowed amounts and may be clawed back into the financial assessment.

If your RCS application is imminent, you may wish to limit your gifts to $5,000 pa.

Natural Love & Affection

Any distribution made by a Trust to which a gift has previously been made must be to a beneficiary for whom the creditor has natural love and affection. Otherwise the accrual rules of the Income Tax Act 2007 can trigger a tax liability on the Trust’s receipt of the gifts.

Ability To Raise Finance

After a one-off gift you may be left without any assets and this could affect your ability to raise finance, bearing in mind though that the trustees could still guarantee the proposed debt.

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All information is correct at the date of article publication. Please note we provide the information as a service only. Accordingly, the contents are not intended as a substitute for specific professional advice and should not be relied upon for that purpose.   

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