Gift duty requirement not always followed

OPINION: If you are reading this, you have enjoyed another Christmas, writes Murray McClennan in this week's Taxing Times.

 If you are disappointed with any gifts that you received (or the lack of gifts for that matter), spare a thought for British bankers.

This undoubtedly worthy group have been targeted by a special super-tax of 50 per cent on bonuses of more than 25,000 (NZ$56,000).

The tax seems to be aimed more at encouraging banks to show restraint when paying bonuses rather than as a serious tax-gathering measure. As such, the tax and its associated complex anti-avoidance rules could easily be dismissed as political grandstanding.

There may be, however, a place for taxes that aim to modify behaviour. Both fringe benefit tax and gift duty are examples of such New Zealand taxes.

The main role of FBT is to encourage employers to provide all employee remuneration as wages and salary, which is subject to PAYE, instead of providing benefits such as cars and low-interest loans. Generally, FBT is an expensive tax to comply with as the liability and administration falls on the employer.

Gift duty is designed to prevent the transfer of wealth, and thus, by implication, income-generating assets between people.

Liability for gift duty arises where the donor (person making the gift) has a New Zealand domicile (a wider concept than tax residency) or the property is located in New Zealand.

The liability for gift duty is on the donor. Gift duty is payable at progressive rates up to 25 per cent according to the value of dutiable gifts made by the donor within a 12-month period.

One exemption from gift duty is for gifts of up to $2000 made in a year to the same donee (recipient of the gift) when the gift is made in good faith as part of the normal expenditure of the donor.

Our experience is that both FBT and gift duty are not vigorously complied with by taxpayers. As a result there is considerable contingent liability for both taxes and associated penalties. Something to ponder over the holiday break.

» Queenstown-based Murray McClennan is a tax director at WHK Cook Adam Ward Wilson.

- © Fairfax NZ News

Newest First

Oldest First