A recent Court of Appeal decision confirmed the application of the law relating to the assessment of assets for eligibility to the residential care subsidy, writes Craig Macalister in Taxing Times.
At the centre of the case is a law change made in 2006 that gives the Department of Social Welfare (DSW) discretion to claw back dispositions of property when assessing persons' means for the residential care subsidy.
In particular, the law change allows the DSW to disregard any disposition of property when the value of the disposition exceeds $27,000. The subject matter of the Court of Appeal decision is whether the $27,000 is per couple or per person. Based on the law, and as a matter of interpretation, the Court of Appeal had little option but to rule that the amount is $27,000 per couple.
While there are rules in the social security legislation relating to the limit on gifts that can be made in the five-year period immediately prior to applying for the rest home subsidy (which allows $5500 to be gifted in that period), the law on which the Court of Appeal were ruling is designed to claw back dispositions of property made prior to that five- year period.
While I have no issue with Parliament changing a law to bolster the objectives of the residential care subsidy, such that it goes to those people most in need, the problem I have with what was done with this law change is that the law was changed knowing that many people had gifting programmes in place that gifted away $27,000 per person or $54,000 per couple for gift duty purposes. In enacting this law change, Parliament knowingly cut right across existing gifting arrangements.
Having done that, the law is effectively retrospective in that it allows the DSW to look back to the 12-month period prior to the five- year gifting period referred to above, and to "any 12-month period preceding that period".
Having changed the law in such a manner as to deliberately upset existing gifting arrangements, and effectively making it retrospective, no-one was told.
Other than the usual Parliamentary process (and let's face it, how many people follow that), the DSW issued no information memorandum to accountants or the New Zealand Institute of Chartered Accountants (NZICA) that I am aware of. As tax director of NZICA at the time I can say that nothing crossed my desk about this.
In all my years involved in promulgating policy and law making, which date back to circa 1990, I have to say these law changes are some of the worst I have struck in terms of inferior policy design, a breach of the rule against retrospectivity, and a complete failure to inform people and their advisers likely to be affected.
How Parliament let this go through with virtually no transparency is beyond me. As is often the case with poor lawmaking, affected people will be caught unaware. In my view, rather than this class of people being unfairly prejudiced, a retrospective law change to remedy this mess, perhaps by leaving aside gifting in excess of $27,000 per couple prior to 2006, is to be preferred.
» Craig Macalister is tax principal at accounting firm WHK. He can be contacted on 03 211 3355.
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