Revenue Minister Peter Dunne last week confirmed the Government's intention to abolish gift duty, saying the decision would be welcomed by taxpayers generally as the rules were resulting in a high level of compliance costs and were no longer raising any significant revenue.
The abolition of gift duty would be included in legislation to be introduced later this month and would be effective from October 1, 2011.
Mr Turner said yesterday he was at a conference on October 29 at which Mr Dunne spoke and he made no mention of gift duty.
Three days later, the Minister announced it was going.
"Gift duty was regarded as a backstop. It stopped people doing stuff the Government was keen they didn't do such as getting rid of all their assets to qualify for rest-home subsidies and other government support.
"The government agencies involved had reasonably wide powers of investigation but didn't bother looking too far because gift duty was in place."
However, with the abolition of gift duty, those agencies would have the ability to look back several years and decide if a gift was part of a plan to reduce assets down to a level where government support could start, he said.
That could stretch back, two, five, 10 or even 20 years and cause many problems for some taxpayers who had believed they had acted in good faith.
As part of the "nice headline", the Government collected less than $2 million a year in gift duty yet it was estimated it cost more than $70 million a year for the private sector to comply with gift duty requirements, Mr Turner said.
IRD figures showed that of the 225,000 gift duty statements received by Inland Revenue each year, only 0.4% resulted in a liability for payment and that was often as a result of a timing mistake.
Currently, someone wanting to gift assets to a family member could "sell" the asset at market value - maintaining the tax status - and gift off the debt at $27,000 a year or leave it to the family member in a will.
Most people with large assets had them in family trusts or companies and gift duty was not a problem, he said.
But the removal of gift duty could have flow-on effects for other areas.
"Government departments already have wide enough powers to decide whether people are getting rid of their assets. Those wide powers could become much wider," Mr Turner said.
Mr Dunne said he had earlier signalled the Government's intention to remove gift duty if concerns regarding creditor protection and social assistance targeting could be addressed.
Since that announcement, there had been work done by officials across government departments to assess the concerns.
That work revealed that the protection that gift duty offered in the areas of income tax, creditors and social assistance had only ever been incidental and very limited.
The limited protection that gift duty offered did not outweigh the significant compliance costs, estimated at $70 million per year, that gift duty imposed on the private sector, he said.
"There is a broad range of other existing legislation that will provide adequate protection to mitigate the identified risks following the abolition of gift duty.
"Government agencies will monitor the impact of the changes and a post-implementation review will ensure there are no unintended effects," Mr Dunne said.
