Tax experts are urging caution as changes to gift duty come into force from October 1.
"The abolition of gift duty will be seen by many as an 'open door' through which they can move assets into trusts immediately without needing a gifting programme over many years," Deloitte Dunedin tax partner Peter Truman said.
"We would recommend caution before proceeding, along with a full examination of the consequences."
Some of those consequences included the loss of absolute control of the assets; the need to ensure that trusts are under the control of all trustees and administered correctly to avoid being challenged as a sham; the potential for former partners and creditors to challenge a gift where it has disadvantaged their claims against the donor; and any tax consequences of the disposition, such as depreciation, being recovered.
Gift duty had been the "silent police" for many commercial and family transactions, Mr Truman said.
He expected there would be a significant increase in gifting from October.
"Despite a number of submissions to the select committee, gift duty has been abolished without the introduction of other measures to provide protection for creditors and former partners in a relationship.
"Because it will be quicker to alienate property, and therefore greater scope to distance assets away from potential claims, we expect to see an increase in legal challenges to gifts made by parties that have been disadvantaged by the gift."
Where a gift was motivated by tax avoidance, Inland Revenue would be able to challenge the gift and reverse any tax advantages obtained, he said.
The abolition of gift duty would open the opportunity to restructure family interests where there were valid commercial or estate planning reasons for doing so.
It was important any restructuring be well thought out, there being no rush to complete the restructure during October, Mr Truman said.
The Government only collected about $1 million a year in gift duty through people's using gifting programmes to stay under the threshold of $27,000 every 12 months.
However, it was estimated it cost individuals about $70 million a year in compliance costs, and the Government about $430,000 in administration costs.
At a glance
• Proposal that gifts occurring on or after October 1 will not attract gift duty.
• Gift duty applies when a person makes gifts totalling more than $27,000 in a 12-month period.
• To avoid this, assets are sold to trusts with a loan back to the individual. The individual then enters a gifting programme to make gifts of $27,000 each year to reduce the loan.
