On 1 November 2010, the Government announced that it will abolish gift duty effective from 1 October 2011. This is great news for the clients of financial advisers who have family trusts.
There are currently in excess of 225,000 family trusts in New Zealand and the Government estimates trusts incur costs of approximately $70M per annum in costs associated with filing a gift duty statement – most of which are for no gift duty to be paid. The Government has calculated that gift duty only generates on average $2.2M of revenue per annum so the annual compliance costs outweigh the benefits.
What should financial advisers be doing regarding this proposed abolition? David Greenslade, Managing Director of Strategi recommends the following:
- Immediately send an article to clients informing them of this impending change and dispelling what will inevitably be some incorrect thoughts relating to what can now be done under the proposed new regime. Strategi has developed a sample article you can use to send to clients. Download a copy of this sample article.
- Review all Statement of Advice templates and make the necessary changes reflecting the impending abolition of gift duty.
- Review any advice contained on adviser websites.
- At client annual reviews, explain to clients how the abolition of gift duty will not be ‘open slather’ and enable abuse of family trusts. There is more than adequate existing legislation in place to prevent abuse. Explain what will be required post October 2011 relating to family trust administration but stress that normal processes apply until then.
For further information see IRD Policy Statement: Gift Duty Repeal.
