Parental gift tax to alter

Press, 6 October 1987, Page 36

Parental gift tax to alter

Wellington reporter Legislation to change taxes on gifts from a parent to a child where the child is taking over a family farm or business and the purchase money going to the parent is reduced, has been promised by the Government

The Minister of Revenue, Mr de Cleene, said he had been advised by his officials that as it stood this issue now involved the possibility of double taxation.

He was replying to questions in Parliament by Mr Doug Kidd (Nat., Marlborough). Mr de Cleene said gifts had commonly been used as estate duty avoidance

techniques, and had been killed by the new accrual tax accounting regime. Although this regime had not been designed solely to affect that avenue for estate duty avoidance, the consultative committee which had advised the Government on the matter had recognised that it would do so. The consultative committee had regarded that element of the accruals regime as crucial, Mr de Cleene said. It ensured that any minor advantage or disadvantage to the taxpayer over the life of a financial arrangement was not permanent, and it had disposed effectively of a raft of income tax avoidance techniques founded on

remission of debts or the creation of uncollectable debts.

The Government intended to close those tax avoidance channels, Mr de Cleene said. It did not propose to restore the estate duty avoidance avenue for that would restore an avenue for substantial income tax avoidance.

But legislation would be introduced to deal with the specific situation that arose between parent and child.

There was a possibility that both income tax and estate duty, or gift duty liabilities would arise — the possibility of double taxation, he said.

The Government would introduce legislation later

this year to remove any liability for estate duty or gift duty in such circumstances.

Mr Kidd asked why sale transactions between parent and child had been singled out for a capital gains tax at income tax rates.

Mr de Cleene denied it had ever been a capital gains tax. It had been a minor matter caught up in a net designed to catch tax avoidance of much greater magnitude, he said.

The Opposition spokeswoman on finance, Miss Ruth Richardson, yesterday labelled the legislation as retrospective, double, capital taxation. She rejected the suggestion that the Government

had hot known of these effects. A

She gave the example oFa modest gift of $27,000 from a parent to a child who was farming and had a taxable income of $20,000. If the parent was forgiving the debt at the rate of $27,000 a year, the legislation would create an additional tax liability of $12,746. The legislation would also have an impact on the Government's rural debt restructuring, she said.

. The basis of this restructuring was the forgiveness of debt, but this would create taxable income in the hands of farmers who had gone along to be relieved of the burden of tax.