Gift duty ‘switched from rich to poor’

Source: Rob Stock – Sunday Star Times – 8 May 2011

The abolition of gift duty, which could prove a gift for the rich, will come just months after a backdoor form of gift duty was introduced for the poor, an anti-poverty action group says.

The Child Poverty Action Group (CPAG) said last week that the changes are entrenching inequality.

On April 1, the government changed the definition of “family scheme income” – income used to determine whether a family qualifies for Working for Families (WFF) credits – but CPAG says it includes a provision that is in effect a new gift duty for those at the bottom of the income ladder.

CPAG spokeswoman Susan St John, a respected academic at theUniversityofAuckland, says the new definition includes regular gifts of money from other family members, such as when a family member pays the electricity or the grocery bill on a regular basis.

While gift duty is abolished for the rich, saidSt John, regular transfers which total over $5000 in a year, or $96 a week, to struggling low income families are penalised.

Transfers totalling $5001 means $1000 loss of Working for Families tax credits, saidSt John.

“These low income working families are not the ones hiding money in PIEs and trusts. The government ought to be encouraging grandparents who can afford it to help their children. In the recession, without such help many more working families will resort to loan sharks and foodbanks,” she said.

CPAG said the changes, which aim to protect the Working for Families tax credit scheme from well-off cheats hiding assets in trusts, will hit the poor. CPAG says the rules are unfair. For example, daycare payments by a working grandparent are captured by family scheme income, but not the value of work by a grandparent looking after children for free.

CPAG’s Julie Timms pointed to a debate published in last week’s paper, asking why we should tolerate the hiding of incomes in the present system of trusts: “While those who have been encouraged to hide income in trusts and PIEs, are now having to declare this for some forms of social assistance, other families who do not have the means to set up trusts are being punished for simply trying to help their own.”

IRD said the changes mean a more comprehensive measure of family income is used when determining WFF tax credits and recognise that families may be receiving help from sources other than taxable income.

“The amendments improve the fairness and integrity of WFF by, for example, countering arrangements that have the effect of artificially inflating entitlements and filling in gaps in the earlier definition of family income,” IRD said