The creation of a trust gives rise to a gift for gift duty purposes

Summary

A deed of gift of money secured by a declaration of trust on a home to secure payment of the money in the future is a gift under the Estate and Gift Duties Act 1968.

Impact of decision

There is no tax implication in this case as each gift was below the exemption level. In the future when the money is actually paid, assuming there is still the same statutory gift duty, there will be no gift duty payable as the money is already gifted.

Facts

The taxpayers executed a deed for the purpose of making a gift of (or promising to give) a sum of money of $27,000 with gifts in subsequent years of lesser sums to family members. Payment of the gifts was deferred to the future upon sale of the home. A trust was declared on their homes “to the extent of their respective interests from time to time” to secure payment of the gifts.

The High Court held that there were no gifts for the purposes of the Estate and Gift Duties Act 1968 ("the Act") made under the deed even though there was a valid trust because, on a narrow interpretation of section 2(2) of the Act, the creation of a trust was not sufficient in itself and there must be conveyance of the gift in order to qualify as "disposition of property".

The taxpayers appealed to the Court of Appeal. Three issues were dealt with by the Court of Appeal:

• In order for an action to amount to a "disposition of property" for the purposes of the Act, must the action come within the general definition of "disposition of property"?
• Did the creation of the trust give rise to a dutiable gift to the children?
• Even if the initial gifts were gifts for gift duty purposes, were the later ones?

Decision

The Court of Appeal granted the appeal.

The legal interpretation of "include" in the definition of "disposition of property" in section 2(2) of the Act is to enlarge or extend the general part of the definition to the specific, subparagraphs of the definition. That the definition in section 2(2) with the specific, subparagraphs is set out differently from the previous 1909 Act is "merely stylistic". An act can amount to a "disposition of property" for the purposes of the Act without coming within the general part of the definition. The creation of a trust is a "disposition of property" within subparagraph (b) of the definition. As there was a valid trust, there was a "disposition of property" and a gift for gift duty purposes.

Perry v Commissioner of Stamps (1913) 32 NZLR 1194 applied as its facts cannot be distinguished from the present appeal. Moreover Perry was correctly decided when it held the creation of the trust gave rise to an immediately dutiable gift. There has not been any issue with Perry as an authority and the Court of Appeal declined to overrule it.

Even though not dealt with by the High Court and the Court of Appeal not even sure it was squarely raised on the pleadings, it was held that each subsequent gift is a creation of a separate trust under the deed and is consequently a separate “disposition of property” under subparagraph (b) of the definition in section 2(2) of the Act.

As the individual gifts were below the gift duty exemption, there was no gift duty payable.