Estate And Gift Duties Amendment Act 1983, Supplement 1

This commentary item was published in Public Information Bulletin Volume 126, September 1984

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Section 1 - Short Title, Commencement, etc.

Subsection (1) provides that this Amendment Act is to be read with, and form part of, the Estate and Gift Duties Act 1968.

Subsection (2) provides that the Amendment Act comes into force on 28 July 1983, except in the case of sections 3, 5, 6 and 8 which do not take effect until 1 April 1984.

It is important to check the commencement date when reading any of the amending sections. The commentary which follows will also bring this out.

Section 2 - Matrimonial Property Definition

This section simply defines "matrimonial property" as having the same definition as that contained in section 2(1) of the Matrimonial Property Act 1976. That section defines matrimonial property as having the same meaning as contained in section 8 of that Act, section 8 defining it as consisting of:

1. The matrimonial home whenever acquired; and
2. The family chattels whenever acquired; and
3. All property owned jointly or in common in equal shares by the husband and the wife; and
4. All property owned immediately before the marriage by either the husband or the wife if the property was acquired in contemplation of his or her marriage to the other and was intended for the common use and benefit of both the husband and the wife; and
5. Subject to subsections (2) to (6) of section 9 and to section 10 of this Act, all property acquired by either or the wife after the marriage; and
6. Subject to subsections (3) to (6) of section 9 and to section 10 of this Act, all property acquired after the marriage for the common use and benefit of both the husband and the wife out of property owned by either the husband or the wife or both of them before the marriage or out of the proceeds of any disposition of any property so owned; and
7. Any income and gains derived from, the proceeds of any disposition of, and any increase in the value of, any property described in paragraphs (a) to (e) of this section; and
8. Any policy of assurance taken out by one spouse on his or her own life or the life of the other spouse, whether for his or her benefit or the benefit of the other spouse (not being a policy that was fully paid up at the time of the marriage and not being a policy to the proceeds of which a third person is beneficially entitled), whether the proceeds are payable on the death of the assured or on the occurrence of a specified event or otherwise; and
9. Any policy of insurance in respect of any property described in paragraphs (a) to (e) of this section; and
10. Any pension, benefit or right to which either the husband or the wife is entitled or may become entitled under any superannuation scheme if the entitlement is derived, wholly or in part, from contributions made to the scheme after the marriage or from employment or office held since the marriage; and
11. All other property that the spouses have agreed, pursuant to section 21 of this Act, shall be matrimonial property; and
12. Any other property that is matrimonial property by virtue of any other provisions of this Act or by virtue of any other Act."

Paragraph (j) is particularly important because separate property of the couple transferred in accordance with an agreement under section 21 of the Matrimonial Property Act 1976 is not exempt from gift duty unless it is declared to be matrimonial property in the agreement, or has been so declared in an earlier agreement.

Section 3 - New Schedule of Rates of Estate Duty

This section replaces the First Schedule to the principal Act and increases the dutiable estate exemption from $350,000 (applying to the estates of persons dying on or after 1 April 1983) to $450,000 in respect of the estates of persons dying on or after 1 April 1984.

The rate of estate duty, at 40 percent of the excess over the exemption limit, is unchanged.

The new First Schedule, which came into force on 1 April 1984, reads:

Scales of Rates of Estate Duty

Final Balance of Estate	Rate
Note: "Excess" means excess of the final balance in complete dollars.
Not exceeding $450,00	Nil
Exceeding $450,000	40 percent of excess over $450,000

Section 4 - Matrimonial Property Act 1963 Court Orders

This section provides an exemption from estate duty for property comprised in an order of the Court made in terms of section 5 of the Matrimonial Property Act 1963.

Section 5 of the Matrimonial Property Act 1976prohibits the making of applications for the transfer of property after the death of a spouse. However, the latter part of that section, together with section 57(4), reactivates the rights of the surviving spouse to make such applications after death under the Matrimonial Property Act 1963 as if the 1976 Act had never been passed.

In a 1981 case, Preest v CIR, it was held that proceedings initiated after death pursuant to the 1963 Act did not affect the incidence of estate duty and that consequently the property comprised in the Court order formed part of the dutiable estate.

This amendment effectively means that the dicta in the Preestcase will not apply to Court orders, being Court orders made in terms of section 5 of the 1963 Act, made on or after 28 July 1983. Any property comprised in Court orders made in such cases will not form part of the deceased's dutiable estate.

Section 5 - New Schedule of Rates of Gift Duty

This section introduces a new scale of gift values to which the existing gift duty rates of zero to 25 percent will apply in respect of all dutiable gifts made on or after 1 April 1984. The new gift duty rate scale, which is contained in the Second Schedule of the Amendment Act, is:

Scale of Rates of Gift Duty

Value of Item "b" in Section 62		Rate
Note: "Excess" means excess of the value in complete dollars.
Not exceeding $27,000		Nil
Exceeding	Not Exceeding
$27,000	$36,000	5 percent on excess over $27,000
$36,000	$54,000	$450 plus 10 percent of excess over $36,000
$54,000	$72,000	$2,250 plus 20 percent of excess over $54,000
Exceeding $72,000		$5,850 plus 25 percent of excess over $72,000

The new scale incorporates the increase from $15,000 to $27,000 in the no-liability level and widens the bands to which the 5 percent, 10 percent and 20 percent rates apply.

In cases where gifts made before 1 April 1984 are aggregated (within the 12 months aggregation period) with gifts made on or after that date, the duty on the gifts made prior to 1 April 1984 will not change unless the aggregate figure exceeds $27,000. Legislation providing the rules for aggregation before and after 1 April is contained in the proviso to subsection (3).

The following are examples of the basis of aggregation.

1. Liable gift made before scale change aggregates with gift made after scale change and total gifts more than $27,000.

Example 1:

Section 6 - Increase in Exemption for Small Gifts

This section increases the section 71 exemption for small gifts made as part of the normal expenditure of the donor, from $1,000 to $2,000.

As this exemption relates to the aggregation for gift duty purposes of gifts made to each donee in a calendar year and as the increase is to apply to all gifts made on or after 1 April 1984, this means for the calendar year ended 31 December 1984 and future years the exemption level will be $2,000.

Section 7 - Matrimonial Property Dispositions

Section 21 of the Matrimonial Property Act 1976 enables a husband and wife to mutually determine the ownership of their property at any given time, either for the purposes of contracting out of the Act or for settling any differences that have arisen between them as to the ownership of their property. The section enables them to enter into a written agreement to share their property in whatever proportions they wish, provided it is done in a strict legal form.

As an alternative to section 21, section 25 enables a couple to ask the Court to determine the proportions in which their property should be divided. In effect, the Court is asked to determine the respective rights in the property.

This section sets out the gift duty position which will apply in respect of orders of the Court made under section 25, and voluntary agreements entered into under section 21 of Matrimonial Property Act 1976.

Subsection (1) defines, for the purposes of the new section 75A, the expressions:

• "Agreement", as meaning an agreement entered into under section 21 of the Matrimonial Property Act 1976.
• "Disposition of matrimonial property", as meaning a disposition of matrimonial property (as defined in section 2(1) of the Matrimonial Property Act 1976) made by or pursuant to a section 21 agreement.

Subsection (2) provides that where any disposition of matrimonial property:

• is made by and in accordance with that agreement, and
• does not result in the person to whom the disposition is made having legal and equitable interests to more than half the total matrimonial property of the couple,

that disposition will not be a gift.

For example, assume that before entering into an agreement under section 21 of the Matrimonial Property Act 1976, property was held as follows:

Husband	- Farm	$300,000		Wife	- Bank A/C	$15,000
	- Shares	$20,000
	- Bank A/C	$10,000
Section 21 Agreement declares the farm and shares to be matrimonial property held in equal proportions. Transfers are executed and the end result is:
Husband	- Bank A/C	$10,000	Sep.	Wife	- Bank A/C	$15,000	Sep.
	- 1/2 Farm	$150,000	Mat		- 1/2 Farm	$150,000	Mat
	- 1/2 Shares	$10,000			- 1/2 Shares	$10,000

The wife, as transferee, holds legal or equitable interests in not more than 50 percent of the couple's matrimonial property after the transfer. Accordingly, there is no gift duty liability.

It should also be noted that if a couple enter into a simple agreement under section 21 in terms of which all property held by the husband and wife is declared matrimonial property and divided equally, there will be no liability for gift duty.

Subsection (3) covers the situation where a disposition of matrimonial property is made to a party to a section 21 agreement, in accordance with that agreement, but the disposition results in the person to whom the property is disposed of holding more than half the legal and equitable interests in the property as a result of the disposition. It provides that in these circumstances the portion of the value of the disposition which brings the total value of matrimonial property held by the transferee up to 50 percent of the couple's total matrimonial property will not be a gift. Only the amount by which the disposition results in the value of the total interests in matrimonial property held by the transferee exceeding 50 percent of the couple's matrimonial property will be a gift for gift duty purposes.

Similarly, if the party to whom the property is transferred held interest in more than 50 percent of the total value of the couple's matrimonial property immediately prior to the disposition, the whole of the disposition will be a gift for gift duty purposes.

For example, in a section 21 agreement entered into on 20 August 1983, a husband who has all property in his name declares that it will all be matrimonial property to held in unequal proportions:

Husband	70%	$70,000
Wife	30%	$30,000

The disposition to the wife of 30 percent is not dutiable.

On 10 February 1984, the husband acquires separate property by succession and in a subsequent agreement dated 15 March 1984 agrees to transfer a further 40 percent ($28,000) of his share of the matrimonial property to his wife. The end result of the disposition is that:

• Husband has $42,000 matrimonial property
• Wife has $58,000 matrimonial property

Fifty percent of the couple's matrimonial property is $50,000. Applying the provisions of subsection (3) to the transfer of matrimonial property (valued at $28,000):

• $20,000 brings the value of matrimonial property held by the wife up to the 50 percent level of total matrimonial property and is therefore not a gift.
• $8,000 is the value of the disposition which exceeds the 50 percent level and is a gift.

Subsection (4) sets out the date on which the disposition is deemed to have taken place. This is defined to enable the percentage of the total matrimonial property which is owned by the person to whom the property is disposed, to be determined. It provides that, for the purposes of subsection (2) and subsection (3), the property will be deemed to have been disposed of:

1. On the date of execution of the section 21 agreement in cases where the property is disposed of within three months after that date of execution.
2. On the date of disposition where that disposition is made later than three months after the date of execution of the section 21 agreement.

It should be noted that this provision applies only for the purpose of determing the point at which the value of the property is to be taken in reaching a decision as to whether the disposition has not increased the transferee's ownership of matrimonial property beyond the 50 percent level. It does not define the date on which the disposition takes place for the purposes of the other provisions of the Act. It should also be noted that the Commissioner has no power to vary or extend that date.

Subsection (5) provides that all property, whether matrimonial property or otherwise, disposed of in compliance with an order of the Court under section 25 is specifically declared not to be a gift for the purposes of this Act.

Subsection (6) requires the furnishing of a copy of the section 21 agreement to the Commissioner where a disposal of property is made by or pursuant to that agreement. Essentially, this subsection provides that sections 79, 80 and 95(5) of the Estate and Gift Duties Act 1968 shall be interpreted in the following manner.

1. Section 79
2. Where a disposition of property is made by or pursuant to a section 21 agreement, the person disposing of the property must deliver a copy of that agreement to the Commissioner within three months of the date of disposition of the property (the date of disposition being the actual date on which the property was disposed of). This action is required irrespective of the value of the property disposed of.

2. Section 80
3. Where the person who disposed of the property fails to deliver a copy of the agreement to the Commissioner, the person to whom that property is disposed of must deliver a copy of the agreement to the Commissioner within one month after the expiry of that three month period.

3. Section 95(5)
4. Any person who fails to comply with the requirement that a copy of the agreement be supplied (in the case of the person towhom the property is disposed of it should be noted that the failure must be wilful and negligent) is liable on summary conviction, to a fine not exceeding $500.

Subsection (2) of section 7 ensures that the amendments effected by section 7 apply only to agreements made under section 21 of the Matrimonial Property Act 1976, on or after 28 July 1983, and to orders of the Court made under section 25 of that Act. This is particularly important in relation to the delivery of copies of agreements to the Commissioner because it makes it quite clear that copies of such agreements are not required in respect of dispositions made on or after 28 July 1983 in accordance with agreements entered into before that date.

Section 8 - Increase in Amount of Gift before Gift Statement to be Delivered to Commissioner

As the level at which gift duty becomes payable has been increased from $15,000 to $27,000, an increase has been made in the level at which gift statements are required to be filed with the Commissioner. The new level is $12,000 and applies both to statements to be filed by donors (section 79) and on default by donors, to be filed by donees (section 80). It is anticipated that many donors will continue to file gift statements in respect of gifts, or aggregation of gifts, less than $12,000 in value for evidential purposes.