Estate And Gift Duties Amendment Act 1987

This commentary item was published in Public Information Bulletin Volume 170, February 1988

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Part III

Section 1 - Short Title

This section provides for this Act to be read together and deemed part of the Estate and Gift Duties Act 1968.

This Amendment Act is consequential to the enactment of the accrual tax accounting regime in the Income Tax Amendment Act 1987. An effect of the accrual tax accounting regime is to render assessable the amount of any debt forgiven to the extent that the amount forgiven exceeds the cost (including interest and discount) of the debt. This can occur in the case of -

1. Gifts by way of forgiveness inter vivos:
2. Gifts by way of forgiveness of debt in a will.

Section 2 - Estate Duty

This section inserts into the principal Act a new section 35BA. Section 35BA applies where -

1. The estate of a deceased person includes a financial arrangement; and
2. The debt is wholly or partially forgiven in the will of the deceased or by way of a "donatio morris causa".

A "donatio morris causa" is a testamentary disposition made in contemplation of one's impending death. Although it may not comply with the requirements of the Wills Act 1837 (UK), such a testamentary disposition may well be binding.

Section 35BA provides that where and to the extend that, under the accrual tax accounting regime, a gift by way of forgiveness of debt in a testamentary disposition (under a will or donatio mortis causa) reduces the deduction allowable to, or increases the assessable income of, the recipient of the gift, that part of the debt shall not be included in the dutiable estate of the testator.

This means that, to the extent that the forgiveness is brought to account for income tax purposes under sections 64B to 64M of the Income Tax Act 1976, the debt -

1. Is not a part of the final balance of the testator's estate; and
2. Is not subject to estate duty.

Section 3 - Gift Duty

This section inserts into the principal Act a new section 75B. Section 75B provides that where and to the extent that, under the accrual tax accounting regime, a gift by way of forgiveness of debt reduces the deduction allowable to, or increases the assessable income of, the recipient of the gift, the forgiveness shall not constitute a gift.

This means that the forgiveness, to the extent that it is brought to account for income tax purposes under section 64B to 64M of the Income Tax Act 1976, -

1. Is not subject to gift duty; and
2. Is not required to be reported in a gift statement; and
3. Is not to be included in "b" in the calculation of the amount of gift duty payable (according to section 62 of the principal Act) on any other gift; and
4. Is not subject to the estate duty avoidance provisions of the principal Act (sections 10 and 11).

Application

Both section 35BA and section 75B apply on and after 1 October 1987. They are intended to deal with types of arrangements used in estate planning and, as forgiveness of debt under such arrangements was exempt from the application of the accrual tax accounting regime until 1 October 1987 (section 64F(7) of the Income Tax Act refers), it was not necessary to give sections 35BA and 75B any earlier application.