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Will The Abolition Of Gift Duty Affect Your Ability To Qualify For a Residential Care Subsidy?

As has been highlighted in previous articles on the subject, gift duty is to be abolished with effect from 1 October 2011. The question on the minds of seniors will be what effect this will have on their ability to qualify for asset and income tested benefits and in particular, the Residential Care Subsidy for senior care. 

A key point to note is that the abolition of gift duty requires an amendment to The Tax Administration Act. This is the act, administered by the IRD, which presently contains a requirement for gift duty to be paid on gifts in excess of $27,000 within a 12 calendar month period. It is this provision which is to change from 1 October this year. 

Entitlement to benefits on the other hand is administered by the Ministry of Social Development under the auspices of The Social Security Act 1964. Importantly for seniors it should be noted that there is to be no equivalent change to the social security legislation. 

It is a basic tenet of our social security system and in particular, that pertaining to senior care that we should first look to the use of our own assets before we seek financial assistance from the state to pay for our care. Readers will be aware that the residential care subsidy is both asset tested and income tested. It is the income tested component we will concentrate on in this article. 

With effect from 1 July 2005 the then Labour government introduced changes to the system as we then knew it. Prior to then the exempt asset limits had been very low and the system immensely unpopular with those who had elderly relatives in care. The amount of exempt assets that either a single person or a couple may have when looking to apply for a residential care subsidy has been steadily rising by $10,000 per annum on July 1st each year to the extent that a single person (or a couple where both are in care) may now have $200,000 in exempt assets and a couple where one is in care may have $105,000 in exempt assets in addition to the family home, which is exempt as an ‘asset’ for that purpose if a spouse or dependent child resides in it. 

On July 1st this year those limits will once again rise to $210,000 and $115,000 respectively. However, under the Social Security Act there is no ‘allowable gifting’ amount for general benefits. In other words, we are required to use all available resources to support ourselves rather than look to the state. This will not change with the abolition of gift duty. 

That is not to confuse the issue of Residential Care Subsidies where a small amount of
‘allowable gifting’ is permitted in the lead up to an application for a subsidy. This provision has always been (and will remain) out of synch with the gifting regime under the Tax Administration Act. 

At present, when assessing an application for a residential care subsidy Work and Income (as agent for the Ministry of Social Development) will permit a gift of $5,500 in each of the five years preceding your application for a subsidy. From 1 July this year that allowable gifting level is to rise to $6,000 per year for each of the five years before your application for a residential care subsidy. 

In addition, gifts of $27,000 per year are allowed for gifts made more than five years before your application. This is unchanged from existing policy. So, what does that all mean for senior’s looking to protect their hard earned assets? In essence it means that little or nothing will change. In looking at available asset protection and estate planning measures which you might utilise, the timing of any transaction as well as the purpose will still be paramount.

There are strong anti avoidance provisions under the Social Security Act to the intent that if you are seen to have deliberately deprived yourself of an asset which ought to otherwise have been available to pay for your care, then such disposition of property can be overturned. 

In summary therefore, all seniors should be looking at how they own their assets and doing so in a timely fashion and with clearly defined goals in mind other than simply qualifying for a benefit you might not otherwise qualify for. 

Harmans has had a team working exclusively in the area of senior law for over 12 years now and a cornerstone of our service is that we offer an initial appointment at no charge to you. Only if you then elect to engage our services do you incur fees. If you are looking for a Christchurch Solicitor specialising in senior law we invite readers to contact our seniors representative on 352-2293 to arrange an appointment.  



The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.
Last Updated: 14/05/2021 



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