New Zealand: Like moths to a flame?

Brief Counsel

Gift duty is abolished from 1 October 2011 – with particular implications for anyone who has established a trust and is owed money by the trust, or who is considering gifting assets to a trust.

Claims against trusts by creditors and the Official Assignee are already commonplace. Frenzied gifting of debts following the abolition of gift duty is likely to attract close scrutiny from those parties.

This Brief Counsel covers what the repeal of gift duty may mean for you and potential issues in relation to gifting all or a significant part of a debt after 1 October 2011.

Gift duty repeal – what does it mean for you?

The decision whether to gift all or a significant part of a debt should not be taken lightly. Large gifts made to trusts will attract particular attention from creditors (including ex-partners) and the Official Assignee, all of whom may try to claw back such gifts.

Consideration of the consequences of a significant one-off gift will be particularly relevant if:

  • you have personal liabilities
  • you are a settlor but not a beneficiary of a trust that is benefitting from your gift
  • you are about to enter into a business or transaction and are leaving yourself with an unreasonably low asset backing
  • you have, or may in the future have, creditors whose claims cannot be satisfied from your personal assets or insurance, and/or
  • you may otherwise have expected to qualify for government assistance (such as a rest home subsidy).

Potential for claims from creditors

If you have borrowed from a third party and on-lent to a trust, it is likely that your personal liability is somewhat balanced by the amount of the debt owing to you by the trust.

Gifting $27,000 to the trust annually has a slow and steady effect on your financial position. But gifting the entire amount of the debt owed to you may leave you technically insolvent, to the extent that assets owned by you are significantly less than your liabilities.

Does this matter?

Yes. If as a result of a gift, you are unable to pay your debts as they fall due, you could face a claim by a creditor to claw back the gift. Under the Property Law Act, the court has the power to claw back gifts made by a debtor who was insolvent at the time of the disposition, or became so by the disposition, with the intent to prejudice a creditor. The court can also exercise this power if the donor was engaged in or about to engage in some kind of venture or transaction and left themselves with an "unreasonably small" asset base – this is equivalent to a corporate capital maintenance test.

Similarly, under the Insolvency Act, the Official Assignee can claw back gifts made by a bankrupt:

  • within two years before the date of the adjudication of bankruptcy, and
  • between two and five years before the date of adjudication of bankruptcy, if the bankrupt was unable to pay his or her debts on making the gift.

The law in this area is not new, but one can expect the provisions to be invoked more readily and assertively in the new gifting environment.

Minimising your risk

To minimise risk and protect the assets of a trust from the claw back provisions, donors need to:

  • consider what their financial position will be after the gift has been made. For some, it may be prudent to record their solvency at the time of the gift. Future business plans and contingent liabilities will all need to be factored in, and
  • document the reasons and basis for making the gift.

Relationship property claims

It is anticipated that after the abolition of gift duty more relationship property claims may be made under the Family Proceedings Act 1980 and Property (Relationships) Act 1976 to gain recourse to assets gifted to a trust.

If relationship property is transferred to a trust, the resulting debt owing back from the trust is itself relationship property. However, the trust property is no longer the property of either party to the relationship and cannot be relationship property. This could be problematic if significant one-off gifts are made.

In the event of any future separation, a partner could be detrimentally affected by having gifted their relationship property to the trust. It is therefore important that you understand clearly the implications of gifting your relationship property and that you retain joint and equal powers in relation to the trust.

Tax implications

There will also be tax implications for the debtor trust arising from a forgiveness of debt, unless the only beneficiaries of the debtor trust are those for whom the donor has "natural love and affection", or charities. Gifts of assets held on revenue account, or on which depreciation has previously been claimed, also have the potential to give rise to a tax liability to the donor. Independent legal advice should be sought.

For further information, please contact the lawyers featured as authors.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions