A recent Social Security Appeal Authority decision relating to the residential care subsidy may affect how individuals go about gifting in the future.
Qualification for the residential rest home subsidy in New Zealand is means tested based on the assets held by an individual or couple. For the purpose of the asset test, net assets are increased by:
1. Gifts in excess of $6,000 per annum – over the previous 5 years
2. Gifts in excess of $27,000 per annum – at any time
3. Notional value of interest not demanded or the value of ungifted debt.
Gifting in relation to the residential rest home subsidy is governed by the Social Security Regulations 2005 and the Social Security Act 1964.
The Social Security Appeal Authority recently upheld a decision by the Chief Executive of the Ministry of Social Development that all gifting by a person and their spouse in excess of a combined total of $27,000 in a 12 month period (for periods outside the five year period immediately prior to the asset assessment) may be taken into account when assessing eligibility of an applicant for a government funded residential care subsidy.
It is common practice in New Zealand for assets to be sold to a Trust (often a family trust) with the Trust recording a debt back to the donor. To avoid the imposition of gift duty, until recently, the donor was restricted to gifting at the rate of $27,000 a year ($27,000 pa each for a husband and wife).
Thus whilst for gift duty purposes individuals, until recently, were able to gift $27,000 each in a 12 month period without incurring gift duties, for residential rest home subsidy purposes they can only gift $27,000 in total (ie combined) in a 12 month period.
Where a couple have gifted $27,000 each in a 12 month period (for periods outside the five year period immediately prior to the asset assessment) half of this amount will be considered as “excess gifting” for rest home subsidy purposes and will be added back to their other assets in determining whether an individual qualifies for a rest home subsidy under means testing.
In the case reviewed by the Authority a husband and wife had together gifted $918,000 to their trust ($27,000 each for 17 years). Half of this amount, or $459,000, was deemed to be “excess gifting” for the purposes of calculating her entitlement to the rest home subsidy , this amount was added back to the wife’s net assets putting her over the limit for allowable assets thus making her ineligible for a rest home subsidy.