Begg v Commissioner of Inland Revenue

[2009] NZCA 160

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA127/2008
[2009] NZCA 160

BETWEENMARION ELIZABETH BEGG, JOHN HINMAN JACKSON, AND NANCY JOSEPHINE JACKSON

Appellants

ANDCOMMISSIONER OF INLAND REVENUE

Respondent

Hearing:2 February 2009

Court:William Young  P, Chambers and Baragwanath JJ

Counsel:I R Millard QC and J M Donovan for Appellants

H W Ebersohn and H J Lee for Respondent

Judgment:30 April 2009 at 4 pm

JUDGMENT OF THE COURT

A        The appeal is allowed.

B        Leave reserved to apply for further relief, including costs. 

REASONS OF THE COURT

(Given by Chambers J)

Table of Contents

Para No

A Public Trust asset-stripping scheme  [1]
Issues on the appeal  [6]
Background facts  [11]
In order for an act to amount to a “disposition of property” for the
           purposes of the 1968 Act, must it come within the general
           part of the definition?           [15]
Did the creation of the trust give rise to a dutiable gift to the children?     [31]
Even if the initial gifts were gifts for gift duty purposes, were the
           latter ones?  [51]
Result  [54]

A Public Trust asset-stripping scheme

[1]       In the early part of this decade, a number of elderly clients of the Public Trust entered into gifting arrangements with their children or other family members.  The point of the arrangements was, apparently, to reduce the value of the elderly people’s assets, which could be to their advantage in the event of asset-testing for schemes such as the state subsidy for elderly residential care. 

[2]       The unusual feature of the arrangements, which were effected using a common-form template devised by the Public Trust, was that the donors did not actually pay any money to their children at the time.  The donors in effect promised to pay, with payment actually to be made when the donors died and their homes were sold.  The nature of the scheme was such that, in the first year, the donors would give (or promise to give) $27,000.  That figure was chosen because under the Estate and Gift Duties Act 1968 a person can gift up to that figure in any given year without incurring gift duty: see s 62 and Schedule 3.  In subsequent years the gifts were made of lesser amounts.  An essential feature of the arrangements was that the donors declared that henceforth they held their homes as trustees for themselves and their children “to the extent of their respective interests from time to time”.  The children were also entitled to ask for a registrable mortgage over their donors’ home to secure the amount from time to time owing to them under the arrangements. 

[3]       We do not know whether the arrangements were successful for their asset‑testing purposes.  Mr Ebersohn, for the Commissioner of Inland Revenue, the respondent, told us that neither Work and Income nor the Ministry of Health had indicated to Crown Law any concerns about the arrangements.  But the Commissioner himself did have concerns.  He considered these “gifts” were