Trusts: How to deal with new gifting rules
There has been a considerable comment in the media regarding the effect of the Inland Revenue Department's Draft Public Ruling - Debt Forgiveness In Consideration of Natural Love and Affection. The effects of the draft ruling not only call into question the wisdom of continuing the well established practice of forgiving debts to the trustees of a family trust but also the fundamental anomalies that exist in respect of the section under the Income Tax Act that brings forgiveness of debt within the accrual provisions.
IRD had received about 30 submissions on its draft ruling and they raise a number of concerns ranging from disputing the IRD’s interpretation of the legislation, to the inconsistencies and uncertainties perpetuated by the draft ruling. These submissions will have little impact on the draft ruling when it is finally made binding, probably by the end of this month.
Unless there is a change in the law to address what might be described as the unintended effects of section EH 4(6), practitioners will have to accept that, the official view of the Commissioner will be that published in the draft ruling.
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