WHEN A GIFT ISN'T FREE. IRD have issued draft interpretation statement PUB00433 regarding circumstances in which gifts are assessable income, with a deadline for comment of 18 September 2023.
In New Zealand, a recipient of a gift of money or money’s worth does not usually have to pay income tax on the gift. As noted in the draft statement, this is because, generally, a gift is made as a mark of affection, esteem or respect for a recipient.
However, a gift may be treated as income and subject to income tax, in particular, where it is derived:
• from a business (s CB 1)
• as a result of carrying on or carrying out a profit-making activity (s CB 3)
• in connection with employment (s CE 1), and
• when undertaking a voluntary activity (s CO 1).
Gifts are business income or income from a profit-making activity where the payment can be attributed to the activities or specific work the recipient has carried out.
In the context of voluntary activities, when the gift is “a product of” or “in connection with” the person’s voluntary activity (i.e. a “sufficient connection” exists), then the gift will be income. Typically this will be where there is an element of recurrence, incentive to undertake future activities, or the gifts are expected. In contrast, a one-off gift after the performance of a voluntary activity, where there is a mere personal gift inspired by personal goodwill rather than consideration for the activity, would typically not be considered income.
Additionally, a gift may be income under ordinary concepts and therefore subject to income tax under s CA 1(2).