The tax on the $100,000

The media have started to look at the tax issues around the secret $100,000 donation. It is indeed quite probable that there is an unresolved tax issue around it.

A tax lawyer has helpfully made the following points to me:

• Normally gifts are not considered to be income but it can extend to include “gifts” given for extra services or additional benefits beyond expectation.
• If Owen Glenn gave the $100,000 as a mark of satisfaction with Winston’s past services as an MP or in the expectation of some future benefit to be bestowed, then the money would constitute income.
• It is irrelevant that the money was paid to Brian Henry and not to Winston personally. The Income Tax Act is very clear that, as it was Winston’s legal bill that was being paid, it would be his income.
• Bank and lawyers’ trust account records are not protected by legal privilege. The Tax Administration Act expressly states IRD can have access to all financial records. There is no “privilege” in payments, only in legal advice.
• Even if the secret donation is not treated as income for Winston, and is a “genuine gift” then the Estate and Gift Duties Act applies.
• A gift of $100,000 would attract gift duty of $12,850.
• When a gift is made, the Act requires the person making the gift to pay the duty within three months.
• If the giver does not do so, the liability automatically passes to the recipient who must then pay the gift duty.
• A failure to do so constitutes a criminal offence under the Tax Administration Act.
• Interest and penalties on any gift duty not paid on time would have more than doubled the original $12.850 owing.

Now assuming it is seen as a gift and not income for services provided, it is possible Owen Glenn paid the gift duty. If he did not then it sounds unlikely it has been paid, as Henry and Peters keep arguing it is not a gift. That means the liability would still be resting with Peters.