The Government is to abolish gift duty, confident any risks to creditor protection or the targeting of social assistance programmes can be met by other laws.
The 125-year-old tax has brought in an average of $2.2 million a year over the past seven years, and on a declining trend.
But officials estimate it imposes $70 million a year in compliance costs on taxpayers, or rather on non-taxpayers, as only about 900 or 0.4 per cent of the 225,000 gift duty statements filed to the Inland Revenue a year disclose a liability to pay the tax.
These numbers reflect the ease with which gift duty can be avoided through the use of "gifting programmes".
Under this device an asset is "sold" at market value in exchange for an interest-free, on-demand loan for the value of the asset.
The loan is then progressively forgiven at the rate of $27,000 a year, which keeps it under the threshold at which gift duty kicks in.
Gifting programmes have been commonly used in transferring assets to family trusts.
But, among other costs, they require annual deeds of forgiveness to be filed to the IRD, by accountants or lawyers charging more than $300 apiece.
The incentive to put assets into a trust has been reduced since October 1, with the alignment of the top personal tax rate with the trust rate at 33 per cent.
"We began a review early this year, initially of the threshold which had not changed since 1984. It became clear the rationale for retaining gift duty no longer applied," Revenue Minister Peter Dunne said.
It had initially been imposed to buttress estate duty, but that was abolished in 1992.
Gift duty had been retained because of concerns about debtors gifting assets to put them out of their creditors' reach as insolvency loomed, and also about the integrity of means-testing various forms of social assistance.
"We are satisfied existing legislation more than adequately covers those concerns," Mr Dunne said.
There are measures to safeguard creditors in the Insolvency Act and other legislation, and officials found gift duty had been of little benefit in recovering value for creditors.
Likewise, the Ministry of Health is confident existing legislation is sufficient to prevent access to the residential care subsidy where people have deliberately deprived themselves of assets before requiring care.
On concerns about the scope for personal asset-stripping in order to qualify for Working for Families tax credits or student loans, a review of the integrity of such schemes is already under way.
Legislation to abolish the tax will be introduced this month and will take effect on October 1 next year.