TalkTax

In May 2010 the Taxation (Budget Measures) Act 2010 did away with tax deductions for depreciation on buildings with an expected life of 50 years or more. That in itself had many taxpayers and their advisors shaking their heads in dismay. However, imagine the impact it has on companies with large property portfolios. This latest amendment to the tax law has resulted in many companies having a deferred tax liability.

The effect of these deferred tax liabilities is that companies’ accounts may not reflect a “true and fair view” and may be misleading for investors because even though it affects the net profit, it does not have any relevance to the performance of the company per se.

It is now up to the local Financial Reporting Standards Board (FRSB) to sort this situation out. Due to the fact that the IFRS are exactly that – an international standard – an amendment to the international rules is required so that New Zealand remains aligned with the international standard.

Georgina Bond sets the situation out nicely in her article in The National Business Review (August 27, 2010, at p. 12). What I find telling is that apparently government was aware of the reporting issues that would arise, as you’d expect it to be, when drafting the legislation but has left it up to the FRSB to find a solution. So be on the look out for changes to the accounting standards sometime in future.