New Zealand: Proposal to align tax with accounting for leases

New Zealand: Align tax with accounting for leases

The government is proposing a legislative change for early 2020 to allow lessees to follow the treatment under a new lease accounting standard (NZ IFRS 16) for tax purposes.


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The measure would apply for tax years beginning on or after 1 January 2019 (so as to mirror the application of NZ IFRS 16).

New NZ IFRS 16 removes the distinction between operating and finance leases. While that distinction continues for tax, the legislative proposal would allow lessees to make an irrevocable choice to follow their NZ IFRS 16 accounting treatment for tax operating leases.

There are some caveats including:

  • The proposal would not apply to leases of real property (land and buildings). It is proposed that the current operating lease tax treatment would continue. A similar result would apply to leases from an associate and subleases.
  • Adjustments are proposed to the accounting timing for certain lease accounting items (such as impairments of the lease right to use) so that tax deductions would be available only when the lease expenditure is actually incurred. That may bring forward or delay expenditure for tax, compared to NZ IFRS 16. 
  • There would be transitional tax adjustments when first applying NZ IFRS 16 treatment for tax and on ceasing to apply it.

KPMG observation

While aligning that tax and accounting treatment, the requirement to track (and possibly adjust) what is happening for accounting, as well as building leases separately, may reduce the benefit for some. The recognition of new balance sheet amounts under NZ IFRS 16 may also affect thin capitalisation ratios.

Read a December 2019 report prepared by the KPMG member firm in New Zealand

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