New Zealand


  • Service: Tax
  • Type: Business and industry issue
  • Date: 30/04/2013

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Ross McKinley

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Taxmail - Proposed changes to taxation of land-related lease payments 

Issue 1 - April 2013 


Inland Revenue and Treasury have released an issues paper proposing further changes to the taxation of land-related lease payments. This follows changes to tax lease incentives and surrender payments in the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill, currently before Parliament.

The proposal is to introduce generic income, deduction and timing rules for land-related lease payments.  Any land-related lease payment (except in the case of residential leases and land rights of 50 years or more) would be treated as deductible to the payer and taxable to the recipient. 


Land related lease payment tax
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The main concern is payments made to an exiting tenant from a new incoming tenant for the transfer or assignment of a lease (so-called “lease transfer payments”), which are currently non-deductible to the recipient but depreciable to the payer. 


The new rules will also capture lease premiums, lease modification payments and, significantly, contributions towards fit-out.


A wider review of this area was signalled last year, and the outcome is not surprising.  That said, we are not convinced that the arrangements contemplated by Officials – the re-characterisation of (revenue) surrender payments as (capital) lease transfer payments – is widespread in practice as the commercial drivers are different. 


The proposed changes to the fit-out contribution rules, to align the treatment with cash lease incentives, should also be noted. 

Taxmail - Comment on topical tax issues from KPMG NZ Tax. 
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