Government Eyes Tax Tweaks for Landlords

July 30, 2012 New Zealand Taxation

commercial lease inducement paymentsThe government is looking for suggestions on how to maximise tax revenues from payments made by landlords of commercial property to potential tenants.

On July 27th the New Zealand Inland Revenue Department released a new issues paper, calling for public comment on the government’s proposal to tighten the tax treatment of lease inducement payments.

According to the issues paper, the current tax treatment of inducement payments results in a “revenue risk to the tax base”, and the paper makes several suggestions which would change tax regulations to make the payments taxable.

The Inland Revenue Department describes inducement payments as “a payment given by a landlord to a prospective tenant as an “inducement” to enter into a commercial lease.” Inducement payments are reported to have become popular recently, as owners of commercial property attempt to entice new tenants into taking a lease. Currently, the inducement payment is deductible for the payer, but is non-taxable for income tax purposes for the recipient.

The issues paper calls for the public to make comment on the taxation of inducement payments, and to suggest methods of taxing the transfers. The paper also requested that submissions and comments be made regarding potential measures which could be taken to reduce the occurrence of tax evasion with inducement payments, and methods which could be used to reduce arbitrage opportunities arising from the timing of income.

Photo by sean dreilinger