More Tax Deduction for Lease Agreements

October 2, 2012 New Zealand Taxation

Landlords and tenants of commercial property will soon enjoy new tax rules granting them more tax deductions for payments associated with lease agreements.

On September 27th the Minister of Revenue of New Zealand Peter Dunne unveiled details of the government’s proposed changes to the tax rules for lease inducement payments and lease surrender payments.

As of April 1st 2013, all lease inducement payments will be tax deductible for payers and regarded as taxable income for receivers.

Lease inducements are payments made by landlords to potential tenants in order to entice them to sign a lease agreement, and such payment shave become popular in recent years as a means to attract tenants during economic downturns.

Lease surrender payments made by tenants to leave a tenancy agreement early will also become tax deductible to the tenant, on all lease agreements signed after April 1st 2013.

The income derived by landlords when receiving lease surrender payments will be regarded as taxable incomes.

According to the media statement, both changes were  developed after a round of public consultation between the New Zealand Inland Revenue Department and business and accounting professionals in new Zealand.

Peter Dunne explained that including lease surrender payments “…is consistent with the Government’s efforts to reduce black hole expenditure as part of the 2012-13 tax policy work programme.”