Proposed Tax Policy Mostly ‘Sensible’

Proposed Tax Policy Mostly ‘Sensible’

Proposed rules on the depreciation of commercial building fit-out, released today by Revenue Minister Peter Dunne, are mostly sensible, according to Property Council New Zealand.

Property Council chief executive Connal Townsend said he was pleased the issues paper rightly recognised that the fit-out of a commercial property holds much more value than for residential property and suffers considerably more wear and tear.

“Given the government’s ill-conceived decision to disallow depreciation for commercial property, outlying New Zealand from the majority of the OECD, Property Council was concerned the rules on fit-out would be tightened.

“Applying the same three-step test used for the fit-out of residential buildings to commercial property would have disallowed depreciation for fit out, costing the sector at least $500 million.

“However, it is clear the Policy Advice Division of Inland Revenue and the Treasury recognised this would have created a ‘significant tax bias’ against non-residential buildings.”

The proposed new set of rules would allow fit-out associated with commercial, industrial, recreational and short-term accommodation (motels, hotels, rest-homes and hospitals) to be depreciated separately, under the Commissioner’s ‘Building Fit-Out’ asset category. The existing depreciation rates would not change.

Mr Townsend said Property Council was working through some of the detail in the issues paper, including the transitional rule for commercial building fit-out that has not previously been separated from generally building structure depreciation.

The issue is how to treat fit-out once building depreciation is removed on these buildings from the 2011/12 income year.

“Under the proposed transitional rule, only a one-off adjustment would be allowed, creating a fit-out depreciation pool of 15 per cent of the building’s adjusted tax book value, depreciated at 2 percent straight line.”

Property Council will be making a detailed submission on the proposed new rules.

ENDS

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