The Government has responded to criticism levelled at the proposed
changes to the tax treatment of lease inducement payments. The tax
changes to lease inducements announced in July had been a surprise
as they arrived without consultation and had not appeared on any
announced work programs.
Late last week, responding to some of the concerns raised, Revenue
Minister Peter Dunne released details of changes to the original
proposals, which were originally to apply to lease inducement
payments relating to leases entered into on or after 26 July
2012. The changes will now apply to leases entered into on or
after 1 April 2013.
Lease inducement payments are lump sum premiums paid to tenants by
landlords to induce tenants to lease the landlord's property.
New Zealand case law treats lease inducement payments as deductible
payments for landlords but capital, and non-taxable receipts for
the tenant. Under the announced changes, lease inducement
payments made in relation to leases entered into on or after 1 April 2013
will be taxable income to the
The income would be spread over the term of the lease, as
previously announced. Landlords who pay lease inducement
payments are generally entitled to a deduction for the
payment, but from 1 April 2013 will also have to spread the
deduction over the lease term
welcome further announcement was in relation to lease surrender
payments. Lease surrender payments occur when tenants pay the
landlord a lump sum amount to exit a long term lease. In most cases
lease surrender payments have been non-deductible to the exiting
tenant, but taxable to the landlord receiving the payment.
However, under the announced changes, any lease surrender payments
made on or after 1 April 2013 will be deductible to the payer and
taxable to the recipient.
With effect from 1 April 2013, landlords and tenants should
therefore have symmetrical tax treatment for virtually all receipts
you are contemplating entering or exiting any lease arrangements
over the next year we strongly recommend you obtain advice from
your usual Staples Rodway contact before finalising any