Unintended consequences of Budget move on depreciation

I said in an earlier article that the Budget-announced changes to depreciation were nuts …

Kiwi Income first to reverse IAS12 tax liability – unitholder funds up $214 million

Kiwi Income Property Trust is the first New Zealand listed property entity to reverse the deferred tax liability that sent so many entities spiralling to huge paper losses.

The reversal comes about through an amendment by the International Accounting Standards Board to IAS12 – income taxes.

The unintended consequence of large writedowns under IAS12 arose out of the Government’s decision in its 2010 Budget to strike out depreciation allowances on building structures (or building shells). As a result of that change, building owners such as Kiwi Income were required to provide for a deferred tax liability which wouldn’t crystallise even if their properties were sold.

For Kiwi Income, the amendment will have the effect of reversing the one-off deferred tax liability of $143.9 million (with a corresponding decrease in deferred tax expense) recognised in the trust’s financial statements for the September 2010 half-year which arose as a result of the removal of the depreciation deductions.

In addition, previously recognised deferred tax liabilities in respect of unrealised revaluation gains & deductible capitalised costs of $69.9 million (as at 30 September 2010) will also be reversed. The net effect of these entries will be an increase in unitholders’ funds of about $214 million. …

Read on at Bob Dey Property Report

After the Budget is over

Olly Newland’s Column, June 2010

2010 Budget Day has come and gone and the world has not come to an end.

Finance minister Bill English spelt out how he was going to deal to ‘property speculators’ and frankly I found it hard to suppress a yawn. I must confess that I was somewhat irritated to hear him snarling about ‘speculators’.

Didn’t we leave that all behind in the 1970s when the Kirk/Rowling Labour Government clamped down on ‘speculators’ with punitive taxes … and pushed up prices by over 50% as a consequence?

The removal of depreciation on both residential and commercial property while reducing personal and company tax means a re-shuffling of the deck chairs and very little else. Any professional who has passed Accountancy Stage One will find another means to reduce tax legally — of that I am sure.

So what’s all the gnashing of teeth all about? Be content if you have to pay tax and GST, I say. It means that you are making a profit!

For years I have taught that investors should be in the market to make profits, not losses. Too often I have had people come to me seeking advice who have bought rubbish properties just to create a loss. (It beggars belief that anyone can think in this manner but there you have it. They believe what they’re told by the get-rich quick spruikers.)

I used to cringe when I read or saw adverts that said ‘Let the tax man pay off your property.’ How dumb is that? Just asking for trouble.

Of course there will be consequences. Bill (call me ‘Slasher’) English says Treasury has admitted that rents may rise by ‘one or two percent’ as a result of the new rules. Well I’ve got news for Bill and all the Noddies in Treasury: Rents will rise all right — but more like 15%-20% over the next two to three years would be closer to the mark in my estimation.

Have they forgotten the effects of the GST increases on costs? And what about the Carbon ETS due to hit all our pockets in a month or two? Rates, fuel, electricity, insurance, timber, concrete, steel, you name it — ALL will be going UP in price … and adding fuel to inflation.

The government already admits that these extra costs will result in a 6% inflation factor. It goes without saying that if they admit that much you can be sure it will be higher.

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