Group to fight depreciation change

A slew of listed-company announcements about the bottom-line financial impact of the Government's axing of tax depreciation on commercial buildings has hardened the Property Council's pledge to fight the Budget move.

Fletcher Building was the latest company to advise the market on Thursday that it would incur an unusual tax expense – of $30 million – in its next year-end financial results.

This was because of the Budget's elimination of building tax depreciation and a reduction in the corporate tax rate from 30 per cent to 28 per cent, effective from July 1.

The Port of Tauranga was the first to signal the effect of the building depreciation tax changes, last week reporting a one-off, non-cash adjustment to income tax payable of about $11m for its full year.

The Property Council, which had flagged the likely tax hit last month, said business agitation against the removal of commercial building depreciation would continue.

Finance Minister Bill English was making a "scrupulous" effort not to debate the Government's building depreciation tax impost on business, council chief executive Connal Townshend said.

But the 520-corporate member council, which represents commercial property owners, developers and the property industry, said worse could come.

A "more serious issue is the prospect that `fit-outs' may be included in the new tax rules", Mr Townshend said.

Fit-out items include air conditioners, partitions, wall panels, and counters and can be worth millions of dollars.

Under existing rules, now under Government review, they can be depreciated on building owners' tax returns along with buildings.

Mr Townsend said by applying new residential property tax rules to fit-outs, the Government was clearly hoping for a big monetary "windfall".

"They want to pretend the residential leasing [rent] model applies in the commercial world.

"What that will mean is almost anything in a building will be deemed to be the building, therefore the same depreciation rules will apply – ie, no depreciation," Mr Townsend said.

"Think of partitions mounted by a tenant, fitted partitions and doors attached to the ceiling and the floor ... maybe carpet ... Treasury is hoping, and the minister is hoping, they will be declared to be part of the building and non-depreciable."

The council would continue to "agitate" over the whole depreciation issue, and was seeking a meeting with Prime Minister John Key, he said.

The business sector needed to ask what was going on when a government promoting a lift in New Zealand's productivity and closing the economic gap with Australia introduced what was nothing more than another tax on business.

"The slight reduction of two percentage points in the [business] tax rate is nothing compared to the total impost.

"You might well say the Budget imposed an additional 5 per cent tax on business less a 2 per cent break, which results in a net increase in business tax of 3 per cent."

The council, with the assistance of member KPMG, is working to quantify the monetary cost of the depreciation removal on the sector.

A spokesman for Mr English said the Government believed it had struck the right balance with the tax changes.

"The overall aim ... was to tilt growth towards the productive parts of the economy and to discourage excessive consumption, borrowing and property speculation that has left the economy out of balance in recent years."

Any further discussion on the depreciation measure should be held with Inland Revenue, he said.

- © Fairfax NZ News