Elevate CA Blog

 

A:  If you’re negotiating to lease commercial premises for your business, you are now subject to an as-yet-unwritten change in tax legislation.  Read on.

Times are tough for many a commercial landlord.  Many buildings are less than 100% occupied with prospective tenants keen to drive a tough bargain before signing a lease.  Often this includes a lease inducement payment – paid by the landlord to the tenant on signing.

As it stands, commercial landlords can generally claim a tax deduction for these payments while the tenant pays no tax on the payment.  This does create an incentive for prospective tenants to push this line when negotiating to lease a building.

 

But on 26 July, the IRD released a tax policy consultation paper around cash payments made by commercial landlords to tenants.  The Government clearly plans to tax these lease inducement payments in the hands of tenants.

 

Fair enough.  Of course the Government is quite entitled to do what it needs to do to protect the revenue base.  On the one hand John Key has boldly proposed a return to surplus by the 2014 / 2015 fiscal year – but on the other hand he has ruled out tax rate increases.  So closing asymmetrical tax planning possibilities like this one is an obvious area of focus.

But this amendment is somewhat unusual.  The Revenue Minister Peter Dunne signalled that any legislation changes would be retrospective, with effect from 26 July 2012.  We have no idea of the wording of these proposed amendments as they have not yet been drafted.  They will be included in some future tax bill that could be a year or more away.  But we do know that once passed, these changes will apply to commercial lease arrangements being entered into right now.

 

Q: When can tax be a positive thing? 

A: When it encourages behaviour that makes the world a better place for us all.  In my humble opinion, that is.

Tobacco excise falls into this category – it provides a disincentive to smoking, surely saving many Kiwi lives every year.

Next question. 

Q: When is a tax particularly bad? 

A: When it actively discourages behaviour that could make the world a better place for us all.

The Road User Charges (RUC) tax regime on diesel cars falls squarely into this category.  Once again, in my humble opinion.

 

Visit Europe or the UK and rent a car, and the chances are it’ll be a super-economical diesel that goes like crazy while sipping less than 5 litres per 100km.  There’s plenty of fun to be had zipping around France or Italy in a Fiat Punto, Citroen C4 or BMW 116 diesel with a six speed manual and a throaty exhaust note.

 

But all that frugal motoring fun does give rise to one more question.

Q: Why have Kiwis not embraced this super-economical common rail diesel technology in small passenger cars?  When we buy a small car, why do we tend to choose a petrol model that burns maybe 8 litres per 100km rather than the equivalently powered turbo diesel that might consume less than 5 litres over the same distance?

A:  Owners of diesel powered cars pay RUC by the km at the Post Office counter – and the cost is the same regardless of the efficiency of the vehicle.  At today’s pump prices, a diesel hot hatch using 5 litres per 100km will cost you just $75 to drive 1,000km. But add the RUC and the cost increases to $123.  The RUC tax is the same regardless of whether you’re driving a 3,500kg truck or a Suzuki Swift DDiS, effectively counteracting the benefits of all that fantastic diesel technology that the rest of the world enjoys.  So almost no-one in New Zealand buys small diesel cars.

New Zealand must export a lot of butter, wool and logs to buy a barrel of oil.  So why do we have a tax system that actively encourages us to ignore the advances in diesel technology over the last decade which would allow us to collectively burn less imported fuel?

 

This is an easy fix, Mr Joyce.  Petrol powered cars pay excise tax at the pump so drivers of economical cars are rewarded by paying less excise tax.  Apply the same logic and charge RUC at the diesel pump rather than at the Post Office counter, so purchasers of super-economical diesel cars can genuinely enjoy the financial rewards of this technology. Hey presto, more Kiwis will buy cars of this ilk saving the country a significant amount of foreign exchange each year.  Over the years our nationwide vehicle fleet will become more economical as Kiwis will no longer be disincentivised to choose a more economical model when replacing their existing cars.  

 

Look beyond the three year electoral term, Mr Joyce.  Yes there will be a one-off cost in changing the system, but over the longer term this is a no-brainer.

 

A $100 credit on your next Elevate CA accounting invoice for the first person to correctly answer this question!

 

 

 

 

 

 

 

 

 

 

A big Congratulations to Gemma and her husband John!  Gemma and John are expecting a baby boy on 6 October – and they have already named him Charlie.

Gemma will be on maternity leave from 14 September.  And the good news is she’ll be returning on 1 April 2013.

So if you’d like to drop Gemma a quick email to say congratulations, time is running out.  Do it now!  And if you have any loose ends that you think only Gemma can deal with, please don’t leave them until the last week!

While Gemma is away, you can contact any of the team.  We’ll all be up to speed with where Gemma has left off – and we’ll do our very best to be as efficient and cheerful as she has been in her absence.

All the very best, Gemma and John!